CPP - Section 1 The Employee / Employer Relationship
What does a social security card prove in terms of an employee's work authorization status under IRCA?
A social security card that does not contain language saying that employment is not work-authorized is proof of an employee's authorization to work in the U.S., but not proof of identity.
When must employers report newly hired employees under the federal new hire reporting requirement?
In general, employers must report newly hired employees within 20 calendar days of the date of hire. If an employer reports new hires magnetically or electronically, it must send 2 transmissions per calendar month which are 12 - 16 days apart.
If an employer fails to withhold social security and Medicare taxes from a worker it misclassifies as an independent contractor and does not file a Form W-2 or a Form 1099 for that worker, what penalty may the IRS impose? a. 10% of the employee's share of social security and Medicare taxes b. 20% of the employee's share of social security and Medicare taxes c. 40% of the employee's share of social security and Medicare taxes d. 100% of the employee's share of social security and Medicare taxes
c. 40% of the employee's share of social security and Medicare taxes
What is Form I-9 used for?
To verify that an individual has the legal right to work in the United States. The Immigration Reform and Control Act of 1986 makes it illegal for an employer to hire an unauthorized worker
An IRS agent conducting an employment tax audit must give the employer written notice of the availability of the Section 530 protections. (True or False)
True
An accountant who provides bookkeeping and payroll services to several local businesses and works at her own office is an independent contractor. (True or False)
True
An employer that changes its classification of a worker from independent contractor to employee may still claim Section 530 protection for the period before the change in treatment. (True or False)
True
If an employee is rehired by an employer 75 days after being terminated, the employer must report the employee as a new hire (True or False)
True
If an independent contractor timely provides the employer with a correct Taxpayer Identification Number, there will be no backup withholding. (True or False)
True
If the employer has the right to control what work will be done and how that work will be done, an employer-employee relationship exists under the common law test. (True or False)
True
Length of employment makes no difference in determining employment status. (True or False)
True
Technical services specialists are specifically excluded from the "reasonable basis" test. (True or False)
True
The responsibility for determining the employment status of an individual who performs services rests with the employer.(True or False)
True
Under the ABC test, one of the determining factors is whether the worker in question is free from control or direction in performing the work both by agreement and in reality. (True or False)
True
Workers hired through a temporary help agency are not employees of the client company. (True or False)
True
Each of the following individuals would be classified as an employee except: a. Controller of a company b. College professor c. Attorney (solo practitioner) d. City police officer
c. Attorney (solo practitioner)
Full-time life insurance salespersons paid solely by commission are exempt from: a. Social security and Medicare taxes b. Social security tax only c. FUTA tax d. Social security, Medicare, and FUTA taxes
c. FUTA tax
Other than the employee's name, address, and SSN, and the employer's name, address, and EIN, federal law requires that a new hire report must include the employee's: a. Date of birth b. Health insurance coverage c. First day of work for pay d. Starting salary or hourly rate of pay
c. First day of work for pay
Which of the following forms may be completed and submitted to the IRS to determine the employment status of an individual for federal income and employment tax purposes? a. Form SS-4 b. Form SS-5 c. Form SS-8 d. Form W-9
c. Form SS-8
Which of the following individuals are statutory nonemployees? a. Homeworkers b. Full-time life insurance salespersons c. Newspaper deliverers d. Traveling salespersons
c. Newspaper deliverers
Each of the following goals is a reason why states might require employers to report newly hired employees except: a. To detect welfare fraud b. To detect unemployment compensation fraud c. To locate individuals who have not claimed state lottery winnings d. To locate noncustodial parents subject to a child support withholding order
c. To locate individuals who have not claimed state lottery winnings
When a client company contracts with a certified PEO, who is responsible for withholding and/or paying federal income, social security, Medicare, and FUTA taxes on the wages the PEO pays to the employees at the client's worksite
Under the Certified Professional Employer Organization program, a certified PEO may assume the responsibility for withholding and/or paying federal income, social security, Medicare, and FUTA taxes on the wages the PEO pays to the employees at the client's worksite
The definition of a "newly hired" employee for the purposes of new hire reporting includes an employee who was previously employed by the employer but has been separated from that prior employment for: a. At least 6 weeks b. At least 60 consecutive days c. At least 2 calendar months d. At least 30 consecutive days
b. At least 60 consecutive days
Which of the following forms must be submitted to an independent contractor (who is paid at least $600) after the end of the year for services performed during that year? a. Form W-2 b. Form 1099-MISC c. Form 1096 d. Form SS-8
b. Form 1099-MISC
All of the following facts and circumstances would be typical of an independent contractor except: a. Works off site b. Paid by the hour c. Furnishes own tools d. Sets own work hours
b. Paid by the hour
All of the following workers are statutory employees except: a. Full-time life insurance salespersons b. Qualified real estate agents c. Homeworkers d. Traveling or city salespersons
b. Qualified real estate agents
If an employer that hires employees in more than one state wants to report all its new hires to just one state, it can request permission to do so by filing the following form with the Department of Health and Human Services: a. Form W-4, Employee's Withholding Allowance Certificate b. Form W-9, Request for Taxpayer Identification Number and Certification c. Multiple Worksite Report d. Multistate Employer Notification Form for New Hire Reporting
d. Multistate Employer Notification Form for New Hire Reporting
What is the name of the program employers can use to verify the employment authorization status of new hires with U.S. Citizenship and Immigration Services
the E-Verify Program
What are the four categories of statutory employees?
