Operational Gaze:
How to Run Payroll in Oregon?

August 8th 2024

It is a necessity for employers in Oregon to establish practices to manage payroll effectively. Employers must ensure that employees receive proper compensation while adhering to the state’s laws. In this article, we’ll provide a step-by-step guide tailored to assist Oregon businesses in handling payroll. Running payroll isn’t just about paying employees; it involves caring for your employees and staying up-to-date with the continually changing payroll regulations, which can pose particular challenges for new companies.

Our guide is designed to provide guidance for streamlining your payroll procedures. You will discover valuable insights to guarantee the smooth operation of your payroll and full compliance with the essential regulations, regardless of your level of experience.

This Article Covers

Laws That Affect Payroll Procedures in Oregon
Worker Classifications in Oregon
Payroll Forms and Relevant Bodies in Oregon
Applicable Taxes in Oregon
Key Pay Elements That Impact Payroll in Oregon
Step-by-Step Guide to Payroll in Oregon

Laws That Affect Payroll Procedures in Oregon

In Oregon, there are specific employment laws that impact various aspects of the workplace. These laws include wage regulations, labor conditions, and employee leave policies. 

Oregon Laws

  • Oregon Administrative Code: The Employment Department in the Oregon Administrative Code includes various aspects of Oregon labor laws, including wage regulations, sick leave, and workers’ compensation.
  • Overtime: In Oregon, overtime pay is determined based on daily and weekly hours worked. Overtime rates are typically 1.5 times the regular hourly wage and are applicable when an employee works more than 40 hours in a workweek or 10 hours in a workday.
  • Paid Breaks or Lunch Period: Oregon labor laws require employers to provide rest periods and meal breaks to employees. Employees are entitled to a paid rest period of at least 10 minutes for every 4 hours worked and an unpaid meal break of at least 30 minutes for shifts lasting six hours or more.
  • Unemployment, Disability, and Workers’ Compensation: Oregon mandates that employers participate in the state’s unemployment insurance program. Disability insurance is also required, and the state provides a workers’ compensation system to cover job-related injuries and illnesses.
  • Minimum Wage: Employers in Oregon must adhere to the state’s minimum wage rates. The standard hourly wage is $14.20, while in the Portland Metro area, it is $15.45, and in nonurban counties, it stands at $13.20.
  • Paid Time Off and Leaves: Oregon law requires employers to offer paid sick leave to their employees. The amount of paid sick leave provided is determined by the size of the employer and other factors. Additionally, Oregon has family leave laws that grant eligible employees the right to take unpaid leave for specific family-related reasons.
  • Payment Records: Employers in Oregon are obligated to maintain accurate and detailed payroll records. These records must include information about wages, hours worked, deductions, and other relevant employment details. These records should be accessible to employees and the Oregon Bureau of Labor and Industries upon request.
  • Final Pay: In Oregon, when an employee is let go or leaves by mutual agreement, the final paycheck should be paid by the next business day. If an employee quits, the timing depends on notice: it’s over 48 hours’ notice, payment will be made on the last day of work. If it’s under 48 hours’ notice, payment will be made within five business days or on the next regular payday, whichever is sooner.

Federal Laws

  • Fair Labor Standards Act (FLSA): The FLSA is an important federal law that establishes rules for hourly pay rates, overtime, employee classification, child labor regulations, and guidelines for accurately recording work hours.
  • Family and Medical Leave Act (FMLA): The FMLA is another significant federal law that governs employee time off. It allows eligible employees to take up to 12 weeks of unpaid leave for reasons like childbirth, adoption, or caring for a seriously ill family member.
  • Federal Insurance Contributions Act (FICA) Tax: The FICA Tax is a federal payroll tax in the United States. Both employees and employers contribute to it, and its purpose is to provide support for Social Security and Medicare, which benefit retirees, people with disabilities, and the dependents of deceased workers.

HR Laws

  • New Hire Reporting: Oregon law requires employers to inform the appropriate department within seven days of hiring, recalling, or rehiring a new employee. This notification must include important details such as the full name, home address, social security number, and employment start date of the newly hired, recalled, or rehired individual. Employers must also provide their own identifying information, including their name, address, and state and federal identification numbers.
  • Posting Requirements: The Oregon Bureau of Labor and Industries, mandates that all businesses operating within the state and employing workers must comply with Posting Requirements. These requirements entail displaying various labor law posters in the workplace. These posters cover crucial topics, including minimum wage regulations, health and safety guidelines, and other essential labor laws. Adhering to these posting requirements is vital to ensure that employees are informed about their rights and responsibilities in the workplace.

