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September 9, 2008

Oregon Supreme Court Rules Directors’ Fees Not Subject to State Unemployment Tax

The Oregon Supreme Court recently ruled in Necanicum Investment Co. v. Employment Department, SC S055231, July 24, 2008, that directors’ fees paid to a company’s board of directors are not wages for unemployment tax purposes, since the “directors are not ‘employed by’ the corporation in the same sense as other persons who perform ‘service for an employer * * * for remuneration.’” The court noted that under Oregon law, shareholders elect the directors and “there is no employer-employee relationship between a corporation and its directors when the directors are performing the duties imposed on them by statute.” Since no employment relationship exists, payments to directors could not be considered wages for this purpose.

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