• Agent-drivers or commission-drivers • Full-time life insurance salespersons • Homeworkers • Traveling or city salespersons
What are the two categories of statutory nonemployees?
• Qualified real estate agents • Direct sellers
What information must be reported by an employer for each new hire under the federal new hire reporting requirement?
• The employee's name, address, and social security number • The date the employee first performed services for pay • The employer's name, address, and federal employer identification number (EIN)
What factors do the courts and the Department of Labor consider when making an employment status determination under the FLSA?
• The extent to which the work performed is an integral part of the employer's business operation • Whether the worker has the chance to make a profit or risks a loss based on his or her managerial skills • The extent of the relative investments of the employer and the worker • Whether the work requires special skills and initiative • How permanent the working relationship is • The degree of control exercised by the worker or retained by the employer
List the factors used under the common law test in determining whether a business has the right to control the financial aspects of a worker's activities
• Whether the worker has made a significant financial investment in performing the work • Whether the worker has business expenses that are unreimbursed • Whether the worker makes his or her services available to the general market • Whether the worker is paid on a regularly recurring basis or by the job
Which factors are considered not to be important by the IRS in making a worker classification determination because of changes in the workplace over the years?
• part-time or full-time work • the location of the work • hours of work
When leasing an employee or using a temporary help agency, aside from looking at the cost, what should you know about the overall company that you are dealing with to avoid having to pay any withholding or employment taxes
Employers should make sure they are dealing with a financially secure and reputable company before entering into a contract, since the temporary help agency or leasing company's financial failure could lead to the client company becoming liable for any withholding or employment taxes that remain unpaid
Full-time life insurance salespersons are always considered statutory employees and are never subject to FUTA tax. (True or False)
False - Their earnings must consist solely of commissions to be exempt from FUTA tax
Employers can demand specific documents to prove an employee's eligibility to work in the U.S. (True or False)
False. Employers cannot demand specific documents to prove an employee's eligibility to work. New hires can produce any approved documents listed in the Form I-9 instructions that prove identity and work authorization
If an employer uses the E-Verify Program, a new hire does not have to enter their SSN in Section 1 of Form I-9. (True or False)
False. If an employer uses the E-Verify program, new hires must enter their SSN in Section 1 of Form I-9.
Telemarketers working under the direction of a company are usually independent contractors. (True or False)
False. If telemarketers work under the direction and control of a company, they are employees of that company
Managers and executives are excluded from the employer-employee relationship for tax purposes. (True or False)
False. Managers and executives are classified as employees for tax purposes, although they are exempt under most wage-hour and labor relations laws
Under the federal new hire reporting requirements, multistate employers must report a new hire to the state in which the employee works. (True or False)
False. Multistate employers can designate one state in which they have employees as the state to which they will report all new hires
Part-time employees are not covered under the federal payroll tax laws even if they meet the common law test for employment status. (True or False)
False. Part-time employees are covered under the federal payroll tax laws if they meet the common law test for employment status
Employers who claim Section 530 status for their workers because a significant segment of their industry classifies similar workers the same way must show that at least 50% of the industry treats these workers as independent contractors. (True or False)
False. The IRS cannot require an employer to show that more than 25% of its industry treated similarly situated workers as independent contractors
If an employee resigns after working for an employer for five years, the employer must retain the employee's Form I-9 for three years after the employee's last day of employment (True or False)
False. The employer must retain the employee's Form I-9 for one year after the employee's last day of employment
Compare a temporary help agency employee and a leased employee
Temporary workers are hired, screened, and trained by the temporary help agency to provide services for clients. They are employees of the temporary help agency, which sets their wages and has the sole right to hire and fire. The agency is also responsible for all payroll taxes. Leased employees are hired, trained, and qualified by a leasing company, which provides workers for a client company. The client pays a fee to the leasing company to cover the cost of payroll, benefits, etc. Responsibility for payroll taxes depends on the degree of control exercised by the client over the employees' work and which entity has control over the payment of their wages
What is the IRCA?
The Immigration Reform and Control Act of 1986 (IRCA) amended the Immigration and Nationality Act to make it illegal for an employer 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
Why would many employers rather use workers who are not employees to perform services for them?
The employer-employee relationship also brings obligations — income and employment tax withholding, unemployment insurance contributions, workers' compensation premiums, etc. If a worker is an employee, most companies have their own list of benefits and other entitlements that are provided to employees but not to independent contractors
How long must an employer retain a Form I-9 for a terminated employee who worked for the employer for more than four years? a. 1 year after termination b. 3 years after termination c. 7 years after termination d. Does not have to keep terminated employees' I-9 forms
a. 1 year after termination
All of the following types of evidence support an employer's treatment of a worker as an independent contractor under the "reasonable basis" test except: a. Place of work b. Court decisions c. Private letter rulings d. Past IRS employment tax audits
a. Place of work
What are the three parts of the ABC test, and what is the test used to determine
a. The three parts of the ABC test are • The worker is free from control or direction in performing the work both by agreement and in reality (Absence of control). • The work is performed outside the usual course of the company's business or away from any of the employer's facilities (Business—unusual and/or away). • The worker is customarily engaged in an independent trade, occupation, or business (Customarily independent contractor). b. The ABC test is used by many states to determine a worker's status as an employee or independent contractor under state unemployment insurance laws
Which of the following situations describes one of the general requirements that must be met for workers to be considered statutory employees? a. They have a continuing relationship with the employer b. They have a substantial investment in the business equipment c. They are licensed real estate agents d. Most of their compensation is related to sales
a. They have a continuing relationship with the employer
