1. Financial Management Services 101 An Introduction to Financial Management Services (FMS) for Participant Self-Direction Programs

2. FMS is a Self-Directed Support Self-directed supports assist elders and individuals with disabilities and their representatives in using self-directed services and also can provide protections and safeguards for both participants/ representatives and program administrative agencies.

3. FMS Duties Regardless of the FMS model utilized, the primary duties of an FMS entity are: –Make financial transactions on behalf of self- directing individuals This could include paying workers, agencies, or goods or other services vendors –Generate reports for individuals and program administrative agencies showing financial transactions, budget data and other information as applicable to the program

4. More FMS Duties When an individual directly employs his/her own worker, FMS duties often include: –FMS manages payroll responsibilities on behalf of the self-directing employer including: Withholding Federal, state and local employment taxes Calculating and managing unemployment insurance taxes and other employer taxes Managing other deductions, such as garnishments or union dues Managing workers’ compensation insurance rules and other requirements that apply when the individual functions as the employer of his/her workers

5. What Determines the Duties of the FMS? A lot, but a primary determinant of the FMS’ duties and the type of FMS used has to do with the types of authority supported for participants within the program. Budget Authority Employer Authority

6. Budget Authority Budget Authority means that a participant has choice and control over what goods and services to purchase within their individual budget. The FMS’s role is to: –Establish and maintain separate accounts for each self-directed budget –Receive, disburse and track funds for payment of self- directed services per agreement with the program administrative agency –Process and pay approved invoices/timesheets in accordance with each participant’s budget –Prepare reports for participants and administrative agencies showing individual budget amounts, spending and amounts remaining

7. Employer Authority Employer Authority means that a participant can directly hire workers of his/her choice and will train, manage, schedule and dismiss such workers. The FMS’s role is to: –Facilitate employment of workers by the participant (or family member or representative) by performing certain employer responsibilities as an agent of the participant employer. –These may include: Processing payroll Withholding applicable employee Federal, state and local taxes Calculating and remitting applicable employer Federal, state and local taxes, including unemployment taxes Filing employer tax returns and issuing information returns (e.g. W- 2, 1099) Supporting the participant to maintain compliance with applicable workers’ compensation regulations

8. Independent Contractor vs. Employee Employees have taxes withheld by their employers, are subject to unemployment insurance and workers’ compensation rules. 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.

9. Directly Hired Workers are Generally Employees The IRS has determined, in general, that home-based workers are employees, not independent contractors (See IRS Notice 2003-70 for this determination as it relates directly to self-direction)

10. Direct and Control Employee: A worker is an employee of an entity if the entity can direct and control what work will be performed and how it will be done. This is the case even if the worker has freedom of action. What matters is that the entity can control the details of how the services are performed. All facts related to the degree of control and independence had by the worker are important in making an independent contractor/employee determination.

11. Categories of Control and Independence Behavioral Control Financial Control Relationship between parties See http://www.irs.gov/pub/irs-pdf/p15a.pdf, page 6 for specific informationhttp://www.irs.gov/pub/irs-pdf/p15a.pdf In general, anyone who performs services for an entity is an employee if the entity can control what will be done and how it will be done. Thus, most self-directed workers are considered common law employees of the participants who direct their work.

12. Types of FMS – F/EA Fiscal/Employer Agent (F/EA) –Government –Vendor 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 file appropriate tax forms to become an employer, manages payroll duties on behalf of the employer and files and pays applicable taxes on the employer’s behalf. The F/EA may manage applicable workers’ compensation duties. The participant can also work with agencies and independent contractors. The participant is NOT the employer of agencies or independent contractors. Payments to these entities can be made by the F/EA.

13. 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 tax, labor and workers’ compensation duties The participant may refer a worker to the agency for hire, participate in training of the worker and have some control over scheduling and dismissing the worker Fixed costs for Agency with Choice are less, so this model is practical for individuals with small budgets

14. Types of FMS – Fiscal Conduit Individuals/representatives manage all aspects of their self-directed supports, including managing all aspects of payroll for the workers they hire directly The Fiscal Conduit receives individual budget funds from the administrative entity and disburses such funds to participants via vouchers, cash or some other method. A Fiscal Conduit may provide employer/payroll skills training and may monitor participants to ensure fiscal accountability. This option can be used with Older Americans Act, state general funds, Medicaid 1115 waivers, or state plan services under 1915(j) of the Deficit Reduction Act (2005)

15. Participants’ Employees are Household or Domestic Workers who are employees of participants and utilize a Fiscal/Employer Agent or Fiscal Conduit are usually considered household or domestic employees by the IRS, Department of Labor and state Departments of Revenue & Departments of Labor (or equivalent).

16. Tax and Labor Law is Different for Household Employees Employers of household employees must comply with tax and labor law that is different that that utilized for businesses, non-profits or government entities. Different payroll procedures are required to withhold and remit taxes for household employees. Many payroll companies will not do payroll for household employees.

17. FICA, FUTA, SUTA Thresholds Employers of domestic/household employees are responsible for certain employer taxes after meeting certain thresholds. Employee and Employer FICA (SS and Medi taxes) must be withheld, calculated and paid to any workers earning $1700 or more in a year. Employer Federal Unemployment Tax Act (FUTA) taxes must be calculated and paid once an employer has paid $1000 or more to all employees in a single calendar quarter. FUTA is then due for all quarters in the calendar year. State Unemployment Tax Act laws differ by state, but usually mirror FUTA.

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

19. State Tax Agencies After understanding how the self-direction program functions, State Tax Agencies may want the F/EA or participants to use tax processes specific to the self-direction program. For example, seek guidance for maintaining compliance with state pay rules when a participant authorizes a worker to work more hours than an individual budget covers. Connect with state tax agencies early and often.

20. Combining Public and Private Funds to Pay for Employee Services We are working aggressively with the IRS to get a clear determination that participants can pay employees with a combination or public and private funds. An F/EA would make payments to workers using both public and private funds. This would allow participants to privately fund supplemental service, using the same workers as are publicly funded while maintaining tax compliance.

21. 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 services

22. Factors that Influence FMS Cost Amount of interface between FMS and participants, family members, representatives or workers Number of different services for which the FMS will pay Number of different rates permitted for each service Size of population served. FMS has high fixed costs, so the cost per participant generally goes down with more participants

23. Factors that Influence FMS Cost Complexity of payment rules that FMS must enforce Cost of capital. Will FMS advance service funds to pay providers and invoice the administrative entity or will service funds be advanced to the FMS? Role of the FMS in credentialing providers Process to transmit individual spending plan data to the FMS Role of FMS if a participant wants to change how a spending plan is used

24. Possible Topics for Future Discussion Government vs. Vendor F/EA –Benefits and Challenges Monitoring FMS Quality Developing an Individual Budget or Spending Plan Workers’ Compensation for participant employers

25. FMS Resources www.cashandcounseling.org http://www.cashandcounseling.org/resources then select “FMS” under “Topic” in the drop downhttp://www.cashandcounseling.org/resources –Copies of Requests for Proposals –Examples of FMS Readiness Reviews –Listing of “tasks to be performed by” vendors and govt F/EAs. –Examples of purchasing plans from states Boston College to release FMS policy brief in early March

26. Questions, Comments, Discussion Thank you!