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 87-41 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 1099 1099-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