1.3 Employee/Independent Contractor

States may assess a civil penalty of no more than $___________for failure to comply with new hire reporting requirements with a $_____________ maximum penalty if the failure to comply is the result of a conspiracy between the employer and the employee.

$25 / $500

The state has _____________________________ to enter information reported by employers into the State Directory of New Hires database, and ______________________________________ to transmit a child support withholding order (if one is in effect against the employee) to the employee's employer containing the periodic amount to withhold (including any past due amounts). Within ____________________________________, the state must furnish new hire information to the National Directory of New Hires so it can be matched with records from other state directories.

*five business days *two business days from the date of entry *three business days from the date of entry

An independent contractor submitting a $1,000.00 invoice without a TIN would have $240.00 withheld from the payment.

1000*24%=$240.00

employers must report newly hired employees within____________________________________.

20 calendar days of the date of hire.

A __________________________on nonwage payments is withheld if a payee has failed to provide a Taxpayer Identification Number (TIN) or the IRS has notified the payer that the TIN is incorrect.

24% backup withholding tax

______________ is the right to direct or control the means by which the worker performs the work to be done. __________________includes instructions and training provided by the employer. Detailed instructions for completing a job tend to reflect an employer-employee relationship. An employment relationship is also indicated if the employer provides periodic or ongoing training.

Behavioral control

Employers can notify HHS in one of several ways: What are they?

By filling out an HHS form By writing a letter that can be mailed or faxed On the Internet at https://ocsp.acf.hhs.gov/csp/home/employer

They should do what by completing Form 8919, Uncollected Social Security and Medicare Tax on Wages?

Common law employees are subject to withholding of employment taxes. If employers apply the §530 safe harbor rule, reasonable basis workers must pay Self-Employment Contribution Act (SECA) taxes when they file their personal income tax return.

Employee or Contractor:A contract governs how the relationship can be severed

Contractor:

Employee or Contractor:Can work for multiple employers; services available to the public

Contractor:

Employee or Contractor:Controls the sales process and terms

Contractor:

Employee or Contractor:Furnishes own tools, equipment, and training; substantial investment by worker

Contractor:

Employee or Contractor:Is self-employed

Contractor:

Employee or Contractor:Payment by the job; opportunity for profit and loss

Contractor:

Employee or Contractor:Performs services under the worker's business name

Contractor:

Employee or Contractor:Permitted to employ assistants

Contractor:

Employee or Contractor:Sets own hours; determines own sequence of work

Contractor:

Employee or Contractor:Works by the job

Contractor:

SSA processes about 257 million Forms W-2 each year and about 10% of these Forms W-2 have names and social security numbers that do not match. SSA places the unpostable Forms W-2 into the __________________________________.

Earnings Suspense File.

Employee or Contractor:Furnished tools, equipment, materials, and training

Employee

Employee or Contractor:Hired by the employer

Employee

Employee or Contractor:If an outside salesperson: company provides leads, sets terms and conditions of the sale, assigns a territory, and controls the sales process

Employee

Employee or Contractor:Paid wages; reimbursed for expenses; participates in company's fringe benefits programs

Employee

Employee or Contractor:Performs services under the company's name

Employee

Employee or Contractor:Subject to dismissal; can quit without liability

Employee

Employee or Contractor:Work done personally

Employee

Employee or Contractor:Works exclusively for the employer

Employee

Why do smaller employees like using leasing companies?

Employee leasing is especially attractive to smaller employers—especially those with fewer than 100 workers. They often cannot obtain lower cost group health insurance, while a leasing company with a larger work force may be eligible for lower rates

Under IRS regulations, the initial solicitation of a TIN from an independent contractor must be provided by the independent contractor to provide Form W-9. True or False ?

False: Under IRS regulations, the initial solicitation of a TIN from an independent contractor does not require the independent contractor to provide Form W-9. The TIN can be provided by other means.

True or False :The company it may have the contractual no right to refuse any worker sent by the agency or to request certain workers who may have done a good job in the past, these rights do not make the workers employees of the client company.

