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Alternate Staffing Contents
TAB 1000 Alternative Staffing Planning Guide
TAB 2000 Employment Taxes
TAB 3000 Common-Law Test
TAB 4000 Statutory Independent Contractors
TAB 5000 Contracts, Forms and Internal Procedures
TAB 6000 IRS Enforcement
TAB 7000 Labor Law
TAB 8000 Health Care Reform
APPENDICES and INDEX
TAB 1000 Alternative Staffing Planning Guide
•1000 OVERVIEW OF ALTERNATE STAFFING ARRANGEMENTS
•1001 Risks
THE INDEPENDENT CONTRACTOR OPTION
•1010 THE ADVANTAGES OF USING INDEPENDENT CONTRACTORS
•1011 Tax Savings
Table 1011
Comparison of Annual Costs Payable to IRS by Service Recipient for Independent Contractor vs. Employee
Table 1011(a)
Rules for Calculating Social Security Taxes for 1994
•1012 Administrative and Overhead Saving
•1013 Flexibility in Meeting Labor Needs
•1014 Enhanced Productivity
•1015 Special Application of Independent Contractor Status to Individuals Performing Services in Foreign Countries
•1020 RISKS OF USING INDEPENDENT CONTRACTORS
•1021 Adverse Effects on Qualified Benefit Plans
•1022 COBRA Considerations
•1023 Conflict with Other Federal Laws and State Laws
•1030 OBLIGATIONS IMPOSED ON BUSINESSES THAT USE INDEPENDENT CONTRACTORS
•1031 Control Over a Worker’s Performance
•1032 Burden of Proof
•1033 Section 530 Protection
•1040 WHY BUSINESSES HAVE AND INCENTIVE TO ENCOURAGE TAX COMPLIANCE AMONG INDEPENDENT CONTRACTORS
•1050 WORKLOAD CONTINGENCIES AND SPECIAL PROJECTS
•1051 Independent Contractors as an Alternative Work Force
THE LEASED EMPLOYEE OPTION
•1200 WHY LEASED EMPLOYEES HAVE BECOME AN ATTRACTIVE OPTION TO MANY BUSINESSES
•1210 WHY WORKERS HAVE FOUND SATISFACTION IN LEASING ARRANGEMENTS
•1220 HOW TO IMPLEMENT A SUCCESSFUL LEASED EMPLOYEE ARRANGEMENT
•1230 GUIDELINES FOR MAINTAINING A LEASING ARRANGEMENT
•1240 SPECIAL INTERNAL REVENUE CODE CONSIDERATIONS
•1250 CASE LAW DEVELOPMENTS AFFECTING LEASING ARRANGEMENTS
OTHER CONSIDERATIONS
•1300 FIRST AMENDMENT PROTECTIONS APPLY TO INDEPENDENT CONTRACTORS
•1400 EMPLOYEE BENEFIT IMPLICATIONS
•1401 Benefit Implications When Engaging Independent Contractors
•1402 Benefit Implications when Engaging Leased Employees
•1403 Suggestions for Excluding Contingent Workers From Benefit Programs
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TAB 2000 Employment Taxes
•2000 INTRODUCTION
•2010 WHAT IS AN INDEPENDENT CONTRACTOR?
•2020 ‘EMPLOYEE’ UNDER VARIOUS FEDERAL EMPLOYMENT TAXES
•2030 FICA TAX VS. SECA TAX
•2031 FEDERAL INSURANCE CONTRIBUTIONS ACT (FICA) TAX
•2032 FICA Tax Components
OASDI Component—Social Security TaxHI
Component—Medicare Tax
•2033 Calculating FICA Tax Liability
•2034 FICA Tax Issues
•2035 SELF-EMPLOYMENT CONTRIBUTIONS ACT (SECA) TAX
•2036 Self-Employment Income, for Purposes of SECA Taxes
•2037 Exclusions and Special Rules for Determining Self-Employment Income
1. Net Earnings from Self-Employment
2. Trade or Business
•2040 FICA TAX STATUS
Chart 2040: Determining Employee Status for FICA-Tax Purposes
•2041 Employment for FICA-Tax Purposes
•2042 Employee Status for FICA-Tax Purposes
Home Workers
•2043 Wages for FICA-Tax Purposes
Tips
Deferred Compensation
•2044 Employer for FICA-Tax Purposes
•2045 Common Paymaster Rules for FICA-Tax Purposes
•2050 FUTA TAX STATUS
Chart 2050: Determining Employee Status for FUTA Tax
•2051 Exceptions to FUTA Statutory Employee Status
•2052 Exceptions to FUTA Tax Coverage
•2053 Wages
•2054 ‘Employer’ for Purposes of FUTA Tax
•2055 Common Paymaster Rules—FUTA Tax
•2060 FEDERAL INCOME TAX WITHHOLDING
•2061 Individuals Subject to Federal Income Tax Withholding
•2062 ‘Employer’ for Purposes of Federal Income Tax Withholding
•2070 RULES GOVERNING THE PAYMENT OF EMPLOYMENT TAXES
•2071 Due Dates for Employment Tax Deposits
