1. Financial Management Services 101: A Training Mollie Murphy & Isaac Selkow National Resource Center for Participant-Directed Services

2. Clicker Warmup Which of these institutions is not in Maryland?? 1. Johns Hopkins University 2. American University 3. University of Maryland 4. United States Naval Academy

3. Financial Management Services (FMS) Why does FMS exist? Employer Authority and Budget Authority Models of FMS Independent Contractor vs. Employee FMS Controls Procuring Financial Management Services Costs of FMS

4. Hallmarks of Participant-Directed Services Participant manages a flexible budget Participant determines the mix of goods and services that meet his/her individual needs Participant directly hires, trains, supervises and discharges workers Workers may be participant’s friends, neighbors, family members or be identified from some other source (e.g. placing an ad in a newspaper)

5. Complexity in Managing Services and Supports Directly hiring non-agency workers means serving as an employer of those workers Employers have important responsibilities including:  Hiring, managing, scheduling, training, and discharging  Withholding, calculating, depositing and filing required taxes  Managing required insurance  Paying workers in accordance with federal, state and local laws

6. Complexity in Managing a Budget and Spending Plan Flexibility and participant choice and control are paramount Rules exist  Some services and supports cannot be purchased through VD-HCBS, CLP or other programs  Spending cannot exceed the monthly budget  Rules on savings and “rainy day” funds must be upheld Participants need information about their spending to manage their services within a budget

7. Quiz #1 1. Generally, a participant’s workers do NOT have to be paid minimum wage or for overtime. 2. In most cases, State Unemployment Tax must be paid on wages to a participant’s workers. 3. Federal Unemployment Tax is never due on wages paid to a participant’s workers. 4. Participants do not need Workers’ Compensation coverage because the AAA and SUA have those insurance policies. When a participant directly hires employees, which of the following is true?

8. FMS is a Participant Support FMS providers perform administrative responsibilities so that:  Participants can focus on managing their services and supports  Tax, employment and insurance regulation compliance is maintained  Payments to participant’s providers are made in accordance with budget  Additional controls are in place to detect and prevent fraud and abuse

9. FMS is one of several Participant Supports

10. FMS Duties FMS provider:  supports the participant through the administrative process of being an employer  supports the participant to ensure workers are legally hired  conducts criminal background checks on workers  ensures that workers and other providers are paid in compliance with applicable rules and regulations  makes payments in accordance with spending plans, authorizations and program rules This includes paying workers, agencies, or other goods and services vendors

11. FMS Duties, continued FMS provider:  has controls in place to detect and prevent fraud and abuse  helps protect the participant by getting workers’ compensation policies in place  generates reports for participants and program administrative agencies showing expenditures and individual budget information  maintains fiscal accountability and oversight in a flexible program

12. What Determines the FMS’ Duties? A lot, but an important determinant of an FMS’ duties is the type of authority offered for participants within the program These include: Budget Authority Employer Authority In the VD-HCBS program, both budget authority and employer authority are required

13. Quiz #2 1. Recruit workers for the participant 2. Withhold taxes from workers’ paychecks 3. Conduct criminal background checks on workers 4. Obtain workers’ compensation insurance coverage for the participant 5. Deposit employer taxes to the IRS and state/local tax agencies Which of the following does the FMS Entity NOT usually do?

14. Budget Authority Budget Authority means that a participant has choice and control over what goods and services to purchase within their spending plan The FMS entity’s role is to:  Maintain separate accounting for each participant-directed budget  Process invoices (vendors) & timesheets (workers) in accordance with each participant’s budget  Only pay those invoices and timesheets that are approved in the budget and meet other program requirements  Prepare reports showing budget amounts, spending and amounts remaining

15. Employer Authority Employer Authority means that a participant can directly hire workers of his/her choice and will train, manage, schedule and dismiss workers. The FMS entity’s role is to:  facilitate employment of workers by the participant or representative by performing certain employer responsibilities as an agent of the participant employer  process payroll  withholding and deposit applicable employee Federal, State and Local income taxes

16. Employer Authority, continued The FMS Entity’s role is to:  file and deposit applicable employer Federal, State and Local employment taxes, including unemployment, Social Security and Medicare taxes  filing employer tax returns and issue year-end wage and earnings statements (e.g. IRS Forms W-2, IRS Forms 1099, State Forms W- 2, 1099 or equivalent)  support the participant to maintain compliance with applicable workers’ compensation regulations  support the participant to review worker authorization information and collect applicable employment forms from workers

17. Case 1: John and Sarah John Miller gets Personal Assistance Services from ABC Home Health Agency. ABC sends 5 prospective workers to John’s home. John tells the agency that of the 5 workers, he liked Sarah the best and wants her to provide his services. ABC has information on John’s health and ADLs and trains Sarah in accordance with them, giving her clear instructions about how to care for John. John can pick from a menu of available times that Sarah can visit him: 8AM – Noon, Noon to 4PM or 4PM to 8PM. Sarah is paid by ABC and the agency handles all the tax and insurance responsibilities. John is not sure how much his worker is paid, but he does sign her timesheets every week.