Worker Classifications in Oregon

Employees and Independent Contractors

In Oregon, distinguishing between employees and independent contractors is crucial due to its impact on rights, obligations, and tax responsibilities. Employees work under an employer’s direction, are entitled to benefits and have taxes withheld, while independent contractors have more autonomy, manage their taxes, and do not receive employment benefits. Proper worker classification is essential to adhere to labor and tax laws, as misclassification can lead to legal and financial consequences for employers. Guidelines from relevant authorities can help in making accurate classifications, and seeking professional advice is advisable for complex cases.

To learn more about the rights of salaried and hourly employees, you can read our guides on your rights as a salaried employee in Oregon, and your rights as an hourly employee in Oregon.

The Common-law/ABC test

Oregon utilizes a modified common-law/ABC test to ascertain the classification of workers as independent contractors. An independent contractor is defined as an individual offering services for compensation, who, during the provision of these services, must satisfy the following criteria:

Operates without direct supervision or control over the methods and manner of providing services, with the exception of the employer’s right to specify desired results; and typically manages a self-established business, which can be demonstrated by fulfilling at least three of the subsequent conditions:

  • Maintains a distinct business location separated from the employer’s premises or designates a part of their own residence primarily for business purposes.
  • Assumes business-related risks, as evidenced by factors like entering into fixed-price contracts, rectifying subpar work, providing service warranties, negotiating indemnification agreements, or procuring liability insurance.
  • Offers services to two or more distinct clients within a 12-month period or actively engages in business promotion, solicitation, or marketing endeavors aimed at securing new contracts for similar services.
  • Makes significant investments in the business, which may involve procuring essential tools or equipment, leasing facilities for service provision, or obtaining licenses, certifications, or specialized training necessary for delivering services.
  • Holds the authority to hire and terminate other individuals to provide or assist in service delivery.

Payroll Forms and Relevant Bodies in Oregon

To handle payroll  effectively in Oregon, employers must comply with several state and federal rules. This often includes filling out necessary payroll forms. Here, we’ll look at the important forms and the relevant authorities in Oregon that employers should know to stay compliant and manage payroll responsibilities well.

Oregon Payroll Forms

  • Form OR-W-4: This form is used by employees to specify their state income tax withholding allowances. Employers use the information provided on this form to calculate the correct amount of state income tax to withhold from employees’ paychecks.
  • Form OQ: Employers use this form to report and remit Oregon withholding tax, transit taxes, statewide transit taxes, and tri-county metropolitan district taxes. It is submitted on a quarterly basis to report state income tax withholding and other payroll-related taxes.
  • Form WR: Employers use this form to reconcile the total state income tax withheld from employees’ paychecks over the course of the year. This form is filed annually and is used to ensure that the total withholding matches the total reported for the year.

Federal Payroll Forms

  • W-4 Form: Helps employers in determining the accurate tax withholding for their workforce.
  • W-2 Form: Displays the total annual earnings for each employee.
  • W-3 Form: Provides a summary of the collective compensation and tax information for all employees.
  • Form 940: Submits unemployment tax information to the IRS.
  • Form 941: Reports income and FICA tax withholdings from paychecks on a quarterly schedule.
  • Form 944: Reports annual income and FICA tax withholdings from paychecks.
  • 1099 Forms: Used to equip contractors with the essential data needed to calculate their IRS tax obligations based on their earnings.
  • Form I-9: Utilized to authenticate the identity and work eligibility of individuals employed in the United States.

Federal and Oregon Payroll/ Tax Bodies

  • Internal Revenue Service (IRS): The IRS is the federal agency tasked with collecting and enforcing federal taxes, encompassing income taxes, Social Security taxes, and Medicare taxes. Employers are required to report and submit federal payroll taxes to the IRS.
  • Social Security Administration (SSA): The SSA manages the Social Security program, including the collection and distribution of Social Security taxes. Employers are responsible for deducting and remitting Social Security taxes on behalf of their employees.
  • U.S. Department of Labor (DOL): The DOL enforces federal labor laws and regulations, such as the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). Employers must adhere to these laws concerning minimum wage, overtime, and leave policies.
  • Oregon Department of Revenue: This state agency is in charge of the collection and enforcement of Oregon state income taxes. Employers must report and forward state income taxes to the Oregon Department of Revenue.
  • Oregon Employment Department: The Oregon Employment Department oversees unemployment insurance and worker’s compensation programs in Oregon. Employers are obligated to contribute to the unemployment insurance program and provide worker’s compensation insurance for their employees.
  • Bureau of Labor and Industries (BOLI): BOLI enforces labor laws within Oregon, including minimum wage, overtime, and workplace rights. Employers must comply with these state labor laws alongside federal regulations.
  • Oregon Workers’ Compensation Division: The WCD administers the worker’s compensation program in Oregon, ensuring that employees injured on the job receive the appropriate benefits.