•2072 Interest-Free Adjustments for Unpaid Employment Taxes Due to Misclassification
•2073 Employment Tax Obligations Relating to Foreign Employers and Employees
•2074 Table 2074: Applicability of Employment Taxes to Workers
•2080 RAILROAD RETIREMENT TAX ACT OF 1974 (RRTA) TAX
•2081 Employee RRTA Act
•2082 RRTA Excise Tax on Employers
•2083 RRTA Tax on Employee Representatives
•2084 Definition of Employer for Purposes of the RRTA
•2085 Guidance for Complying with the RRTA
•2090 RAILROAD UNEMPLOYMENT INSURANCE ACT (RUIA) TAX
•2100 SPECIAL EXCEPTION TO THE DEFINITION OF ‘EMPLOYER’
1. General Rule
2. Control of the Payment Exception
•2110 MISCELLANEOUS RULES AND APPLICATIONS
•2200 TAX LEGISLATIVE DEVELOPMENTS
•2201 The Risk of Legislative Change
•2202 TAXPAYER RELIEF ACT OF 1997
1. Clarification of Standards for Determining Tax Status of Retail Securities Brokers
2. Treatment of Certain Termination Payments Received by Former Insurance Salesmen
3. Extension of FUTA Surtax
4. Awarding of Administrative Costs and Attorney Fees
5. Tax Court Jurisdiction for Determining a Worker’s Status
6. Combined Employment Tax Reporting Demonstration Project
•2203 SMALL BUSINESS JOB PROTECTION ACT OF 1996
1. Section 530 Modifications
2. Statutory Independent Contractor Status Accorded Newspaper Distributors
and Carriers
3. Modification of Leased Employee Definition
4. Expansion of FICA Tax Credit
5. Permanent Extension of FUTA Exemption for Alien Agricultural Workers
6. Employment Tax Status of Certain Fishermen
7. Application of Common Paymaster Rules to Certain Agency Accounts
at State Universities
•2204 H.R. 1972 (104th Congress) - New Safe Harbor Proposal for Independent Contractor Status
•2205 S. 1610 (105th Congress) - New Safe Harbor Proposal for Independent Contractor Status
•2206 S. 460 (105th Congress) - The Home Based Business Fairness Act of 1997
•2300 PERTINENT REPORTS
•2301 GAO/GGD 92-108, Approaches for Improving Independent Contractor Compliance
•2302 H.R. 102-1053, Contractor Games: Misclassifying Employees as Independent Contractors
•2303 H.R. 102-1060, Improving the Administration and Enforcement of Employment Taxes
•2304 Wage Reporting Simplification Project
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TAB 3000 Common-Law Test
•3000 GENERAL RULE
•3010 COMMON-LAW TEST—ESTABLISHING EMPLOYEE STATUS
•3020 DETERMINING THE PRESENCE OR ABSENCE OF CONTROL
•3030 THE TWENTY COMMON-LAW FACTORS OF WORKER STATUS
•3031 General Application of Common-Law Tests
1. Facts and circumstances test
2. Hazards of generalization
3. Description of worker not determinative of status
4. The definition of employee for purposes other than federal employment
taxes is not necessarily controlling
•3032 Comprehensive Examination of Twenty Common-Law Factors
1. Instructions
2. Training
3. Integration
4. Services rendered personally
5. Hiring, supervising and paying assistants
6. Continuing relationship
7. Set hours of work
8. Full-time required
9. Doing work on employer’s premises
10. Order or sequence set
11. Oral or written reports
12. Payment by hour, week or month
13. Payment of business and/or traveling expenses
14. Furnishing of tools and materials
15. Significant investment
16. Realization of profit or loss
17. Working for more than one firm at a time
18. Making services available to the general public
19. Right to discharge
20. Right to terminate
•3040 APPLICATION OF COMMON-LAW TEST IN SPECIAL CONTEXTS
1. Professionals
2. Three-party relationships
3. Dual-status workers
4. Individuals participating in ‘sheltered workshops’
5. Effect of government regulations requiring that some control be
exercised over a worker
6. Incorporated service providers
7. Workers participating in company plans
•3050 APPLICATION OF COMMON-LAW TEST TO SPECIFIC ARRANGEMENTS
