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Section 1: The Employer/ Employee Relationship


Section 1: The Employer/ Employee Relationship Kimberley Childress, CPP February 1, 2014 Contact Info Kim Childress Proof of Right to ... – PowerPoint PPT presentation

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Title: Section 1: The Employer/ Employee Relationship

Section 1The Employer/ EmployeeRelationship
  • Kimberley Childress, CPP
  • February 1, 2014

Benefits of an IndependentContractor
  • Reporting requirements are less
  • With a valid TIN Form 1099 Misc. (if contractor
    was paid over 600 for services)
  • Social Security and Medicare taxes need not be
    withheld or paid by the employer
  • No federal or state unemployment taxes are
  • EE benefits do not have to be funded, paid or
    administered on their behalf

Common Law Test
  • Classify by applying the common law test
  • Right to control is KEY
  • Control what and how Employee
  • Control Results to be accomplished and NOT the
    Details of how Independent Contractor

Common Law Test
  • Behavioral Control-Right to direct control the
    detail means by which the worker performs the
  • Level of Instruction - Subject to detail
    instructions about when, where and how to work
    tends to show the worker is an employee
  • Level of Training - The business provides
    periodic or ongoing training regarding particular
    procedures to be followed and methods to be used
    in performing work

Common Law Test
  • Financial Control-Factors that must be considered
    when determining whether the business has the
    right to direct and control the economic aspects
    of the workers job. These include
  • Unreimbursed Business Expense - IC are more
    likely to have unreimbursed business expenses
  • Substantial investment in the work - Have a
    significant financial investment
  • Services available to the public - Offers
    services to the public at large

Common Law Test
  • Financial Control
  • How is he paid- IC are usually paid by the job.
    However, lawyers and accountants are usually paid
    by the hour.
  • Can realize a profit or loss Whether a worker
    has the opportunity to make a profit or suffer a
  • Independent contractor status is indicated

Common Law Test
  • Relationship of Parties Several factors that
    generally indicate how the worker the business
    perceive their relationship
  • Written agreement A written contract may
    indicate the type of relationship the parties
    intended to create
  • Employee-type benefits provided Will the
    company provide benefits
  • Term of the relationship Continue indefinitely
    or for a specific period of time
  • Services are an important aspect of the
    business regular operation If worker provides
    services that make up a key aspect of regular
    business activity, business will have right to
    direct control worker

Common Law Test
  • Factors not important in the determination
  • Part time vs. full time work
  • Location of work
  • Hours of work
  • Length of employment

Reasonable Basis Test
  • Section 530 of the Revenue Act of 1978
  • Court decision, IRS ruling/ technical advice/
    private letter ruling
  • Past IRS audit of employer
  • Longstanding, recognized practice of employers
  • Consistent treatment since 1978
  • Application was clarified by Small Business job
    Protection Act beginning after December 31, 1996

Reasonable Basis Test
  • Failure to file Form 1099-Misc in one year no bar
    to Section 530 relief in later years
  • Notice of Section 530 must be provided by IRS
  • IRS auditors must be liberal in applying
    Section 530

Reasonable Basis Test
  • Technical Services Specialists
  • Tax Reform Act of 1986 excludes 3 party
    arrangement technical service specialists
  • Worker/ technical service firm/ firms client
  • Status determined by common law test
  • Includes engineers, drafter, designers, computer
    programmers, and systems analysts

Reasonable Basis Test
  • Use Form SS-8 for a definitive ruling from IRS on
    newly hired employee status
  • Employer should treat the workers in question as
    employees, with all appropriate wages and taxes
    reported and/or withheld.
  • If IRS rules the worker is an independent
    contractor the employer is not entitled to a
    refund of any employment taxes paid
  • Disputes can be heard by Tax Court

Statutory Employees
  • Not employee under common law test
  • Payments are not subject to federal income tax
  • Payments are subject to social security,
    Medicare, and federal unemployment taxes
  • Employers share of Social Security and Medicare
    taxes, and FUTA if applicable

Statutory Employees
  • Four categories of statutory employees
  • Agent-drivers or commission drivers
  • Full-time life insurance salespersons
  • Home workers
  • Traveling or city salespersons

Statutory Employees
  • General requirements
  • Must agree with the employer that all services to
    be performed personally by the worker
  • Must not make a substantial investment in
    business equipment or facilities
  • Work must be part of a continuing relationship
    with employer

Statutory Non-Employees
  • Statutory non-employees are employees under the
    common law test but are treated as independent
  • Earnings are not subject to Federal income,
    social security, Medicare, or unemployment taxes

