Employer- Employee Relationship - PowerPoint Presentation

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Employer- Employee Relationship

Presented by Sharon Fleming, CPP2011 Spring Study GroupSlide2

Employee Vs Independent Contractor (IC)

Common law test – CONTROL is the key

Right to

control

what work will be done and how that work will be done –

Employee

Control

or direction as to the results to be accomplished but NOT as to the details by which those results are accomplished -

ContractorSlide3

Three types of CONTROL

Behavioral – Level of instructions the business gives the workerFinancial – What, How, When, Who are critical in deciding whether employee or contractor

Types of relationship

– written agreement, benefits, term, business regular operationsSlide4

Behavioral

Detailed instructions – when, where and how Training provided – periodic or ongoing EMPLOYEEExplain what is expected and time frame to complete the job without giving detailed instructions and training

CONTRACTORSlide5

Financial Control

Unreimbursed business expensesSubstantial investment in workServices available to the publicPaid by job Profit or lossSlide6

Type of Relationship

Written agreementEmployee type benefits – vacation, sick time, health, 401k, etcIs this service an important aspect of the businesses regular operationsSlide7
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Reasonable Basis Test

Court decisionIRS rulingsIRS technical advicePrivate letter ruling from IRSPast IRS audit of the employer Longstanding recognized practice in a significant segment of the employer's industry Slide9

Safe Harbor

Relief requirements – Must meet all 3 of the following:Reasonable basis – relied on court case, previous IRS audit that did not reclassify, Industry norm or relied on a business lawyer or accountantConsistency treatment is a must!

Filed required tax forms – 1099 MiscSlide10

Form 1099 MiscSlide11

Form SS-8

When in doubt complete form SS-8 and have IRS make the determinationSlide12
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Statutory Employees

Agent drivers or commission drivers (meat, baked goods, beverage, laundry or dry-cleaning) Milkman doesn’t countFull-time life insurance salespersonsHomeworkers Traveling or city salespersonsSlide16

Taxation of Statutory Employees

Social Security and Medicare taxes must be withheldER share of Social Security and Medicare taxes must be paidFUTANot subject to Federal income tax withholding Slide17

Statutory Nonemployees

Workers who qualify as employees under common law test are treated as independent contractors under the IRC for tax purposesQualified real estate agents

Direct Sellers

Most of their compensation is tied to sales not hours worked and must be performed under a written contract stating they will not be treated as employees for tax withholdingSlide18

Taxation of Statutory Nonemployees

Not subject to federal income tax withholdingNot subject to social security and Medicare tax withholding or employer match

Not subject to FUTA taxSlide19

Temporary Help Agency Employees

Hired, screened and trained by the temporary agency rather than the employerDeal with reputable and financial sound agency. If Agency fails to make tax deposits, employer becomes liable for unpaid taxesSlide20

Leased Employees

Leased Employees are paid by leasing company who is responsible for paying employees, withholding and paying of employment taxes, maintaining and administering benefits. Employees are considered to be employees of the leasing agency

Leasing agency and the company have a leasing agreement, however, if the client company has too much control over the employees, they may be considered the employer instead of the leasing companySlide21

Federal Wage & Hour Law

When making employment status determination the DOL considers the following:How much

control

the employer has over the work performed

Does the worker have a chance to make a profit or loss

Does the worker have an investment such as tools or materials or hires helpers

Does the work require special skills

Is this a permanent relationship

Is this job an integral part of the employer’s businessSlide22

ABC Test

Under the ABC test, a worker is an Independent Contractor only if:A

bsence of

control

-the worker is free from control or direction in performing the work both by agreement and reality

B

usiness is unusual and or away – the work is performed outside the usual course of the company’s business or away from any of the employers facilities and

C

ustomarily independent contractor – the worker is customarily engaged in an independent trade, occupation or business.Slide23

Penalties for misclassification

Assessments are determined based on level of intention. Intentional misclassification results in double fines.

