1. An Introduction to Financial Management Services in Consumer- Directed Programs Mollie G. Murphy National Resource Center for Participant- Directed Services

2. Some Hallmarks of Consumer-Directed Services Consumers manage a flexible budget Consumers determine the mix of goods and services that meet the consumer’s individual needs Consumers directly hire, train, supervise and perhaps fire workers Workers may be a consumer’s friends, neighbors or family members

3. FMS is a Consumer-Directed Support Consumer-directed supports assist elders and individuals with disabilities and their representatives in using consumer-directed services and also can provide protections and safeguards for both consumers/ representatives and program administrative agencies.

4. FMS is One of Several Participant Supports

5. FMS Duties Regardless of the FMS model utilized, the primary duties of a Financial Management Services entity are:  Make payments on behalf of participants  Make payments in accordance with spending plans, authorizations and program rules This includes paying workers, agencies, or other goods and services vendors  Generate reports for participants and program administrative agencies showing expenditures and individual budget information  Manage all employer tax and insurance responsibilities

6. What Determines the FMS Duties? A lot, but an important determinant of FMS duties is the type of authority offered for participants within the program These include: Budget Authority Employer Authority

7. 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:  Establish and maintain separate accounts for each participant directed budget  Receive and track funds for payment of participant directed services  Process and pay approved invoices (vendors) & timesheets (workers) in accordance with each participant’s budget  Prepare reports showing spending plan amounts, spending and amounts remaining

8. 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.  These may include: Processing payroll Withholding and depositing applicable employee Federal, State and Local income taxes Filing and depositing applicable employer Federal, State and Local employment taxes, including unemployment, Social Security and Medicare taxes Filing employer tax returns and issuing year-end wage and earnings statements (e.g. IRS Forms W-2, IRS Forms 1099, State Forms W-2, 1099 or equivalent) Supporting the participant to maintain compliance with applicable workers’ compensation regulations Supporting the participant to review worker authorization information and collect applicable employment forms from workers

9. Independent Contractor vs. Employee Employees usually have taxes withheld by their employers, 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.

10. Directly Hired Workers are Employees The IRS has determined, in general, that employees in consumer-directed programs are employees, not independent contractors (See IRS Notice 2003-70) This is IMPORTANT The SUA/AAA, participant and possibly the Financial Management Service 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

11. 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

12. Vendor Goods and Services The following goods and services 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.)

13. Types of FMS: Fiscal/Employer Agent Fiscal/Employer Agent (F/EA)  Government F/EA  Vendor F/EA (see handout) 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.

14. 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

15. Types 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

16. 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).

17. Tax and Labor Rules and Regulations are Different for Household Employees Employers of household employees who use a Fiscal/Employer Agent 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.

18. State Tax Agencies Working with state tax agencies (State Department of Labor, Department of Revenue or equivalent) before implementing a participant directed program is prudent Usually, participant direction programs are different than most employer/employee relationships with which state tax agencies are familiar

19. State Tax Agencies After understanding how the participant direction program functions, State Tax Agencies may direct the Financial Management Service to use processes specific to the participant direction program For example, seek guidance for maintaining compliance with state payment requirements when a participant authorizes a worker to work more hours than covered by the spending plan Connect with state tax agencies early and often

20. 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

21. 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

22. 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)

23. The FMS Map  Review handout

24. Questions, Comments, Discussion Mollie Murphy FMS Policy Lead National Resource Center for Participant-Directed Services mollie.grotpeter@annkissam.com (617) 953-3914