Employee versus Independent Contractor

It is preferable to gift the funds to the school district directly for the services required, since the school district has experience and expertise as an employer (Fiduciary Agreements and Gifts to Schools). A financial gift must not be viewed as an ongoing commitment, since each PTA association must adopt the annual budget. To determine whether a person should be considered an employee or an independent contractor, the IRS has rules that help determine how to classify the people the PTA hires. This affects how much the PTA pays in taxes, whether the PTA needs to withhold from workers’ paychecks, and what tax documents the PTA needs to file.

An individual’s desire to be one or the other is not a deciding factor. Serious consequences can occur if a person who is actually an employee is paid as an independent contractor. The unit can be held liable for the individual’s taxes that should have been withheld, as well as any applicable penalties. An employer must generally withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. However, an employer generally does not have to withhold or pay any taxes on payments made to independent contractors.

Here are seven things every PTA should know about hiring people as independent contractors versus hiring them as employees.

The IRS uses three characteristics to determine the relationship between an employer and worker:

  • Behavioral Control covers facts that show whether the PTA has a right to direct or control how the work is done through instructions, training or other means.
  • Financial Control covers facts that show whether the PTA has a right to direct or control the financial and business aspects of the worker’s job.
  • Type of Relationship factor relates to how the worker and the PTA perceive their relationship.

If the PTA has the right to control or direct not only what is to be done, but also how it is to be done, then the worker is most likely an employee.

If the PTA can direct or control only the result of the work done – and not the means and methods of accomplishing the result – then the worker is probably an independent contractor.

An employer who misclassifies a worker as independent contractor can end up with substantial tax bills.

Additionally, the employer can face penalties for failing to pay employment taxes and for failing to file required tax forms.

Both employer and worker can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Print Friendly, PDF & Email