If proper forms 1099 misc are not filed, fines are doubled

State fines imposed also.Slide24

1099 Matching Program

Red flag – employees who receive a W-2 and a 1099 in the same year from the same employer1099 from only one companyMisclassified workers complain to DOLReclassification can also mean retroactive benefits, payment of back taxes, Slide25

Immigration Reform & Control Act 1986 (IRCA)

Completion of I-9 on first day of employment or once an employee accepts offerRequest original document within 3 days of date of hireKeep I-9 on file 3 years from date of hire or 1 year from date of termination whichever is longerSlide26

Documents proving identity and work authorization

List A – Documents proving both identity and work authorizationUS PassportPermanent resident card or Alien Registration receipt card

Foreign passport with temporary I-551 stamp

Employment authorization document w/photo

Nonimmigrant alien authorized to work for a specific employer from I-94 or I-94ASlide27

I-9 Documentation continued

List B – Documents proving Identity ONLY Driver’s license or ID card issued by a state or US possession with photo and name, DOB, sex, height and other identifying informationID card issued by federal, state or local govt agency with photo

School ID with photo

Voter’s registration card

US military cardSlide28

I-9 Documentation continued

List C – Documents proving work authorization OnlyUS SS cardBirth certificate issued by Dept of StateUS citizen Id cardEmployment authorization issued by DHSSlide29
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Penalties for hiring unauthorized workers

Employers who knowingly hire or continue to employ unauthorized aliens face civil penalties ranging from $375-$16k per employee.Employers who fail to comply with the verification requirements can be fined $110 - $1,100 per employeeEmployers who engage in a pattern and practice of violating the hiring and verifying requirements face criminal penalties and jail timeSlide32

Employment verification Program

Illegal Immigration Reform & Immigrant Responsibility Act of 1996E-Verify involves verification checks of the SSA and DHS databases, using an automated system to verify the employment authorization of ALL newly hired employeesCannot be used to pre-screen applicants

Must have a completed and signed I-9

Federal contractors MUST use E-VerifySlide33

New Hire Reporting

Personal Responsibility & Work Opportunity Reconciliation Act of 1996 employers were required to comply with a federal new hire reporting requirement beginning October 1, 1997

For each newly hired employee, the employer MUST provide the following information

Employee’s name, address and SSN

Employer’s name, address and EINSlide34

New Hire Reporting cont.

Employers in multiple states may file their new hire reports with one state must designate that state to the Secretary of Health & Human ServicesMust report new hires within 20 calendar days of the date of hirePenalty for failure to report new hires range from $25 to $500Slide35

Each of the following individuals would be classified as an employee except:

a. Payroll Manager of a companyb. College professorc. City police officer

d. Attorney (sole practitioner)

C. Attorney (sole practitioner)Slide36

Form W-9 is the form submitted to the IRS to determine the employment status of an individual for federal income and employment tax purposes.

True or FalseFalse SS-8Slide37

Telemarketers working under the direction of a company are usually independent contractors. True or False

False Key word Direction Slide38

All of the following workers are statutory employees except:

a. Full-time life insurance salespersonb. Qualified real estate agentsc. Homeworkers

d. Traveling or city salespersons

B. Qualified real estate agentsSlide39

If an employer uses the E-Verify Program, a new hire does not have to enter their SSN in Section 1 of Form I-9

True or FalseFalse If an employer uses E-Verify, new hires MUST enter their SSN in Section 1 of I-9Slide40

How long must an employer retain a Form I9 for a terminated employee who worked for the employer for more than four years?

a. 1 year after terminationb. 3 years after termination c. 7 years after termination d. Does not have to keep terminated employees’ I-9 forms.

a. 1 year after terminationSlide41

What does a social security card prove in terms of an employee’s work authorization status under IRCA?

A social security card that does not contain language saying that employment is not authorized is proof of an employee’s authorization to work in the U.S., but not proof of identity.Slide42

If a business is not required to file an information return because the income paid to a worker is less than $600, could section 530 relief be available?

Yes, Only required returns need to be filedSlide43

Case StudiesSlide44

Case Study #1 Answer

Employee

Neutral

IC

One party (exclusive contract

Bachelors’ Degree

Own expenses

Subject to management post review

Professional organizations

Advertised

Attend meetings & Submit report

Liable for payment to manufacturer

Used manufacturer’s forms

Hired workers for installation

Submit invoice to General contractor for payment

Has to pay bills

Rep is an independent contractor Slide45

Answer to Case #2

Employee

Neutral

IC

Laid off: hired back for the same kind of job

Cost of equipment

One time job

Work at home

No minimum payment

Length of time for job

Not expected or allowed to go to meetings

No benefits

Written contract

Form 1099 to be filed

Pays own taxes

No Benefits

No instructions – only specifications

Computer programmer is an independent contractor with respect to the services provided