18. Quiz #3 In Case 1, does John have employer authority? 1. Yes 2. No

19. Models of FMS: Fiscal/Employer Agent Two types of Fiscal/Employer Agent (F/EA):  Government F/EA  Vendor F/EA Participant (or representative) is the common law employer of home-based workers who are employees. Participant hires, fires, trains and manages workers. The F/EA supports the participant to complete and file appropriate tax forms to become an employer, manages payroll duties on behalf of the employer and withholds, deposits and files applicable taxes on the employer’s behalf. The F/EA may manage applicable workers’ compensation duties. The participant can also work with agencies, vendors and other independent contractors. The participant is NOT the employer of agencies, vendors or other independent contractors. Payments to these entities can be made by the F/EA or another source.

20. Fiscal/Employer Agent: Benefits Provides participants with significant control, while providing ample support and fiscal accountability Allows contracting entities to contract with one or many FMS providers Can have tax benefits if participant hires certain family members Because workers are the participants’ employees, the contracting entity is not beholden to the provider to allow participants to keep workers they know and like

21. Fiscal/Employer Agent: Challenges The F/EA industry is less mature than the traditional provider industry. Contracting entities need to take a major role in monitoring the quality of service and compliance with regulations State and Federal tax and insurance regulations can be a challenge for inexperienced F/EA providers It can be difficult for a participant to have a seamless transition from getting at least partial publicly funded services to fully privately funded services with the F/EA model Since the F/EA is not the employer of workers, the F/EA is limited in how much direct oversight of workers they can provide. In general, the F/EA can provide employer skills training to the participant, but cannot provide worker oversight or control itself

22. F/EAs and Reporting Agents are Different (and the difference matters) An F/EA may be a Vendor Agent, Government Agent or a sub- agent to a Government Agent An F/EA is also called a “Form 2678 Agent” by the IRS An F/EA is different than a Reporting Agent and the difference has important liability implications An F/EA is NOT the same as a payroll provider! An F/EA not only does more, but it takes on a participant’s tax liability. A reporting agent (plain payroll provider) does not. This matters to you and your program participants. An F/EA is NOT the same as a CPA!

23. Case 2: Winscott AAA Winscott AAA is implementing a participant direction program. Winscott currently uses ADP to pay Winscott AAA’s own employees. Winscott has decided to use ADP in the participant direction program. ADP has agreed to help each participant become an employer and ADP will handle all the taxes. Each consumer must execute an IRS Form 8655, Reporting Agent Authorization, with ADP. ADP told Winscott that the Form 2678, Employer Appointment of Agent, is not required.

24. Quiz #4 In Case 2, which of the following are risks? 1. ADP normally serves “regular” employers, not household employers. ADP may not have systems in place to handle household employer taxes. 2. ADP does not execute a Form 2678 and so does not take on joint liability for Federal taxes with the participant. 3. ADP may not have experience with participant direction, particularly communicating with participants and families. 4. All of the above. 5. None of the above. 6. Just 2 and 3.

25. Models of FMS: Agency with Choice Agency and participant have a co-employment relationship for workers that provide services to the participant The agency is the primary employer The participant is the managing employer The agency hires the worker and manages all duties related to tax, labor and workers’ compensation rules and regulations The participant may refer a worker to the agency for hire, participate in training the worker and have some control over scheduling and dismissing the worker

26. Agency with Choice: Benefits A good option for participants who want to choose and schedule their workers, but do not want other employer responsibilities, like hiring, disciplining, or discharging workers Since the agency is the employer of workers, agency can provide ample worker-related assistance to participants This is a good option for participants who will switch from being at least partially publicly funded to fully privately funded

27. Agency with Choice: Challenges Unlike the F/EA model, participant choice and control is not inherent in the AwC model. Standards and monitoring must be in place to ensure that this model is participant-directed Agencies may have liability concerns about the joint employer relationship. The agency is the common law employer, but with the participant as managing employer, the agency cannot always effectively manage the agency’s risk without infringing on participant choice and control Conflicts of interest can arise for Agencies with Choice who both manage budget funds and provide services that participants could choose to purchase with budget funds. Service steering?