False: it may have the contractual right to refuse any worker sent by the agency or to request certain workers who may have done a good job in the past, these rights do not make the workers employees of the client company.

Employers must withhold federal income, social security, Medicare, state income, and local income taxes from employees' paychecks. In addition, the company must pay the employer's share of social security and Medicare taxes and make federal and state unemployment insurance contributions on their behalf and independent contractors: true or false?

False: withholding is not required for independent contractors, who provide the company with a Taxpayer Identification Number (TIN)

When the status of an employee's classification is in question and the employer applies the reasonable basis test, the employer must consistently treat the worker as an independent contractor by filing the correct tax forms (________________________ or, ____________________, ______________________)

Form 1099-MISC for payments prior to 2020, or beginning with payments in 2020, Form 1099-NEC for independent contractors and Form W-2 for employees

Backup withholding is treated separately from payroll withholding. It is deposited separately and reported separately on ___________ ______________.

Form 945.

Employers can report new hires using the employee's ,___________ or an equivalent form containing the required information, and can transmit the report by first class mail, magnetically, or electronically. Using the employee's ___________________ to meet the new hire reporting requirement entails a burden not previously faced by employers, since the employer identifying information and date of hire do not otherwise need to be placed on a ____________________.

Form W-4

In addition, ______________ ___________ tells the company whether the nonemployee is subject to backup withholding?

Form W-9

Factors the courts and the DOL consider when making an employment status determination of economically dependence include:

How much control the employer has over how the work is performed Whether the worker has the chance to make a profit or risks a loss based on how skillfully the work is performed Whether the worker invests in tools or materials required to perform the work or hires helpers Whether the work requires a special skill How permanent the working relationship is Whether the work performed is an integral part of the employer's business operation

If the IRS decides the new hire is actual classificated as an independent contractor , how does the employeer recoup the taxes for the time period of classication of employee, while waiting for form SS-8?

If the IRS rules the worker is an independent contractor, the employer is not entitled to a refund of any employment taxes paid.

_________________________________________________, and they are paid by the client, the client is the employer and must report the new hires.

If the agency merely refers individuals for jobs

What are the three degrees of control the IRS uses to classify the employee as a contractor or employee?

In applying the common law test, IRS examiners must consider three categories: Behavioral control Financial control Relationship of the parties

What taxes do the independent contractors have to pay, personally, on their own?

Independent contractors pay both the employee and employer social security/Medicare taxes as self-employment (SECA) taxes.

Federal government employers must report new hires to the?....

National Directory of New Hires

Employers or workers may receive a definitive IRS ruling as to a worker's status by completing Form by completing what form?

SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax withholding

To use the SSA's Social Security Number Verification Service (SSNVS), an employer must register with the ______________________.

SSA.

Multistate employers wishing to file all their new hire reports with one state must designate that state to the _________________ ____________________ ______________________ .

Secretary of Health and Human Services (HHS).

If the independent contractor has provided a __________, the company has no responsibility to withhold taxes from payments to the contractor.

TIN

The number of hours or days an individual works does not affect their classification . True or False

TRUE

__________________________________ has stated that multistate employers do not have to report the elements required by every state in which they have employees—only those required by the state the employer has selected for new hire reporting purposes.

The Office of Child Support Enforcement

_______________________ and _____________________________________ encourage employers to verify an employee's name and social security number (SSN) on an employee's Form W-4 as part of the hiring process for tax withholding and reporting purposes and urge workers NOT to carry their SSN or social security card on their persons because of the possibility of identity theft.

The Social Security Administration (SSA) / the Internal Revenue Service (IRS)

States can establish their own time frames for reporting new hires, but they can be no longer than the federal requirements. True or False

True

The client company's only obligation is to pay the agency a fee for the services of the temporary workers as required by its contract with the agency: TrUe or False

True

True or False: A company's taxing and reporting requirements are much less costly for independent contractors than they are for employees.