1. Medical service providers
2. Insurance agents and district managers
3. Lumpers
•3100 [Reserved]
•3200 IRS ADMINISTRATIVE DEVELOPMENTS
•3201 IRS Treatment of Amounts Paid for Accident and Health Insurance by an S-Corporation Covering 2-Percent Shareholder-Employee
•3202 IRS Issues Revised Policy Statement on Trust Fund Recovery Penalty Assessments
•3203 IRS Forms New Office
•3204 Industry Specialization Program Affecting Independent Contractors
•3205 IRS Announces Industry-Specific Focus on Independent Contractors
•3206 IRS Proposes Two Coordinated Issue Papers Concerning Worker Status
•3207 IRS Announces New Regulations Project Dealing With Treatment of Independent Contractors
•3208 Additional Funds Allocated to IRS’s Reclassification Efforts
•3209 IRS Coordinated Issue Paper Concluded That Wages Paid by Foreign Shipping Entity to a U.S. Crew are Subject to Federal Income Tax Withholding
•3210 Attorneys Targeted for IRS Employment Tax Audits
•3211 IRS Considers Requiring Through Administrative Procedures Form 1099 Reporting on Payments Made to Corporate Service Providers
•3212 IRS Announces Pursuit of Physicians for Suspected Employment Tax Improprieties
•3213 IRS Announces New Program for Resolving Worker Classification Disputes
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TAB 4000 Statutory Independent Contractors
•4000 OVERVIEW OF STATUTORY INDEPENDENT CONTRACTOR PROVISIONS
•4010 Section 530 of the Revenue Act of 1978
•4011 Rationale for Enactment of Section 530
•4012 LIMITATIONS On SECTION 530
1. Section 530 Applies Only With Respect to a Business; Not the Affected Worker
2. Section 530 Applies Only to Federal Employment Taxes; Not Income Taxes
•4020 REQUIREMENTS OF SECTION 530 - An OVERVIEW
•4030 ESTABLISHING ‘REASONABLE BASIS’ UNDER SECTION 530
•4031 Statutory Reasonable Basis
1. Acceptable Precedent
2. A Past IRS Audit of the Taxpayer
3. Long-standing Industry Practice
•4032 Reasonable Basis Demonstrated ‘In Some Other Manner’
•4033 Consistency Requirement
1. Substantially Similar
2. What Constitutes Treatment
3. Treating an Individual as an Employee for Purposes of Certain State Laws
•4034 Information Reporting Requirement
•4035 SECTION 530 AND SPECIAL APPLICATIONS
1. Section 530 and the Common Law Test
2. Section 530 and Section 3401(d)
3. Section 530 and Statutory Employee Status
4. Section 530 and State or Local Government Employees
5. Section 530 and Reclassification
•4036 BURDEN OF PROOF
•4040 SECTION 1706 EXCEPTION FOR ‘TECHNICAL WORKERS’
1. Requirement for Third-Party Arrangements
2. Individuals to Whom Section 530(d) – TRA 86 Section 1706 Applies
•4050 STATUTORY CLASSIFICATION OF DIRECT SELLERS, REAL ESTATE AGENTS AND NEWSPAPER DISTRIBUTORS
•4051 Definition of Qualified Real Estate Agent
•4052 Definition of Direct Seller
1. Definition of ‘consumer product’
2. Application of direct seller definition in specific contexts
•4053 Definition of Newspaper Distributor
•4054 Exception for Qualified Retirement Plans
•4060 THE SITTER REFERRAL EXCEPTION
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TAB 5000 Contracts, Forms and Internal Procedures
•5000 INTRODUCTION
•5010 GENERAL CONTRACT LANGUAGE
•5020 SAMPLE CONTRACTS
• Contracts With Technical Workers
• Contracts With Real Estate Agents
• Contracts With Attorneys
• Contracts With Photographers
•5030 COMPANY POLICY STATEMENTS
•5031 Sample Policy Statement
•5040 CHOOSING BETWEEN AN INDEPENDENT CONTRACTOR AND AN EMPLOYEE
•5041 Suitability
•5042 Section 530 Protection
•5043 Statutory Independent Contractors
•5044 Statutory Employees
•5050 INVOICING AND ACCOUNTING
•5051 Sample Invoices
•5052 Documenting ‘Independence’
•5060 COMMUNICATING WITH THE IRS
•5061 IRS Form SS-8
•5062 Interrelationship Between Claim of Section 530 Safe Haven and IRS Form SS-8
