CONTRACTED SERVICES AND INDEPENDENT CONTRACTORS - SHOULD THEY REALLY BE EMPLOYEES?

Transcription

1 CONTRACTED SERVICES AND INDEPENDENT CONTRACTORS - SHOULD THEY REALLY BE EMPLOYEES? Shellie Hoffman Crow and Elvin Houston Walsh Gallegos Trevino Russo & Kyle P.C.

2 THE TRADITIONAL TEST IRS FACTORS TO DETERMINE WORKER STATUS Behavioral Control Financial Control Type of Relationship 1

3 BEHAVIORAL CONTROL Specific Instruction - where, when, how, and in what order to do the work, which equipment and tools to use to do the work Degree of Instruction - an employee specific and detailed lookslike Training Protocols and Procedures - any required training Evaluation - measuring how work is performed FINANCIAL CONTROL Significant Investment Reimbursed Expenses Opportunity for Profit or Loss Services Available to the Market Method of Payment 2

4 TYPE OF RELATIONSHIP Written Contracts Employee Benefits - contractors do not receive employee benefits Permanence of Relationship - indefinite or short defined term Services Relative to Activity of Business Characterization of Similar Relationships or past relationship with District KEY ACTIVITY OF BUSINESS Recent emphasis on fourth factor of work that is "integra l to the business of theemployer" For schools, these are positions that work exclusively with students Can include all positions that provide educational services 3

5 EDUCATIONAL POSITIONS Almost all teaching positions, including tutors and homebound teachers Positions that have often been categorized as independent contractors in the past, such as Occupational Therapists, Physical Therapists, Speech Therapists, and Orientation and Mobility Specialists 4

6 DOL GUIDANCE DEPARTMENT OF LABOR GUIDANCE Integral: The extent to which the work performed by the worker is an integral part of the employer's business - in schools, almost every position works with educating students, which is integral to the school; Profit or Loss: The worker's opportunity for profit or loss, based on managerial skill and decision-making; 5

7 DOL (CONT...) Investment: The extent of the relative investments of each - the worker should have at least some risk for a loss in the venture, but also the worker's investment should not be minor when compared to the employer's investment. Special Skills: Whether the work performed requires special skills and initiative, such as business skills, judgment, and initiative. DOL (CONT...) Duration: The permanency of the relationship weighs into the analysis - if the employment relationship is permanent or indefinite, the DOL believes it is likely the worker is an employee. Control: The degree of control exercised or retained by the employer. The worker has to control meaningful aspects of the work, pointing to a conclusion that the worker is a ctually running his own business. 6

8 EXAMPLES 7

9 JOANN Y Joann is hired by the district as a part-time or substitute teacher. The district tells Joann when to arrive, what subjects to teach, and which classes to teach. The district does not train Joann, but it could provide training if necessary. The district has the right to control Joann's behavior,even if it does not exercise that right. The district provides a regular paycheck, most of her supplies, and shared office space; RICK Y Rick is hired by the district as a n assistant basketball coach. The district does not intend to tell Rick how to coach the team, nor does the district intend on training Rick. However,the district has the right to control Rick's behavior, even if it doesn't exercise that right. Additionally, Rick is not free to coach at any other school while he coaches in this particular district. 8

10 HANK :>, The district recently hired Hank, a retired principal, on an interim basis while it searches for someone to fill the position permanently. Even though Hank was hired on an interim basis, he will still receive employee benefits a nd he is providing a ({key activity" to the district. The district has the right to control how Hank's job is done, even if it does not exercise that right. Furthermore, individuals in the position of ({principal" are typically characterized as employees. MIKE :>, The district hired Mike's Lawn Service to landscape the local schools. Mike mows the grass, trims trees and bushes, and tidies up the grounds. Occasionally he cleans up around the school and the parking lots. The district has some control over Mike's behavior related to the job, but little to no financial control. Mike owns his own business, Mike's Lawn Service, and he uses all his own equipment. He gets paid a flat fee, and he is availa ble to the market. 9

11 SUSAN Y Susa n is a licensed professional orientation a nd mobility specia list, who works seven students each week. She provides her availability a nd coordinates her schedule with the school to schedule her hourly sessions with the school district. She has a website, carries a general liability policy,and works for four other school districts. She must comply with state/federal law, as well as local policies a nd the students' IEPs. Susan continued... However,she determines her own methods during each of her sessions with the students to attempt to achieve the goals outlined in the IEPs, and in fact, many of her sessions take place off campus. She bills the school district by the hour, at her hourly rate, and does NOT cha rge the school district reimbursement for her mileage. She keeps a log of the time she spends with each student, and she provides summaries of each of her sessions to the school district. 10

12 AN IRS AUDIT WHY DOES THE IRS GET INVOLVED? Random Audit Selection for Audit Request by Third-Party Request by School District 11

13 PROCESS FOR IRS AUDIT Notice Document Review Interviews and On-Site Visit Response from IRS with Recommendation Possible Negotiation or submission from District Final Report from IRS with Determinations Responding to IRS Audit Produce a ll requested documents within deadlines provided Be prepared to expla in reasons for employee classifications and accounting issues Consider using attorney to assist with investigation 12

14 MOR E EXAM PLES LISA Lisa teaches English at the middle school and receives a W-2 as a district employee. She also loves sports and attends a ll the home games. The district recently hired her to work softba ll games as the scorekeeper and announcer. The district plans to treat Lisa as an independent contractor and issue a Form for her work at the games. 13

15 JUAN Y The district has had problems with students fighting at some of its extracurricular a ctivities. The district hires Juan, a local police officer,to work for the district when he is off duty. The district does not intend on him becoming a district employee. Y See next slide... Juan continued... If the district controls Juan, the IRS may consider Juan to be an employee. Does the district tell Juan what to do, where to be, and how to do his job? Does Juan wear his police uniform, or a t-shirt with the district1s logo? Is Juan paid directly,or through a contract with the local police department? Finally, is Juan working exclusively for the district, or does he advertise his off-duty security to the general public? If the district classifies Juan as an independent contractor,it should ensure that it does not have the right to control Juan, and can provide documentation if the IRS later requests it. 14

16 ALEJANDRO, JESSE, & VICKIE >, Rather than hire Juan, the district contacted its local police or sheriff's department and contracted directly with the department for off-duty officers to provide security. The officers wear their uniforms, they a re not subject to the district's control (other tha n being told when and where to provide security), and the district pays the department, not the workers, through a contract. FELICIA Felicia is hired by the district as a tutor. The district tells FeUcia when to arrive, what subjects to teach, which students to tutor, and what results it expects. The district does not train Felicia, but it could provide training if necessary. The district has the right to control Felicia's behavior. The district may, however, lack the right to control the financial aspect of the job. Felicia advertises her tutoring services, and she intends on tutoring other clients while she tutors for the district. 15

17 ADDITIONAL FEDERAL RESOURCES IRS website available to the public at Division of the IRS - Federal, State and Local Governments (FSLG) to ensure governmental entities comply with federal employment tax laws FSLG agents work with other groups, like TASBO, to help school districts comply with federal tax laws FSLG has many great resources online at 16

18 CONTRACTED SERVICES AND INDEPENDENT CONTRACTORS - SHOULD THEY REALLY BE EMPLOYEES? TCASE Great Ideas Convention 2017 Presented by: Shellie Hoffman Crow & Elvin Houston Attorney at Law scrow@wa Attorney at Law bsa.com ehouston@wabsa.com (512) G W ALS H {210) GA LLEG O S T R E V IN O R U S S O & K Y L E P. C. 17