Statutory Non-Employees
  • Two categories of statutory non-employees
  • Qualified real estate agents
  • Direct sellers
  • General requirements
  • Compensation directly related to sales/work
  • Written contract that the individual will not be
    treated as an employee for tax purposes

Temporary Help Agency Employees
  • Hired, screened and trained by the temporary help
  • Employees of the temp agency
  • Agency is responsible for complying with any
    payroll, benefits and HR requirements

Leased Employees (PEOs Professional Employer
  • Enter into a leasing arrangement
  • Leasing company hires, trains, and qualifies
    workers for a client
  • Workers are employees of the leasing company
  • Leasing company is responsible for all
    withholding employment taxes, administration
    and funding of benefits

Leased Employees (PEOs Professional Employer
  • Watch Out
  • The leasing companys treatment as the employer
    of the leased employees stems from its control
    over the payment of the employees wages
    benefits. The more control the client company
    retains, the greater the likelihood that it may
    be considered the employer rather than the
    leasing company.

Leased Employees (PEOs Professional Employer
  • Wage bases restart with leasing agreement
    Leasing company provides employees to a client
    company, those same employees worked as
    employees of the client company earlier in the
    same calendar year before the leasing agreement
    was signed, the leasing company must apply
    separate social security and FUTA wage bases to
    the wages it pays to those employees.

Leased Employees (PEOs Professional Employer
  • Employment status issues lead to benefit plan
    relief from IRS
  • Exclusive benefit rule noncompliance could cause
    plan disqualification
  • Relief from plan disqualification
  • Termination option
  • Conversion option

Leased Employees (PEOs Professional Employer
  • Small companies reap most of the benefits
  • Larger businesses may also take advantage of
    employee leasing
  • States may have different rules

Watch Out
  • Make sure that the temp or leasing agencies are
    financially secure and reputable before entering
    into a contract. Since the agencies financial
    failure could lead to the client company to
    become liable for any withholding or employment
    taxes that remain unpaid

Federal Wage Hour law
  • FLSA U.S. DOL Wage and Hour Division
  • Economically dependent on employer
  • Factors considered
  • Control, profit, investment in tools/material,
    special skills, permanency of relationship, if
    the work is an integral part of employers business

State Income Tax Withholding
  • States that require withholding of state income
    tax follow common law test used by the IRS in
    determining whether an employer-employee
    relationship exists.

Non-Resident Employees
  • Employees live in one state and work in another
  • Some states have reciprocity agreements
  • Check income tax withholding requirements of the
    state you do business

Proof of Right to Work in U.S.
  • Immigration Reform Control Act of 1986 (IRCA)
  • Illegal to knowingly hire or continue to employ
    an unauthorized worker
  • Employers must comply with this requirement by
    verifying the identity and right to work of all
    employees hired after November 6, 1986
  • Form I-9
  • Employers will not be penalized if they act in
    good faith under the IRCA
  • Employees complete Section 1 of Form I-9 on first
    day of work
  • Review documents and complete employers Section 2
    within 3 business days of the date of hire
  • Keep for 3 years from date of hire or 1 year from
    date of termination
  • Can not require specific documents
  • Workers must present one from List A or one each
    from List B and List C

Proof of Right to Work in U.S
  • Document Changes
  • In December 2008, USCIS issued an interim final
    rule stating expired documents will no longer be
    acceptable to prove identity or work authorization

Proof of Right to Work in U.S.
  • List A Proof if Identity Work Eligibility
  • US Passport or US Passport Card
  • Permanent Resident Card or Alien Registration
    Receipt Card (Form I-551), that contains a
    photograph, fingerprint and signature of the
  • Foreign passport with temporary I-551 stamp or
    temporary I-551 printed notation on a machine
    readable immigrant visa
  • Employment Authorization Document that contains
    photo USCIS Form I-766
  • Foreign passport with an Arrival-Departure
    Record, Form I-94 or I-94A

Proof of Right to Work in U.S.
  • List B Proof of Identity
  • State issued drivers license or state ID with
  • ID card issued by government agency with photo
  • School ID card with photo
  • Voters registration card
  • US Military or military dependent ID card or
    draft record
  • US Coast Guard Merchant Mariner card
  • Native American tribal documentation

Proof of Right to Work in U.S.
  • List B Proof of Identity
  • Canadian Drivers License
  • For persons under age 18
  • School record or report card
  • Clinic, doctor, or hospital record
  • Day care or nursery school record