TAB 5000 Contracts, Forms and Internal Procedures
•5000 INTRODUCTION
•5010 GENERAL CONTRACT LANGUAGE
•5020 SAMPLE CONTRACTS
• Contracts With Technical Workers
• Contracts With Real Estate Agents
• Contracts With Attorneys
• Contracts With Photographers
•5030 COMPANY POLICY STATEMENTS
•5031 Sample Policy Statement
•5040 CHOOSING BETWEEN AN INDEPENDENT CONTRACTOR AND AN EMPLOYEE
•5041 Suitability
•5042 Section 530 Protection
•5043 Statutory Independent Contractors
•5044 Statutory Employees
•5050 INVOICING AND ACCOUNTING
•5051 Sample Invoices
•5052 Documenting ‘Independence’
•5060 COMMUNICATING WITH THE IRS
•5061 IRS Form SS-8
•5062 Interrelationship Between Claim of Section 530 Safe Haven and IRS Form SS-8
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TAB 6000 IRS Enforcement
•6000 SCENARIOS: WARNING FLAGS TO THE IRS
1. Forms 1099 above a threshold amount
2. Attorneys targeted
3. Tax exempt organizations
4. State and local governments
•6020 STATUTE OF LIMITATIONS
•6030 CONSEQUENCES OF RECLASSIFICATION AND MISCLASSIFICATION
•6031 EMPLOYEE BENEFIT PLAN RAMIFICATIONS
•6032 TAX LIABILITIES
1. General rule
2. Section 3509 mitigation
3. Section 3402(d) abatement
4. Responsible Person Refund Claim
5. One hundred percent penalty
6. Responsible person, one hundred percent penalty decisions
7. Revised policy statement on trust fund recovery penalty assessments
8. Section 3505 third-party liability
9. Reasonable cause defense against penalties
•6033 RECOVERY OF FEES AND COSTS
•6034 CRIMINAL SANCTIONS
•6035 STATE LAW CLAIMS
•6040 CLAIMS OF MISCLASSIFICATION BY INDEPENDENT CONTRACTORS
•6050 IRS QUERIES
•6051 WHAT TO DO IF THE IRS CALLS
•6052 PRE-AUDIT PROCEDURES
1. Compliance checks
•6053 EXAMINATIONS
1.Early referral program
•6054 PROTEST: THE IRS APPEALS PROCESS
•6055 LITIGATION
1. Jurisdiction
2. Burden of proof
•6056 PROVING YOUR CASE
•6057 MISCELLANEOUS
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TAB 7000 Labor Law
•7000 INTRODUCTION
•7010 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 197
•7011 ERISA: Scope of Coverage
•7020 THE FAIR LABOR STANDARDS ACT OF 1993
•7021 FLSA: Scope of Coverage
•7022 FLSA Exemptions
•7030 THE FAMILY AND MEDICAL LEAVE ACT OF 1993
•7031 FMLA: Scope of Coverage
•7032 FMLA: How to Avoid Coverage
•7040 THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967
•7041 ADEA: Scope of Coverage
•7050 THE AMERICANS WITH DISABILITIES ACT OF 1990
•7051 ADA: Scope of Coverage
•7060 WORKER ADJUSTMENT AND RETRAINING ACT
•7070 TITLE VII OF THE CIVIL RIGHTS ACT OF 1964
•7080 CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985
•7090 THE NATIONAL LABOR RELATIONS ACT
•7100 OTHER LAWS
•7101 Federal Tort Claims Act
•7110 SIGNIFICANT STATE LAWS
•7200 LEGISLATIVE DEVELOPMENTS
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TAB 8000 Health Care Reform
•8000 THE HEALTH SECURITY ACT
•8010 EXCERPTS FROM THE HEALTH SECURITY ACT
•8011 HSA—As Introduced
•8012 HSA—As Proposed
•8020 ANALYSIS OF THE HEALTH SECURITY ACT
•8021 Joint Committee on Taxation Staff Description of HSA Revenue Provisions—Analysis
•8022 Joint Committee on Taxation Staff Description of HSA Revenue Provisions—Full-Text Reprint
•8023 Government Officials Explain HSA Changes to the Independent Contractor Rules
•8024 Subcommittee Hearing on HSA Tax Provisions
•8025 Subcommittee Hearing on Worker Classification Proposals
•8026 Testimony on Worker Classification by Treasury Official—Excerpts
•8030 OTHER HEALTH CARE PROPOSALS
•8031 House Energy and Commerce Committee Proposal
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APPENDIX 1 Glossary
APPENDIX 2 Federal Law
SECTION 530: Controversies Involving Whether Individuals are Employees for Purposes of Employment Taxes 1