28. Case 3: F/EA or AwC? John is in a program with employer authority and budget authority. John wants to hire his niece, Cathy, to help him in the mornings. John’s Support Broker connects him with the FMS provider. The FMS provider helps John complete a packet of papers to establish John as an employer with tax agencies and for John to authorize the FMS provider to file and pay taxes on his behalf. The FMS provider tells John he can pay Cathy anywhere from minimum wage up to $20 per hour. John’s Support Broker helps him plan what he wants to pay Cathy, while ensuring he has enough money in his budget to purchase his other needed supports. John trains Cathy to help him and sets her work schedule.

29. Case 3: F/EA or AwC? (cont.) Every two weeks, John and Cathy complete timesheets showing the time Cathy started work and the time she finished each day. Both John and Cathy sign the timesheets. They send the timesheets to the FMS provider, who pays Cathy and withholds all applicable taxes. The FMS provider deposits those taxes on John (the employer’s) behalf with the IRS and state/local tax agencies. The FMS provider also files the employer tax returns on John’s behalf.

30. Quiz #5 In Case 3, is John working with a Fiscal/Employer Agent or an Agency with Choice? 1. Fiscal/Employer Agent 2. Agency with Choice Why?

31. Case 4: Which model might be best? McGuin AAA is starting a new program with the following characteristics: the program will set the rates of pay for participants’ workers and most workers will earn the same hourly rate participants (or their representatives) want to choose and schedule workers, but want another entity to train, manage and discharge workers participants will not play a role in determining whether or not a worker’s criminal background prohibits the worker from providing service. An agency will make this decision participants’ budgets will generally be less than $1000 per month

32. Quiz #6 In Case 4, which model of FMS is likely the best fit for McGuin AAA? 1. Fiscal/Employer Agent 2. Agency with Choice Why?

33. Independent Contractors & Employees Determining the status of a worker as an employee or independent contractor is important There are implications for the cost of employing the worker and implications for the administrative tasks associated with paying the worker Workers may advocate to be paid as independent contractors because taxes are not withheld from independent contractor pay (but, in fact, the worker actually owes more tax when paid as an independent contractor) Paying workers under an incorrect classification can cause a participant, AAA, SUA or FMS provider to incur penalties.

34. Independent Contractor vs. Employee Employees usually have taxes withheld by their employers and are subject to unemployment insurance and workers’ compensation regulations. Employers direct the work of their employees An independent contractor is self-employed. An independent contractor determines the method of performing work, even if the payer directs what the outcome is. An independent contractor does not generally have taxes withheld from pay. The independent contractor is responsible for filing and paying his/her own employment and income taxes

35. Tax and Labor Rules and Regulations are Different for Household Employees Employers of household employees must comply with tax and labor rules and regulations that are different in some areas than those utilized for businesses, non-profits or government entities For certain aspects of payroll and tax withholding, depositing and filing, different procedures are required to withhold and remit taxes for household employees than for “regular” employees For this reason, some payroll companies will not manage payroll for household employers, but this is changing as participant direction grows

36. Directly Hired Workers are Employees The IRS has determined, in general, that employees in participant-directed programs are employees, not independent contractors (See IRS Notice 2003-70) This is IMPORTANT The funding entity, participant and the FMS can be held liable for paying workers as independent contractors when they should be paid as employees Be very careful before paying any worker as an independent contractor

37. Employee Services Workers performing the following services are almost always paid as employees (NOT as independent contractors)  Personal Care (e.g. physical or verbal assistance with eating, bathing, dressing, grooming, transferring)  Homemaker (e.g. cleaning, laundry, meal planning & preparation, shopping)  Adult Day Care  Respite Care

38. Vendor Goods and Services The following goods and services are examples of what may be purchased from vendors, who may be paid as independent contractors.  Assistive Technology (e.g. emergency response system, electronic pill minder)  Home-Delivered Meals  Caregiver Support (e.g. counseling, training)  Environmental Support (e.g. yard care, snow removal, extensive cleaning)  Environmental Modification (e.g. small appliances, grab bars, ramp, lift chair, etc.)