Proof of Right to Work in U.S.
  • List C Proof of Work Authorization
  • US Social Security Card
  • Certificate of birth abroad, Form FS-545 or
  • Original or certified copy of birth with official
    seal issued by state or local government
  • Native American tribal document
  • US Citizen ID card I-197
  • Employment authorization document issued by DHS
    (other that I-766)

Proof of Right to Work in U.S.
  • I-9 DOES NOT need to be completed for persons who
  • Hired before November 7, 1986 who are continuing
    their employment
  • Employed for casual domestic work in private
    homes on a sporadic, irregular or intermittent
  • Independent contractors or
  • Providing labor to you who are employed by a
    contractor providing contract services (ex.
    Employee leasing or temporary agencies)

Proof of Right to Work in U.S.
  • Section 1 Form I-9
  • Have the employee complete Section 1 by the time
    of hire by filling in the correct information and
    signing and dating the form
  • Ensure that the employee prints the information
  • If the employee needs assistance, have the
    employee sign or mark the form in the appropriate
    place. The preparer or translator must complete
    the Preparer/Translator Certification block on
    the form

Proof of Right to Work in U.S.
  • Section 2 I-9
  • The employee must present an original document or
    documents that establish identity and employment
    authorization within 3 business days of the date
    employment begins
  • Examine the document(s) and them fully complete
    Section 2
  • Watch Out An employer participating in the
    E-Verify Program may only accept List B documents
    that have a photograph
  • Receipt indicating that an individual has applied
    for initial work authorization or for an
    extension of expiring work authorization is no
    acceptable proof of employment eligibility on
    Form I-9

Proof of Right to Work in U.S.
  • Minors (individuals under age 18)
  • If a person under 18 cannot present a List A
    document or identity document from List B, Form
    I-9 should be completed in the following way
  • Parent or guardian must complete Section 1 and
    write Individual under age 18
  • Must complete Preparer/Translator Certification
  • Employer should write Individual Under 18 in
    Section 2, List B
  • Minor must present List C document

Proof of Right to Work in U.S.
  • Employees with disabilities (special placement)
  • If a person with disability, who is placed in a
    job by a nonprofit organization or as part of a
    rehabilitation program, cannot present a List A
    document or an identity document from List B, For
    I-9 should be completed as follows
  • Representative, parent or guardian must complete
    Section 1 and write Special Placement in space
    for the employees signature
  • Representative, parent or guardian must complete
    the Preparer/Translator Certification
  • Employer should write Special Placement in
    Section 2, List B
  • Employee with a disability must present a List C

Proof of Right to Work in U.S.
  • Future expiration dates may appear on the
    employment authorization document of aliens,
    permanent resident and refugees.
  • The existence of future expiration date
  • Does not preclude continues employment
  • Does not mean that subsequent employment
    authorization will not be granted
  • Should not be considered in determining whether
    an alien is qualified for a particular position

Proof of Right to Work in U.S.
  • Reverifying employment authorization for current
    employees When an employees work authorization
    expires, the employer must reverify his/her
    employment eligibility.
  • Use Section 3, or if Section 3 has already been
    used, use a new Form I-9. When using a new form,
    write the employees name in Section 1, complete
    Section 3, and retain the new form with the

Proof of Right to Work in U.S.
  • Reverifying or updating employment authorization
    for rehired employees
  • When rehiring an employee the employer must
    ensure that he/she is still authorized to work
  • Employers may do this by completing a new Form
    I-9 or by reverifying or updating the original

Proof of Right to Work in U.S.
  • Reverifying or updating employment authorization
    for rehired employees
  • The reverify, the employer must
  • Record the date of rehire
  • Record the document title, number and expiration
  • Sign and date Section 3
  • When verifying on a new Form I-9 write the
    employees name in Section 1

Proof of Right to Work in U.S.
  • To update the employer must
  • Record the date of rehire
  • Sign and date Section 3 and
  • When update on a new Form I-9, write the
    employees name in Section 1
  • Form I-9 is available in English and Spanish

Proof of Right to Work in U.S.
  • Special rules for alien enlistees by the Armed
  • Any person lawfully enlisted in the US Armed
    Forces has employer-specific work authorization
    to serve in the Armed Forces.
  • Employer-specific work authorization is for those
    aliens who do not otherwise have work
    authorization that would permit enlistment,
    either because they do not have work
    authorization at all, or because their work
    authorization is employer-specific for an
    employer other than the Armed Forces
  • The I-9 form is modified

Proof of Right to Work in U.S.
  • Penalties for knowingly hiring unauthorized
  • 1st offense - 375 to 3,200 per employee
  • 2nd offense - 3,200 to 6,500 per employee
  • 3rd offense - 4,300 to 16,000 per employee