True

True or false: . Labor unions and hiring halls must report their own newly hired employees

True

If an employer reports new hires magnetically or electronically, he must send what?

Two tramissions for each calendar month which are 12-16 days apart.

A long-standing, recognized practice in a significant segment of the employer's industry of treating workers in similar situations as independent contractors

What is reasonable basis

A past IRS audit of the employer not resulting in a finding of taxes owed or a penalty attributable to the employer's treatment of the worker as an independent contractor (audits occurring after December 31, 1996, may not be relied on unless they include an employment classification audit of the worker involved or the audit of a similarly situated worker)

What is reasonable basis

Court decisions, published IRS rulings, IRS technical advices sent to an employer, or a private letter ruling from the IRS to an employer indicating the worker is not an employee

What is reasonable basis

Guidance from an attorney or CPA who knows the business

What is reasonable basis

Form SS-8 contains a series of questions categorized into___________, _________________, and _______________of the parties designed to determine the extent of the employer's right to control the result of the assigned work and the methods used to perform that work.

behavioral control, financial control, and relationship

What is hiring an employee under the correct employee classification so important?

classify the worker as an employee or an independent contractor affects the employer's tax and reporting requirements to federal and state governments as well as the employer-employee relationship

if an individual is subject to the _________________only as to what results are to be accomplished, and not as to the details by which those results are accomplished, the individual is not an ___________________.

control of the company ; employee

Employers with employees in two or more states that report new hires magnetically or electronically may __________________________________________________ to which they will report all their new hires.

designate one state where they have employees as the state

In interpreting this definition, the federal courts have steered away from a technical or legal approach, choosing instead to look at the ______________________________in each case.

economic realities

The courts and the U.S. Department of Labor's (DOL) Wage and Hour Division will find an employer-employee relationship where the worker __________ _____________________ is on the employer.

economically dependent

Employee or Contractor: Required to comply with employer's instructions about when, where, and how to work

employee

Maria, a copy editor, works part-time for Jackson Publishing. She works at the Jackson offices and is paid by the page. Her work is reviewed by a production editor and she can be discharged or may quit at any time. Maria also works for other publishers as time permits. Maria is an __________________ of Jackson Publishing. However, depending on the circumstances, she may or may not be an employee at her other jobs.

employee

Food for You, Inc., a caterer, provides full party catering services. It hires bartenders and wait staff from a local union organization. Even though the bartenders and wait staff supply their own uniforms, they are still considered __________________________ of Food for You, Inc.

employees

While waiting for the IRS to respond to Form SS-8, employers should treat workers whose classification is in question as _____________. All appropriate wages and taxes should be reported and/or withheld for such employees.

employees

National Directory of New Hires. The reporting requirements do not apply to who?

employees of federal or state agencies performing intelligence or counterintelligence functions if the head of the agency determines such reporting would endanger the employee or compromise an ongoing agency mission.

Under the common law test, a worker is a common law employee if the ________________________ will be done and _________________________.

employer has the right to control what work ;how that work will be done

Before the IRS can conduct a worker classification audit, the IRS employee conducting the audit must give the __________________________________of the §530 safe harbor protections.

employer written notice of the availability

Designating a worker's status as employee or independent contractor is the responsibility of who?

employer, not the worker

________________________________________________, states can use new hire information to aid in the administration of their unemployment compensation, workers' compensation, and certain other government benefit programs, in order to cut down on fraud and abuse.

enforcement of child support obligations

All of the required ______________and ________________ must be consistently filed by the employer according to the reasonable basis treatment of the worker as an independent contractor.

federal tax returns and tax information forms

The most significant evidence of is ___________________ whether the worker has the opportunity to make a profit or suffer a loss. If a worker has made a _____ _______ _______ _ ______ ___ , has unreimbursed business expenses, or has made the services available to the general public, the worker may be considered an independent contractor. IRS examiners also consider whether a worker is paid on a regular basis or by the job

financial control ; significant financial investment in the job

Elizabeth's Auto Mart provides a garage with two bays for Diane to perform car repair services. Diane provides all of the supplies needed to perform all of Elizabeth's auto work needs. Diane also solicits business from insurance adjusters and others. Diane hires her own workers, sets their work hours, and can fire them for poor performance. All repair prices are determined by Diane and she receives a percentage of the gross revenue of the work completed at the shop. Any uncollected charges are Diane's responsibility. Diane is an________________________ for Elizabeth's Auto Mart. However, the workers hired by Diane are her ________________________.

independent contractor ; employees.

