Transcript Independent Contractor - West Virginia University

West Virginia Association
for
Higher Education Financial Officers
Independent Contractor
Vs.
Employee Status
Melissa D. Henard, MBA, CICA
Interim Tax Manager
WVU Tax Services
Who is an Independent Contractor?
Individuals and occupations performed by
persons engaged in the pursuit of an independent
trade, business or profession in which services are
offered to the general public on a fee basis.
Determining Independent Contractor Status
• IRS 20 factors found in Revenue Ruling 87-41
• Common Law Rules
• WV Unemployment Compensation Law
“ABC Test”
IRS Common Law Rules
• Behavioral Controls
• Financial Controls
• The Relationship of the Parties
Behavioral Controls
• Business has the right to direct or control individual
• Business provides:
a) Training
b) Instruction on when and where to work
c) Tools or equipment
• Business decides:
a) What workers to hire
b) Where to purchase supplies
c) What duties must be performed by specific individuals
d) What sequence to follow in completing the work
Financial Controls
• Does the individual have a significant
investment in the project?
• Did the individual have expenses unreimbursed
by the business?
• Does the individual make services available to
the general public?
• Does the individual have the opportunity for
profit or loss in the transactions?
• Is payment made by the hour or week?
Relationship of the Parties
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Intent of the parties
Is there a written contract?
Provision of or lack of employee benefits
Right to terminate the relationship
Permanency of the relationship
Whether the services performed are part of the
businesses regular activities
ABC Test
WV Unemployment Compensation Law
§21A-1A-15(7)
Part A
“The individual has been and will continue to be
free from control or direction over the
performance of the services, both under his or
her contract of service and in fact”
WV Unemployment Compensation Law §21A-1A-15(7)
Part B
“The service is either outside the usual course of
the business for which the service is performed or
that such service is performed outside of all the
places of business of the enterprise for which the
service is performed”
WV Unemployment Compensation Law §21A-1A-15(7)
Part C
“The individual is customarily engaged in an
independently established trade, occupation,
profession or business.”
WV Unemployment Compensation Law §21A-1A-15(7)
Additional Factors to Consider
• Nature of the services
• Skill and training required
• Does the success or continuation of the
business depend upon the performance of the
service?
Determining Status
• No single factor is determinative.
• The business is not required to exert control
but rather have the right to do so.
• The business has the right to control and
direct not only the result but also the means
to accomplish the results.
• Individuals who are subject to the control or
direction by the business with regard to the
result only are generally treated as
independent contractors.
Easy Decisions – Independent Contractor
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Corporations
Partnerships/LLC
Sole Proprietorship with a business license
Guest lecturer
Game Official
Entertainer
Attorney (in private practice)
Architect
Easy Decision - Employee
• Instructor of record for a credit class
• Performing research
• Performing a service that is in line with the
business
• Performing a service that the business has
current employees performing a similar duty
Harder Situations
• Current employees performing an unrelated
service
• Individual performing a service in line with the
business, but working from home.
Point To Remember
If an employer-employee relationship exists, it
does not matter what it is called. The individual
can be called an agent or independent contractor.
It does not matter how payments are measured
or paid, what title they are given, or if the
individual works full or part time.
What can I do to protect myself?
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Have a reasonable basis for your determination.
Be able to defend your position.
Have supporting documentation.
Relief provisions for IRS determinations that the
individual in question should have been
classified as an employee?
Implications For An Incorrect Classification
• Federal tax withholding
• State tax withholding
• Employee’s share of Social Security and
Medicare taxes (FICA)
• Employer’s share of Social Security and
Medicare taxes (FICA)
• FUTA taxes
• Unemployment Compensation taxes
• IRS fines and penalties
Workers’ Compensation Issues
• What happens if the Independent Contractor
is injured on the job?
• What happens if they file a claim against you
as the business?
WVU 48 Agreement
WVU’s Procedure for Determining Independent
Contractor versus Employee Status –
The 48 Agreement is the Independent Contractor
Determination form that WVU has created that is
completed by the individual department and
proposed independent contractor.
48 Agreement – Page 1
48 Agreement – Page 2
48 Agreement – Page 3
48 Agreement – Page 3 continued
Purchasing, Contracts & Payment Services
• Once the determination has been made that the individual is an
independent contractor, the 48 Agreement is then sent to
Purchasing, Contracts & Payment Services.
• If the dollar amount of the contract is over $25,000 then the
contract should have been opened for bids with the completion
of 48 Agreement coming after the bid was awarded.
• Currently WVU has an “Agreement for Services” standard
contract for businesses to sign when entering into an
agreement with WVU to perform services.
• WVU is currently in the process of creating an “Agreement for
Services” contract that would be for individuals.
In Closing
• Questions?
• Samples:
a) 48 Service Agreement
b) Service Contract for Corporations
Contact Information
• Melissa D. Henard, MBA, CICA
Interim Tax Manager, WVU Tax Services
Telephone: (304) 293-0467
[email protected]
• Mark W. Stewart
Associate Director
WVU Purchasing, Contracts and Payment Services
Telephone: (304) 293-8475
[email protected]