Proof of Right to Work in U.S.
  • Penalties for knowingly hiring unauthorized
  • Failure to comply with verification requirements
    - 110 to 1,100 per person
  • Pattern and practice of violating hiring and
    verification process - 3,000 and/or 6 months in

E-Verify Program - General Rules
  • Employers can request
  • All hiring in each state or
  • Limited to hiring in one or more states or
  • One or more places or hiring within a state

E-Verify Program
  • E-Verify Program involves verification checks of
    the SSA and DHS databases, using an automated
    system to verify the employment authorization of
    all newly hired employees
  • Participation in voluntary in most instances and
    free to participating employer
  • Falls under the jurisdiction of USCISs
    Systematic Alien Verification for Entitlements
    (SAVE) Program

E-Verify Program
  • E-Verify is available of the Internet using
    Web-based accessed method
  • Once enrolled, registered its users, completed
    the Web-bases tutorial, can immediately begin
    using the program.

E-Verify Program
  • E-Verify offers
  • Employers enroll on the Internet
  • Internet training
  • User types
  • View and print reports
  • Internet resources
  • E-Verify Employer Agent

  • Photo Matching Tool Available
  • Occurs automatically for a new employee who
    presents an Employment Authorization Document
    (EAD) or Permanent Resident Card (green card) to
    prove work authorization
  • Allows employers to compare identical photos
    against the images stored in USCISs databases
  • Enhanced to allow photo matching of US Passports
    and Passport Cards

  • Drivers License Information Matching Pilot
  • RIDE Records and Information from DMVs for
  • Helps validate the authenticity of drivers
    licenses used by employees as Form I-9 identity
  • Matches the dates of birth and the drivers
    license numbers in state DMV records

E-Verify Program Rules
  • A Memorandum of Understanding (MOU) with the SAVE
    Program and SSA
  • New Hires only
  • Form I-9 completed
  • Form I-9 requirements remain the same, except all
    List B identity documents must contain a photo
  • Verify within 3 days of hire
  • All employees

E-Verify Program Rules
  • No employer cost
  • Equipment required
  • PC with modem and touch tone line with a single
    originating phone number

E-Verify Program Rules
  • Federal contractors and subcontractors must use
    E-Verify system to verify that new hires and
    current employees working on certain federal
    contracts are eligible to work in the US

New Hire Reporting
  • Personal Responsibility and Work Opportunity Act
    of 1996
  • Facilitate collection of child support
  • Uncover fraud and abuse
  • Unemployment Compensation programs
  • Workers Compensation Programs
  • Public Assistance (Welfare) benefit programs

New Hire Reporting
  • Reporting Requirements
  • Employee name, address, and social security
  • Employer name, address, and FEIN

New Hire Reporting
  • Employers operating in only 1 state
  • Report new hire information to that state
  • Paper, magnetically or electronically
  • Multistate Employers
  • Can report to any state
  • Magnetically or electronically

New Hire Reporting
  • Multistate reporting in one state
  • Notify Secretary of Health and Human Services
  • HHS form, letter, fax or e-mail
  • Information required
  • Employer name, address, phone and FEIN
  • Designated state and report begin date
  • List of all states with employees
  • Employer contact person
  • Any subsidiary name, zip code, and FEIN included
    in the reporting

New Hire Reporting
  • General Reporting Requirements
  • Report within 20 calendar days of hire
  • Magnetically or electronically
  • 2 transmissions per month (at least 12-16 days
  • States can establish the time frames but they can
    not be longer than the federal rules

New Hire Reporting
  • General Reporting Requirements
  • Multistate employers provide only information
    required by the state they report to
  • Date of hire
  • Employees who work 1 day must be reported
  • Independent contractors

New Hire Reporting
  • General Reporting Requirements
  • Rehired, Leave of Absence
  • Temporary help firms
  • Unions and hiring halls
  • Employees
  • Individual referred for employment

New Hire Reporting
  • Reporting format and method
  • Form W-4 or equivalent
  • 1st class mail, fax, magnetically, or
  • CAUTION If you use a Form W-4 for reporting, use
    a copy of the original when adding the employers
    name, employees date of birth, etc. Do not alter
    the original Form W-4!

New Hire Reporting
  • Penalties
  • Civil penalty of up to 25
  • 500 maximum if the result of a conspiracy
    between the employer and employee

New Hire Reporting
  • Information Processing
  • The states have 5 business days to enter
    information to the State Directory
  • 2 business days from the date of entry to
    transmit a child support withholding order
  • Within 3 days from the date of entry, the state
    must furnish the information to the National

Contact Info
  • Kim Childress
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