H.R.13511: REVENUE ACT OF 1978
Report of the Committee on Finance, Oct. 1, 1978
(legislative day, Sept. 28, 1978) 3
H.R.95-1748: Controversies Involving the Employment Status of Certain Individuals for Purposes of the Employment Taxes 5
H.R.13511: REVENUE ACT OF 1978
Conference Report (to accompany H.R. 13511)
Oct. 15, 1978 (legislative day, Oct. 14, 1978) 9
H.R. 3838: TAX REFORM ACT OF 1986
Conference Report (to accompany H.R. 3838)
(Sept. 18, 1986) 11
H.R. 3838: TAX REFORM ACT OF 1986
(Public Law 99-514) General Explanation of the Tax Reform Act of 1986; Joint Committee on Taxation (May 4, 1987) 13
H.R. 4961: TEFRALEGISLATIVE HISTORY
Direct Sellers’ and Realtors’ Statutory Independent Contractor Status 17
APPENDIX 3 Policies and Regulations
REVENUE RULINGS AND REVENUE PROCEDURES
Revenue Procedure 85-18 1
Revenue Ruling 85-63 5
Revenue Ruling 87-41 7
Revenue Ruling 85-74 13
Revenue Ruling 92-106 15
Revenue Ruling 78-17 19
INTERNAL REVENUE MANUAL EXCERPTS
Exhibit 5(10)00-4 (Employer-Employee Relationship) 101
Exhibit 5(10)00-5 (Statutory Employees) 105
Exhibit 5(10)00-7 (Section 530 Flowchart) 111
GOVERNMENT DOCUMENTS
House Report 101-979, "Tax Administration Problems Involving Independent Contractors" (Nov. 9, 1990) 201
Treasury Department Report on "Taxation of
Technical Services Personnel: Section 1706 of the Tax Reform Act of 1986" (March 18, 1991) 215
United States General Accounting Office (GAO/GGD 92-108) — Tax Administration, "Approaches for Improving Independent Contractor Compliance" (July 23, 1992) 259
House Report 102-1053, "Contractor Games: Misclassifying Employees as Independent Contractors" (Oct. 16, 1992) 275
House Report 102-1060, "Improving the Administration and Enforcement of Employment Taxes" (Nov. 2, 1992) 285
House Report 103-861, "The Administration and Enforcement of Employment Taxes–A Status Report on Ideas for Change" (Oct.19, 1994) 307
REGULATIONS
A. Effective Regulations
Treasury Regulation ¤31.3121(d)-1 901
— Definition of employee for FICA tax purposes
Treasury Regulation ¤31.3306(i)-1 905
— Definition of employee for FUTA tax purposes
Treasury Regulation ¤31.3401 (c)-1 907
— Definition of employee for federal income withholding tax purposes
B. Proposed Regulations
— Update of Railroad Retirement Act Regulations
941
— Requirement of Making Quarterly Payments of the Railroad Unemployment Repayment Tax
949
— Supplemental Annuity Tax—Railroad Retirement (and accompanying Proposed Revenue Procedure)
953
Miscellaneous Documents
Announcement 92-16 1001
IRS Revised Policy Statement P-5-60 1002
Proposed CIP on Employee Status of Hospital - Based Physicians 1005
Proposed CIP on Student Nurse Exclusion From the Definition of Employment 1011
Federal Income Tax Withholding on Wages Paid to U.S. Crew By a Foreign Transportation Shipping Entity 1013
CIP Concerning Status for RRTA Tax Purposes of a Railroad Holding Company 1017
Announcement 93-128 1025
MSP Guidelines on Classification of Workers in Television Commercial Production and Professional Video Communications Industries 1027
Announcement 94-112 1045
MSP Guidelines in Classification of Architects 1051
APPENDIX 4 Legal Decisions
IN RE RASBURY
UNITED STATES v. RASBURY
CLEVELAND INSTITUTE OF ELECTRONICS, INC. v. UNITED STATES
E & W AUTO, INC. v. UNITED STATES
PROFESSIONAL & EXECUTIVE LEASING, INC. v.
COMMISSIONER INTERNAL REVENUE SERVICE
APOLLO DRYWALL, INC. v. UNITED STATES
HOERL & ASSOCIATES, P.C. v. UNITED STATES
Moore v. UNITED STATES
APPENDIX 5 IRS Information, Forms and Documents
IRS DIRECTORY AND INFORMATION
W-2 WAGE AND TAX STATEMENT
IRS FORM 1099-MISC
IRS FORM SS-8
IRS FORM 4419
IRS FORM 8508
IRS FORM 8809
IRS FORM 4180
IRS FORM 4668
IRS FORM 4669
INDEX
OCCUPATIONAL INDEX
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