Hiring and payroll taxes for an Oregon therapy practice

This lesson is for the Oregon clinician whose practice is about to pay someone besides the owner: a first associate, a billing assistant, a part-time front desk. It covers the employee-or-contractor question, the paperwork due before the first paycheck, the federal and Oregon payroll filings, the 2026 Oregon figures I could confirm on official pages, and two coverages small practices tend to miss. It assumes you already have a federal EIN and an Oregon BIN; if you do not, Step 4 of the LLC course walks through both.

Employee or contractor, decided twice

The label in your agreement does not settle this. The IRS applies a common-law test that weighs facts in three groups: behavioral control, financial control, and the type of relationship. Its own page says there is no "magic" number of factors, so you look at how the work actually runs. That page is the IRS independent contractor or employee guide.

Oregon does not simply borrow the federal answer. The BOLI classification page explains that ORS 670.600 defines "independent contractor" for the Department of Revenue and the Employment Department, while BOLI itself uses an economic realities test for wage and hour law and a right-to-control test for civil rights law. BOLI's page does not reproduce the statute in full; read ORS 670.600 itself before relying on any summary of it, including mine.

In practice, someone who works your schedule, uses your systems, and sees clients you assign looks like an employee under every one of these tests. If you want to treat an associate as a contractor, I would have an attorney look at the arrangement before the first payment, not after a state audit letter.

Before the first paycheck

1. Form W-4. The employee fills it out so you can withhold the right amount of federal income tax. The IRS W-4 page has the current form.
2. Form I-9. Every U.S. employer completes one for every person hired, per the USCIS I-9 page. You keep it for three years after the hire date or one year after employment ends, whichever is later. The employer handbook (M-274) sets a short deadline, measured in business days from the start date, for finishing the employer section; I could not pull that exact wording from the handbook page in one fetch, so confirm the number there.
3. Oregon new hire report. Oregon requires employers to report new hires and rehires to the Oregon Child Support Program within 20 days of the hire date, per the Oregon DOJ employer page.

The federal payroll cycle

Each quarter you file Form 941 to report the federal income tax, Social Security, and Medicare withheld from paychecks, plus your matching share of Social Security and Medicare. Once a year you file Form 940 for federal unemployment tax (FUTA). FUTA is an employer cost; nothing is withheld from the employee for it. At year end each employee gets a W-2. Deposit schedules for the withheld amounts are their own subject and depend on how much you withhold; the 941 page is the place to start.

Oregon's combined report

Oregon folds several programs into one quarterly filing, the Combined Payroll Tax Report (Form OQ). The 2026 combined payroll booklet shows what that one report covers: state income tax withholding and the statewide transit tax (Department of Revenue), unemployment insurance tax and Paid Leave Oregon contributions (Employment Department), and the Workers' Benefit Fund assessment (Department of Consumer and Business Services). Filing runs through the Employment Department's Frances Online system. Five programs, three agencies, one report.

The 2026 Oregon numbers I could confirm

Every figure below is from an official page as of September 2026, with the page linked. Anything not in this table I did not verify.

The Paid Leave line deserves a second look. If your practice averages fewer than 25 employees, the state does not require you to pay the employer share, but you still withhold the employee share from each paycheck and send it in. A practice with two or three staff is in that position, and it is the part people get wrong in the first quarter.

Two coverages small practices skip by mistake

Workers' compensation. Oregon requires almost every employer to carry it. The Workers' Compensation Division overview defines a worker as anyone paid to work who is not an independent contractor, and notes roughly 30 statutory exemptions in ORS 656.027. For a practice with one employee, the safe assumption is that you need a policy.

Protected sick time. Under the BOLI sick time rules, employees earn at least one hour of protected sick time for every 30 hours worked, up to 40 hours a year. It must be paid if you have 10 or more employees, or 6 or more with a location in Portland. Below those counts it is unpaid, but still protected: the hours accrue and the job is safe when they are used.

If you use contractors instead

Collect a Form W-9 before the first payment; it gives you the contractor's taxpayer identification number for the information return you may owe later. That return is the 1099-NEC, and its threshold changed. The IRS instructions for Forms 1099-MISC and 1099-NEC state that for tax years beginning after 2025 the reporting threshold rose to $2,000, with inflation adjustments possible from 2027. Payments made during 2025, reported in early 2026, still used the old $600 line. So for 2026 work, a contractor you pay under $2,000 across the year does not get a 1099-NEC; one you pay $2,000 or more does.

Remember that Oregon's contractor definition is separate from the federal one. Clearing the IRS test does not, by itself, clear ORS 670.600.

Payroll services

Nothing above requires a payroll service, and no agency recommends one. I mention it because a service will calculate withholding, file the 941, the 940, and the Form OQ, and handle the new hire report, for a monthly fee. For a solo owner who would rather see clients than reconcile a quarterly report, that trade is worth pricing. Whatever you choose, the filings stay in your name and the penalties for missing them land on you.

None of this is legal, tax, or accounting advice. I wrote down what the agencies' own pages say and linked each one; a CPA or an attorney gets the final word on how any of it applies to your practice.

Further reading

• IRS: Independent contractor (self-employed) or employee?. The three-category test in the IRS's own words, worth reading before you sign an associate agreement.
• Oregon Combined Payroll Tax Report booklet, 2026 (PDF). The instructions for Form OQ and a map of which agency handles which program.
• Oregon Employment Department: current UI tax rate. The page to recheck each January for the wage base and rate schedule.
• Paid Leave Oregon: what employers need to do. The contribution split and the under-25 rule, from the program itself.
• BOLI: Oregon sick time. Accrual, the paid-or-unpaid line, and how Portland changes it.
• OnPay, "Payroll Tax in Oregon: 2026 Employer Guide". A payroll provider's plain-English tour of the combined system; useful for orientation, not for citing numbers.
• Littler, "Oregon DOJ Ramps up Child Support Reporting Requirements for Payments to Independent Contractors". A law firm's note that Oregon's new hire reporting can reach some contractor payments, which is easy to miss in a small practice.