39. How can I determine what classification the worker is? Behavioral control: Does the participant control or have the right to control what the employee does?  When and where to work  Where to purchase supplies and services  What tools or equipment to use While the IRS states that financial control of a worker and the type of relationship can generally serve as indicators, these judgments are much harder to make in participant-directed scenarios Last resort: File an IRS Form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding

40. Participants’ Employees are Household or Domestic Workers who are employees of participants and utilize a Fiscal/Employer Agent are considered household or domestic employees by the IRS, Department of Labor and state Departments of Revenue & Departments of Labor (or equivalent) See Fair Labor Standards Act Tip Sheet (handout) for information on Companionship Exemption

41. Case 5: Beth and Max Beth hires Max to install a ramp in her home. Beth will purchase the wood, nails, varnish etc. for the ramp, but Max will install it. Max has his own home improvement business and has installed many ramps in his career. Beth has told Max where she wants the ramp and what her concerns are about having a ramp. Max will use his expertise to install the ramp in a way that he thinks will meet Beth’s needs. Beth tells Max she needs the ramp installed by March 21 and that Max cannot work on the ramp on Wednesdays. Max creates his work schedule around Beth’s parameters and sets to work.

42. Quiz #7 In Case 5, Max is an… 1. Independent Contractor 2. Employee Why?

43. Case 6: Beth and Nancy Beth’s neighbor, Nancy, helps her in the evenings. Nancy works in retail during the day and working with Beth is her first time working in this capacity. While Nancy really enjoys working for Beth, she has not had any special, formal education for this work. Beth sets a work schedule for Nancy each week. If Nancy needs to make changes to it, she gets approval from Beth. Beth has trained Nancy on how to perform each task. When Nancy first started, Beth paid her $10 per hour, but Beth is so happy with Nancy’s performance, that she recently gave her a raise to $11 per hour. Beth feels lucky she was able to identify Nancy as someone to help her, especially since Nancy lives so close-by.

44. Quiz #8 In Case 6, Nancy is Beth’s… 1. Independent Contractor 2. Employee

45. FMS Providers Can Detect and Prevent Fraud and Abuse FMS providers can be a big help in detecting and preventing program fraud and abuse  FMS providers can conduct criminal background and other checks on workers and ensure workers are not paid until background checks are satisfactorily checked  FMS providers can ensure that budget funds are only used for services and supports that the participant and Support Broker have approved in the spending plan

46. FMS Provider Can Detect and Prevent Fraud and Abuse, continued… FMS providers can ensure that only workers and other service providers that have been approved by the participant and have complied with all requirements are paid FMS providers can ensure that timesheets are not paid unless the participant and the worker have signed them FMS providers can enforce program rules; for example, the FMS can flag if two workers turn in timesheets showing that that provided service to the participant at the same time

47. Procuring FMS FMS can be procured a variety of manners:  Issue a Request for Proposal (or other selection process) to identify and select FMS providers  Partner with an existing participant direction program in your state and use/contract with their FMS provider  Develop FMS capacity “in-house” at the AAA or SUA (this requires significant training for staff as well as infrastructure investment and should be fully thought through)

48. What does FMS Cost? FMS entities can provide a broad range of services With a broad range of services comes a broad range of costs Many factors go into determining the cost of providing FMS

49. Factors that Influence FMS Cost Volume and type of Customer Service provided by FMS to participants, representatives, workers or vendors Volume of different services for which the FMS will pay Volume of different rates permitted for each service  Can participants set different rates for different workers? Size of population served; FMS has high fixed costs, so the cost per participant usually goes down with more participants

50. Factors that Influence FMS Cost Complexity of payment rules that the FMS must enforce Working capital requirements; Will FMS advance it’s own funds to pay participants’ workers and vendors? Process to exchange data with the FMS, including participant, worker, vendor and spending plan information Requirements for FMS physical presence in the planned service area(s)

51. Case 7: Cost Comparison Program A: has 100 participants has 50 different services that participants can purchase requires the FMS provider to meet with each participant in person to complete applicable paperwork requires employees to have 4 different certifications in place before they can be paid. The certifications differ depending on the type of service the employee provides. The FMS must verify that the correct certifications are in place before paying the employee.

52. Case 7: Cost Comparison Program B: has 1,500 participants has 10 different services that participants can purchase requires the FMS provider to provide the Support Broker with each participant’s paperwork so that the Support Broker can have the participant complete it during the assessment meeting requires the FMS provider to do a criminal background check on every employee prior to paying them. No other certifications or background checks must be in place.

53. Quiz #9 In Case 7, which program has the higher FMS cost per participant? 1. Program A 2. Program B

54. Questions, Comments, Discussion Contact Information: Mollie Murphy, FMS Director mollie.grotpeter@annkissam.com 617-953-3914 Isaac Selkow, FMS Research Analyst isaac.selkow@bc.edu 617-552-6814