Government agencies prefer employees instead of independent contractors. It is easier and far more reliable to collect payroll taxes and income tax withholdings from employers than from independent contractors. Thus, these government agencies have stepped up their audit activities looking for companies that misclassify employees as independent contractors. In 2007, New Jersey became the first state to fully criminalize employee classification violations. Under this law, all payments for services are considered to be for an employee and the burden of proof is on the hiring manager to establish that the worker qualifies as an independent contractor. IEEE asks that it’s volunteer Treasurers become familiar with this issue to avoid any serious consequences.
If an IEEE unit wishes to hire an independent contractor, the unit must determine if the worker is truly independent. At minimum, you cannot exercise dominion and control over the work of the contractor. You can specify “what” is to be done but not “how”.
The test for determining a worker’s independent status is detailed below.
This affects all IEEE units in the United States and also conferences held outside the United States that make payments to U.S. persons. IEEE strongly suggests that “Temporary Agency” staff be used for administrative services since government agencies almost always determine that these are services typically performed by employees.
Section 31.3121(d)-1(c)(2) of the IRS regulations provides that generally the relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services not only as to the results to be accomplished by the work but also as to the details and means by which the result is accomplished.
The IRS test for determining worker's employment status is called the common law test. It is the measure the IRS uses to determine whether the hiring firm has the right to control a worker on the job. The IRS has instructed its auditors to look at three areas for this determination. These are:
1. Behavior Control
Factors that show whether a hiring firm has the right to control how a worker performs the specific tasks he or she has been hired to do. A worker will more likely be considered an independent contractor if he or she: 1) is not given instruction on how to do the work; 2) is not given training; and 3) is not evaluated on how the job is done.
2. Financial Control
Factor showing whether a hiring firm has a right to control a worker's financial life. A worker will more likely be considered an independent contractor if he or she: 1) has a significant investment in equipment and facilities; 2) pays business or travel expenses himself or herself; 3) makes his or her services available to the public; 4) is paid by the job; and 5) has opportunity for profit or loss (e.g. there is no opportunity for profit or loss if the worker is paid by the hour or is reimbursed for all expenses).
3. Relationship of the Worker and Hiring Firm
Factors showing whether hiring firm and the worker believe he or she is an independent contractor or an employee. A worker will more likely be considered an independent contractor if he or she: 1) is not provided with employee type benefits; 2) has signed an IEEE Independent Contractor Agreement (DOC, 71 KB) with the hiring firm; 3) is hired with the expectation that the working relationship will not continue indefinitely (e.g. Independent Contractor Agreement has a definite end date); and 4) performs services that are not a part of the hiring firm's regular business activities.
Generally, the IC to support independent status must provide two of the following examples of documentation:
If the IC is a sole proprietor and will agree to do so, copies of the IC's tax returns for the previous two years showing that the IC has filed a Schedule C, Profit or Loss From a Business; this will show that the IC has been operating an independent business. Confidential and personal information can be redacted on any documents provided.