Applicable Taxes in Oregon

Employer Contributions

Oregon Unemployment Insurance (OUI): Employers in the state of Oregon must make contributions to the Oregon Unemployment Insurance program, aimed at providing support to employees who are unemployed and actively seeking employment. 

The specific contribution rates for employers can vary and are determined by an experience-rating system, taking into consideration the employer’s history of layoffs and claims made by former employees. The standard contribution rate falls within a range set by the state but may change annually. Employers should check with the Oregon Employment Department for the most up-to-date information on OUI contribution rates.

Withheld from Employee’s Wages

  • Oregon Income Taxes: Employees in Oregon are subject to state income tax, which is calculated based on a progressive rate schedule ranging from 4.75% to 9.9%, depending on an individual’s income. The tax is calculated using a modified federal adjusted gross income as the basis. Some Oregon cities may also impose local income taxes on both residents and non-residents working within their boundaries, with rates varying by city. Employees should consult the Oregon Department of Revenue or local tax authorities for specific details on income tax rates and any applicable local taxes.
  • Workers’ Compensation in Oregon: Employers in Oregon are obligated to provide workers’ compensation insurance coverage for their employees. The Oregon Workers’ Compensation Division oversees this program, which offers medical and wage replacement benefits to employees injured on the job. The cost of workers’ compensation insurance in Oregon can fluctuate based on industry, the number of employees, and the employer’s claims history. Rates are subject to change and should be obtained from insurance providers or the Workers’ Compensation Division.
  • Social Security (FICA) Withholding: Social Security withholding, also known as the Federal Insurance Contributions Act (FICA) tax, entails deducting 6.2% from an employee’s earnings for Social Security, but only on income up to a specific annual limit. There is an additional deduction for Medicare, specifically the Hospital Insurance portion, which amounts to 1.45% on all employee earnings. The income threshold for Social Security withholding may change annually, and employees should verify the current limits with the Social Security Administration.

Additional Relevant Subtractions to Withhold on Behalf of Employees

Oregon’s employment laws and regulations dictate the allowable deductions that employers can make from employees’ paychecks. In addition to the taxes mentioned earlier, here are some examples of legally permitted deductions in Oregon:

  • Personal Absence: Employers can deduct amounts when employees are absent for personal reasons for one or more full days, excluding cases related to sickness or disability.
  • Sickness or Disability: Deductions are allowed if employees are absent due to sickness or disability for one or more full days, provided there is a legitimate plan or policy in place to compensate for the loss of pay due to illness.
  • Jury and Witness Fees: Deductions can be made to account for jury fees, witness fees, or temporary military duty pay received by employees.
  • Safety Violations: Employers are allowed to impose penalties in good faith for serious safety rule violations, and these penalties may be deducted from employees’ pay.
  • Disciplinary Suspensions: Deductions are permitted for unpaid suspensions lasting one or more full days, serving as a disciplinary measure for workplace rule violations, as long as they are imposed in good faith.
  • Family and Medical Leave: Employers can make deductions for unpaid leave taken under the Oregon Family Leave Act, which provides job-protected leave for specific family and medical reasons.

It is crucial to note that employment laws and tax regulations can change over time. Therefore, both employers and employees should stay informed about the latest legal requirements and rates by consulting the relevant state agencies and tax authorities.

Key Pay Elements That Impact Payroll in Oregon

Minimum Wage

Oregon’s minimum wage is variable and contingent on the specific region within the state, with three distinct rate categories:

  1. Standard Minimum Wage: The standard minimum wage in Oregon is currently $14.20 per hour, which is higher than the federal minimum wage of $7.25 per hour. 
  2. Portland Metro Area: Within the Portland metro area, encompassing Multnomah, Washington, and Clackamas counties, the minimum wage is set at a higher rate than the standard minimum wage as of July 1, 2023, standing at $15.45 per hour. 
  3. Non Urban Counties: Non urban counties, encompassing most other areas of the state, maintain a lower minimum wage than the standard minimum wage. In 2024, this stands at from $13.20 per hour.

Overtime

Oregon’s overtime regulations are founded upon both state and federal statutes. Within Oregon, employees are eligible for overtime pay, set at 1.5 times their regular hourly wage, for any hours worked beyond 40 in a workweek, in alignment with the Fair Labor Standards Act (FLSA).

