Independent Contractors What’s the Relationship? Presented by CIRMA

Independent Contractors. What’s the Relationship? © 2012Connecticut Conference of Municipalities. All Rights Reserved. This publication or any part thereof may not be reproduced, transmitted, or stored in any type of retrieval system by any means, electronic or mechanical, without prior written consent. This publication is intended for the exclusive use of the members of the Connecticut Interlocal Risk Management Agency and for the employees of its members. This publication is intended for general purposes only and is not intended to provide legal advice. If you have questions about particular legal issues or about the application of the law to specific factual situations, CCM strongly recommends that you consult your attorney.

Objectives Identifying Independent Contractors What Makes an Employee vs. Independent Contractor Managing the Exposures and Liability Managing the Relationship Status

Topics to be Discussed Identifying Independent Contractors Risk Transfer Basic Principals IRS: Employee vs. Independent Contractor –20 Factors of Control –Three Categories of Control Additional Tax Law Workers’ Compensation

Identifying your Independent Contractors Who’s receiving payment for service? Are these individuals intended to be an employee or an independent contractor? Whose responsible should a loss occur? Who should be responsible?

Risk Transfer What is Risk Transfer? Risk Transfer is the shifting of responsibility for loss or damage arising from activities from one party to another party.

Why Do We Transfer Risk? To appropriately place the risk of loss or damage with those able to control it. To have a source of payment for claims. To Encourage Safety / Due Diligence. Note: Does NOT absolve the municipality of all liability.

Risk Transfer Utilizing Written Contracts Hold-Harmless and Indemnification Insurance –Coverage and Limits –Additional Insured Endorsement –Certificate of Insurance

IRS: “Employee vs. Independent Contractor” Revenue Ruling Guidelines The “Twenty Factors of Control” The “Three Categories of Control”

IRS Definition “Employee” – Individual who performs services that are subject to the will and control of an employer. –What must be done –How it must be done

IRS Definition “ Independent Contractor” – Individual over whom the employer has the right to control or direct only the result, and not the means and methods of accomplishing the result. –Works for themselves –Set own work schedule –Run their own program/service

Twenty Factors of Control Integration Continuing Relationship Payment by Hour, Week or Month Furnishing of Tools and Materials Profit or Loss Working for more than one firm at a time Making services available to the general public Right to Terminate

Three Categories of Control Behavioral Control Financial Control Relationship of Parties

Behavioral Control Types of instructions given to worker Degree of Instruction Evaluation System Training

Financial Control Significant Investment Unreimbursed Expenses Opportunity for Profit or Loss Services Available to the Market Method of Payment

Relationship of Parties Written Contracts Employee Benefits Permanency of Relationship Service Provided as Key Activity of the Business

Additional Tax Law Information FLSA / Wage and Hour Law – Establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in Federal, State, and local governments

Additional Tax Law Information FICA / FUTA Since organizations do not withhold or pay employment taxes on independent contractors, if the IRS determines that the organization misclassified an employee as an independent contractor, the organization is generally liable for the employment taxes it otherwise was required to pay or withhold on the wages paid to the employee in addition to penalties, interest, Federal Insurance Contributions Act (FICA) payments and Federal Unemployment Tax Act (FUTA) payments.

Additional Tax Law Information W-9 – IRS Recommends if person is an independent contractor – TIN or EIN MISC – Payment someone who is not your employee – Payment for service in the course of your trade/business – Payment to the payee of at least $600 during the year

Workers’ Compensation Statues that provide financial awards for workers’ compensation benefits including: Disability Income Medical expense reimbursement Rehabilitation services Death Benefits

Workers’ Compensation Who’s afforded benefits?

Workers’ Compensation What happens if the independent contractor does not have Workers’ Compensation coverage for their employees? Sec Principal employer, contractor and subcontractor

Managing the Relationship Develop a program Policies and Procedure Oversight Review

Core Components Definition of an Independent Contractor Project / Program Proposal Insurance Requirements Payment Duration of Contracting Period

Summary Identify employees vs. independent contractors Identify potential exposures Implement the appropriate controls Monitor the relationships

QUESTIONS