An employer must be able to show it made an_________________________________________________________________. No additional solicitation is required unless the IRS notifies the employer the employee's SSN is incorrect.

initial solicitation for the employee's SSN at the time the employee began work

Form W-9, Request for Taxpayer Identification Number and Certification is used for what?

is used by nonemployees to provide a taxpayer identification number (social security number or employer identification number) to the company for which the nonemployee has received a reportable payment.

Another option to control employee cost: Under a ___________ -_______________ _-----------______________________ , trains, and qualifies workers for a client company, which pays a fee to the ________________ to cover the cost of payroll, benefits, etc.

leasing arrangement, the leasing company hires

Although the client company may have the right to hire and fire the workers, set wage levels, and supervise their work, the workers generally are employees of the __________________ which is responsible for all withholding and employment taxes as well as the administration and funding of any benefits it wishes to provide

leasing company,

A rehired employee must be reported when the individual has been separated from employment with the organization for at ____________ ______________ ______________ ___________.

least 60 consecutive days.

The IRS training manual requires examiners to_______________ __________________ employers' claims they have a reasonable basis for treating workers as independent contractors. The IRS auditor must also consider whether the safe harbor legislation of §530 applies to the situation even if the employer does not raise the issue.

liberally construe

the IRS cannot require the employer to show the practice continued for more than 10 years or was in existence before 1978.

making a long-standing recognized practice determination

exceptions do allow a worker qualifying as an employee under the common law test to be classified as an independent contractor when, what?

meeting the requirements of the reasonable basis test

When an employee requests a name change in the payroll system, the employer should refuse to make the change until a _______________________________________ with the employee's new name is presented for confirmation or the employer confirms the change through SSNVS.

new social security card

Multistate employers that submit reports twice monthly must submit information for a newly hired employee as soon as possible after the date of hire, but no later than the ____________________________________________.

next semimonthly reporting period.

employees who are rehired after being laid off or who return to work after a leave of absence, do not need to be reported as new hires if they were __________ _____________ ______________ ___________ ___________ days

not absent for more than 60 days

Employers with employees in only one state must report newly hired employees to that state, either on ___________ _____________ or __________________.

paper, magnetically, or electronically.

If the employer makes the name change in its payroll system before a new social security card is obtained, errors in posting earnings to the employee's social security account and in preparing the employee's Form W-2 could occur, what could happen?

possibly leading to lower social security benefits for the employee and penalties for the employer.

independent contractor, the company's tax and reporting obligations are minimal as long as the contractor meets what conditions?

provides the company with a valid Taxpayer Identification Number (TIN), the employer's only obligation is to give the contractor a completed Form 1099-NEC, Nonemployee Compensation, when paying the contractor $600 or more during the calendar year (see Forms and Publications in the Online Resource Center) at the end of the year.

Employers may treat workers who would be employees under the common law test as independent contractors, exempt from federal employment tax laws, if they have a _____________________ for doing so.

reasonable basis

The ______________________________ is determined by examining how the worker and the employer perceive their relationship. If a Form W-2, Wage and Tax Statement was filed for the worker or if the worker received benefits under the employer's benefit plans, the worker is classified as an employee.

relationship of the parties

The IRS rules state that since these workers are employees for all purposes other than employment taxes, the employer should provide benefits to the workers.

self- employed and must pay their own federal income taxes

the IRS cannot require an employer to show that more than 25% of its industry treated similarly situated workers as independent contractors

significant segment determination

What is form 1099-NEC and where is a copy sent to?