Workers’ Compensation Insurance

Workers’ compensation insurance serves to protect employees who suffer work-related injuries or illnesses. It extends disability benefits to employees incapacitated due to job-related factors, offering essential financial support during their recovery. This program covers a broad spectrum of expenses, encompassing medical costs, rehabilitation, wage loss benefits, and vocational rehabilitation. Pennsylvania law mandates that almost all employers, regardless of their workforce size, must provide workers’ compensation coverage. Exemptions may apply to specific categories of workers, such as agricultural laborers, domestic employees, and casual workers. This comprehensive coverage ensures financial protection for employees facing various work-related injuries and disabilities.

Pay Stub Laws

Oregon specifies requirements for pay stubs, alternatively termed wage statements. Employers in Oregon must supply employees with comprehensive wage statements, including information concerning hours worked, pay rates, gross and net wages, deductions, and the pay period, whether in written or electronic format.

Wage Garnishment

Wage garnishment statutes in Oregon adhere to both federal and state mandates:

  • Federal law, as per the Consumer Credit Protection Act (CCPA), restricts the maximum amount that can be garnished from an individual’s earnings, generally capping it at 25% of disposable income.
  • Oregon law aligns with federal wage garnishment regulations, shielding employees from dismissal due to a single wage garnishment, though this safeguard does not extend to multiple garnishments.
  • Prior to garnishment, creditors must provide notification to the debtor, who possesses the right to challenge the debt or request a hearing.

Final Paycheck

If you leave your job with less than 48 hours’ notice (excluding weekends and holidays), your last paycheck and any owed wages must be paid within five business days or on the next regular payday, whichever comes first. If you provide at least 48 hours’ notice before resigning, your final paycheck should be given to you on your last day of work, unless that day falls on a weekend or a holiday. In that case, you’ll receive your paycheck on the following business day.

If you are terminated or fired, your final paycheck is required to be provided by the end of the next business day. This final payment should incorporate the employee’s regular wages, any accrued but unused vacation pay, and any other earned and unpaid compensation. It is advisable to stay informed about the dynamic nature of labor laws, and consulting with the Oregon Bureau of Labor and Industries or legal experts for the most current information and compliance with prevailing regulations is prudent.

Step-by-Step Guide to Payroll in Oregon

  • Register Your Business as an Employer with the IRS: Begin by acquiring your Employer Identification Number (EIN) and setting up an account within the Electronic Federal Tax Payment System (EFTPS). For new businesses, obtaining an EIN is a prerequisite before embarking on the creation of a custom payroll process flowchart. The EIN, comprising nine unique digits, functions as an exclusive identifier employed by the Internal Revenue Service (IRS) to monitor a company’s tax-related activities. You can conveniently apply for an EIN online using Form SS-4.
  • Registering with the State of Oregon: If your business operates within the state of Oregon, it’s imperative to register it with state authorities. New businesses can complete the registration process on the official website of the Oregon Secretary of State. Furthermore, any business that remunerates employees in Oregon must also register with the Oregon Department of Revenue. 1 `
  • Accurate Employee Classification: Precisely categorize your workforce as either employees or independent contractors. Proper classification is critical as it has a direct impact on tax obligations and wage reporting. Misclassification can lead to legal repercussions and financial penalties. Consider using the Common Law Test as a reliable guide.
  • Gathering Employee Payroll Documentation: When bringing new employees onboard in Oregon, ensure the collection of specific forms during the onboarding process. Employees must complete the I-9 verification and Oregon’s equivalent of the W-4, known as the Employee’s Withholding Tax Exemption Certificate (Form OR-W-4).
  • Time and Attendance Tracking: Implement a system for tracking employee time and attendance. This system should encompass aspects such as defining workweeks, calculating overtime, managing break times, and handling leave entitlements. Using time and attendance software can help you enhance precision and efficiency.
  • Establishing a Consistent Payroll Schedule: Set up regular pay periods and ensure that employee paychecks are distributed within these defined timeframes, adhering to state regulations and compliance standards.
  • Compliance with Federal Payroll Tax Obligations: Adhere to the IRS guidelines for federal payroll taxes, including unemployment tax. Make timely deposits of employment taxes according to your assigned schedule, which may be monthly or semiweekly, as determined by the IRS.
  • Effective Record Maintenance and Archiving: Maintain comprehensive records for all employees, including former ones, for an extended period, in accordance with federal regulations.
  • Completion of Annual Payroll Reports: Annually, compile essential payroll reports, including W-2 Forms and 1099 Forms. These forms should be furnished to employees no later than January 31 of the following year.

Final Thoughts

Managing payroll in Oregon can be challenging. Employees must ensure they adhere to the payroll regulations in Oregon. To simplify the process of managing payroll, consider exploring our list of the top 6 applications tailored to streamline payroll responsibilities in the United States. If you’ve already established a payroll system, we’ve provided ten tips to enhance your payroll procedure within the United States.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.