1. The Employer – Employee Relationship

2. Independent Contractor (IC)
Valid Taxpayer Identification Number (TIN) required
New hire reporting required by some states
Employee benefits are not required to be funded, paid, or administered
Social security taxes and Medicare taxes
Not withheld
Not paid by the business
Business provides Form 1099-MISC after the end of the year

3. Common Law Test
Usage: Determination of employee vs. independent contractor
Right to Control -
What work will be done and how work will be done
Behavior Control –
Level of instructions and level of training provided
Financial Control –
Right to direct and control economic aspects of worker’s job
Type of Relationship –
How worker and business perceive the relationship to each other
Intent regarding right to direct and control manner of worker’s activities

4. Reasonable Basis Test
Revenue Act of 1978 – Section 530 Relief Requirements
Reasonable Basis
Court Case or IRS Audit
IC based on significant segment of industry standardization
Advice of business lawyer / accountant
Substantive Consistency
Performed services for a tax exempt organization
Worker is not treated as an employee for purposes of employment taxes
Reporting Consistency
Filed all required federal tax returns including informational returns

5. Form SS-8
Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Status determination made by IRS Code
Determined by a series of questions
Extent of employer’s right to control the result
Extent of the means of the work performed
Worker can request for a determination of status
Common Law / Reasonable Basis Test do not apply
Waiting for determination – treat worker as an employee
If IRS finds worker to be an IC – no refund of employment tax available

6. Statutory Employees Categories - DISH
Agent Drivers / Commission Drivers
Full time Life Insurance Salespersons
Traveling / City Salespersons
Homeworkers – goods and services provided by Employer
NOT SUBJECT to federal income tax withholding
SUBJECT to social security and Medicare tax withholding

7. Statutory Employees Employer must pay General Requirements
Employer’s portion of social security and Medicare taxes
Federal Unemployment Tax (FUTA) depending on the situation
General Requirements
Agreement that all services are performed personally by worker
No substantial investment in business equipment / facilities
Part of a continuing relationship with employer
Not a single transaction

8. Statutory NonEmployees
Categories – REDS
Qualified Real Estate Agents
Direct Sellers
NOT SUBJECT to federal income tax withholding
NOT SUBJECT to social security and Medicare tax withholding
NOT SUBJECT to FUTA

9. Statutory NonEmployees
General Requirements
Compensation directly related to sales / other work output
Not number of hours worked
Work performed under written contract
States worker not treated as an employee for payroll tax purposes

10. Temporary Help Agency Employees
Hires, screens, and trains
Sole right to hire / fire
Responsible for payroll compliance
Responsible for benefits and human resources requirements
Business:
Pay agency as directed by contract

11. Leased Employees Leasing Company: Business: Hires, screens, and trains
Responsible for payroll compliance
Responsible for benefits and human resources requirements
Business:
Covers cost of payroll, benefits, etc.
Right to hire / fire
Set Wage Levels
Supervise work and performance level

12. Professional Employer Organizations
a/k/a PEO
Provides to business
Human resources
Payroll
Benefits Management
Suggested co-employers of the employee
PEO contracts to employ employees at business’ worksite
PEO assumes certain employer rights, responsibilities, and risks
IRS Certified: PEO treated as employer during life of contract (CPEO)

13. Payer Agents
Designate an agent to perform the acts required of employers under IRC §3504
Form 2678
Employer / Payer Appointment of Agent
Generally appointed to act with respect to federal income tax withholding, social security taxes and Medicare taxes

14. Other 3rd Party Arrangements
Payroll Service Providers (PSP)
Reporting Agencies (RA)
Prepare / file employment tax returns under employer’s Employer Identification Number (EIN)
Employer Responsibilities:
All duties
Employment tax liability related to wages paid to employees

15. Fair Labor Standard Act (FLSA)
Broad characterization:
An employee as any individual who works for an employer
US Department of Labor’s Wage and Hour Division Definition:
Employer – employee relationship where worker is “economically dependent” on the employer
Regulates:
Minimum wage rates
Overtime pay
Child labor
Equal pay

16. Joint Employer Status
Employee hours worked for both employers for the workweek must be compiled and considered as 1 employment when determining any overtime due
Horizontal Joint Employment
Employee has employment relationship with 2 or more employers.
Employers are related with respect to the employee
Vertical Joint Employment
Employee has employment relationship with 1 employer.
Dependent on another employer for work
i.e. temporary agency workers

17. State Wage Hours Laws State Income Tax Withholding Laws
State Unemployment Insurance Laws
ABC test
Determines independent contractor status for over ½ of the states
Absence of Control
Business is unusual and/or away
Customarily independent contractor
State Disability Insurance Laws

18. Worker Misclassification
IRS Penalties
Unintentional Misclassification
No federal income tax withheld = 1.5% of wages paid
No informational return filed = 3% of wages paid
No social security or Medicare tax withheld = 20% of employee’s portion
No informational return filed = 40% of employee’s portion
Intentional Misclassification
Federal income tax withheld = Full amount due
Social security and Medicare taxes = 100% of employee + employer portion
Additional penalties for not filing information returns
State and local penalties also apply

19. Classification Settlement Programs
a/k/a CSP
Audit ongoing
25% assessment of employment tax liability
Business agrees to treat worker as an employee going forward
Voluntary Settlement (VCSP)
Available when employer is not under audit
Optional
Allows reclassification with limited tax liability
Reclassification can cause retroactive benefits
Can cause additional tax liability on state / local jurisdictions

20. Proof of Right to Work in U.S.
Form I-9
Employment Eligibility Verification
New Employees complete on date of hire or when accepting position
Form I-151 (green cards) no longer valid proof of immigrant status, identity or employment eligibility
Record Retention: At least 3 years from date of hire or 1 year from date of termination whichever is later

21. Employment Eligibility Verification
Required documentation
Document from List A or one each from List B and List C
List A
Proves identity and work authorization
List B
Proves identity only
List C
Proves work authorization only
Expired documents are not acceptable from any list

22. E-Verify
Verification against Social Security Administration (SSA) and Department of Homeland Security (DHS) databases
Program is voluntary and free
Federal contractors: Required to use
On-line enrollment
RIDE (Records & Information from DMV for E-Verify)
Validates driver’s license authenticity, driver permits, and state ID cards
Matches dates of birth and driver’s license in state DMV records

23. New Hire Reporting
Personal Responsibility and Work Opportunity Reconciliation Act of 1996
Employer must provide the following information:
Employee’s name, address, and social security number
Date the employee first performed service for pay (date of hire)
Employer’s name, address and federal EIN
Report due within 20 calendar days of hire
Federal new hire reporting requirement
“Newly hired” includes an employee who was previously employed by the employer but has been separated from prior employment for at least 60 consecutive days

24. DO YOU KNOW??? 4 categories of statutory employees?
2 categories of statutory nonemployees?
3 parts of the ABC test?
Form I-9 uses?
When must employers report newly hired employees under the federal new hire reporting requirements?
Form used to request employment status on a worker?
Form used to report wages to an independent contractor after the end of the year?