states how much the contractor was paid for services rendered during the past calendar year. A copy of this form must also be sent to the Internal Revenue Service (IRS)

They are employees of _______________ --__________________ ________________the, which has the sole right to hire and fire them. The agency is responsible for complying with any payroll, benefits, and human resources requirements.

temporary help agency

hired, screened, and trained by the temporary help agency to provide services for client firms.

temporary workers

An employee's date of hire is considered to be when?

the first day services are performed for wages by the employee and employees who work for as little as one day must be reported

A worker who receives a Form W-2 reporting income earned in a year or is asked to complete a Form W-4 providing the filing status, deductions, and/or credits is not being consistently treated as an independent contractor and the employer cannot use what ?

the §530 safe harbor.

Following receipt of an IRS notice, the employer is required to make up to___________________________________________. The solicitation for the SSN must be ________________________________________ in which the IRS penalty notice was received, and may be made by mail, telephone, electronically, or in person.

two annual solicitations for the correct SSN. /made by December 31 of the year

The employer must also consistently treat similarly situated workers in the same manner ?

two or more workers doing the same job must both be either employees or independent contractors, not one of each.

NHR is requried to federal contractors? True or false?

False: The federal reporting requirement does not apply to independent contractors but some states do require such reporting.

Why is it important for the employer to treat the new hire as employee while waiting for the ruling from the IRS on form SS-8?

This helps the employer avoid penalties and interest assessments if the IRS finds an employer-employee relationship does exist between the employer and the worker.

is the common law test .....

.....the primary way an individual qualifies as an employee or independent contractor

What following information is required for SSN verification requests?

Employee's SSN Employee's full name Employee's date of birth (optional)

On the designate of state , what must the employer provided?

Employer's name, address, phone number, and Federal Employer Identification Number (FEIN) The state to which the employer will report new hires and the date on which multistate reporting will begin Other states in which the employer has employees Employer contact information (name, title, phone number, email address, fax number) FEIN, name, state, and zip code of any subsidiary of the employer with a different FEIN for which the employer will be reporting new hires

The federal Fair Labor Standards Act (FLSA) regulates what?

FLSA:regulates minimum wage rates, overtime pay, child labor, and equal pay for employees covered by the law

A signed Form SS-8 is required by the IRS; a form with a facsimile signature is allowed. True or False

False. IT's not allow: A signed Form SS-8 is required by the IRS; a form with a facsimile signature is not allowed.

True or False: Temporary help agencies paying wages to employees they refer are not responsible for reporting them as new hires

False: Temporary help agencies paying wages to employees they refer are responsible for reporting them as new hires

For independent contractor, what does the company not match?

The company does not withhold or match social security or Medicare taxes on the payments for services provided by an independent contractor.

Sara, the president of TaxPrepCo, needs extra data processors to handle electronic filing of tax returns in March and April. She contracts with Short-Temps, Inc., which has supplied her with such workers in the past, and asks for several workers who performed well previously. Short-Temps has trained the workers and provides them to several tax preparation services as needed, reviewing their performance with some input from the client firms. Who employs these workers?

The data processors are employees of Short-Temps.

For each newly hired or rehired employee, the employer must provide what following information to the state new hire directory:?

The employee's name, address, and social security number The employer's name, address, and Federal Employer Identification Number (FEIN) The date the employee first performed services for pay

The Small Business Job Protection Act of 1996 clarified how the reasonable basis test can be applied to workers. : Name four amendments:

There does not have to be a determination by employers that workers are employees under the common law test before the Reasonable Basis Test can be applied. If employers change the classification of their workers from independent contractors to employees for tax purposes, employers may still claim Reasonable Basis protection concerning the workers' previous classification for the quarters that occurred before the change was implemented. In determining whether two workers hold substantially similar positions, the IRS must consider the existing relationship between the employer and each of the two workers. Once employers have offered sufficient proof to the IRS they have been reasonably treating workers as independent contractors under the Reasonable Basis Test, the burden of proving the workers should be classified as employees becomes the responsibility of the IRS.