Independent Contractor (Self-Employed) or Employee?
Independent Contractor (Self-Employed) or Employee? It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Select the Scenario that Applies to You:
I am an independent contractor or in business for myself If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center. (https://www.irs.gov/individuals/self-employed)
I hire or contract with individuals to provide services to my business If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.
Determining Whether the Individuals Providing Services are Employees or Independent Contractors Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –
An independent contractor ( https://www.irs.gov/businesses/small-businesses-self-employed/independentcontractor-defined) An employee (common-law employee) (https://www.irs.gov/businesses/small-businesses-selfemployed/employee-common-law-employee) A statutory employee (https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees) A statutory nonemployee (https://www.irs.gov/businesses/small-businesses-self-employed/statutorynonemployees)
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Common Law Rules Facts that provide evidence of the degree of control and independence fall into three categories: 1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? (See page3) 2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) (See page 4) 3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? (See page 5) Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
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Form SS-8 If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status. (See page 6-9) Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).
Employment Tax Obligations Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.
Forms and associated taxes for independent contractors (See page 10) Forms and associated taxes for employees (See page 11)
Misclassification of Employees Consequences of Treating an Employee as an Independent Contractor If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information. Relief Provisions If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) for more information. (https://www.irs.gov/pub/irs-pdf/p1976.pdf) Misclassified Workers Can File Social Security Tax Form Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information. (https://www.irs.gov/uac/misclassified-workers-to-file-new-social-securitytax-form) Voluntary Classification Settlement Program The Voluntary Classification Settlement Program (VCSP) is a new optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. (https://www.irs.gov/businesses/small-businesses-selfemployed/voluntary-classification-settlement-program)
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Behavioral Control Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work. The behavioral control factors fall into the categories of: Type of instructions given Degree of instruction Evaluation systems Training
Types of Instructions Given An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work. When and where to do the work. What tools or equipment to use. What workers to hire or to assist with the work. Where to purchase supplies and services. What work must be performed by a specified individual. What order or sequence to follow when performing the work.
Degree of Instruction Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor. Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.
Evaluation System If an evaluation system measures the details of how the work is performed, then these factors would point to an employee. If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.
Training If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.
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Financial Control Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. The financial control factors fall into the categories of: Significant investment Unreimbursed expenses Opportunity for profit or loss Services available to the market Method of payment
Significant investment An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.
Unreimbursed expenses Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.
Opportunity for profit or loss The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.
Services available to the market An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
Method of payment An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
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Type of Relationship Type of relationship refers to facts that show how the worker and business perceive their relationship to each other. The factors, for the type of relationship between two parties, generally fall into the categories of: Written contracts Employee benefits Permanency of the relationship Services provided as key activity of the business
Written Contracts Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self-employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.
Employee Benefits Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.
Permanency of the Relationship If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
Services Provided as Key Activity of the Business If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employeremployee relationship.
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Forms and Associated Taxes for Independent Contractors Form W-9 If you’ve made the determination that the person you’re paying is an independent contractor, the first step is to have the contractor complete Form W-9 (PDF), Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. A TIN may be either a Social Security Number (SSN), or an Employer Identification Number (EIN). The W-9 (PDF) should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.
Form 1099-MISC Form 1099-MISC (PDF) is most commonly used by payers to report payments made in the course of a trade or business to others for services. If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-MISC (PDF) needs to be completed, and a copy of 1099-MISC (PDF) must be provided to the independent contractor by January 31 of the year following payment. You must also send a copy of this form to the IRS by February 28 (although the form does not have to be sent to the IRS until March 31 if the business files the 1099s electronically, using the FIRE system). Also note that independent contractors may have their own employees or may hire other independent contractors (subcontractors). In either case, they should be aware of their tax responsibilities, including filing and reporting requirements, for these workers. There are certain situations where a 1099 is not required. These exceptions are listed in the 1099 Instructions (PDF).
Filing Electronically The Filing Information Returns Electronically (FIRE) system is set up for financial institutions and others to file Information Return Forms 1042-S, 1098, 1099, 5498, 8027 or W-2G. Information Returns can be filed electronically, however, you must have software that can produce the file in the proper format as required by Publication 1220. FIRE does not provide an electronic fill-in form option.
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Employment Taxes If you are self-employed, visit the Self-Employed Individuals Tax Center page for information about your tax obligations. Understanding Employment Taxes Understand the various types of taxes you need to deposit and report such as, federal income tax, social security and Medicare taxes and Federal Unemployment (FUTA) Tax. https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes Depositing and Reporting Employment Taxes You must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. You also must report on the taxes you deposit, as well as report wages, tips and other compensation paid to an employee. https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes Employment Tax Due Dates You must deposit and report your employment taxes on time. https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates Correcting Employment Taxes "X" forms are used to report adjustments to employment taxes and to claim refunds of overpaid employment taxes. https://www.irs.gov/businesses/small-businesses-self-employed/correcting-employment-taxes e-File Form 940, 941 or 944 for Small Businesses If you are a small business owner, you have two options to e-file tax forms of the 94x series. https://www.irs.gov/businesses/small-businesses-self-employed/e-file-form-940-941-or-944-for-small-businesses Updating Your Business Address There are several ways to notify the IRS that your address has changed. https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/irsprocedures/address-changes/address-changes
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Samples Grant Writing Consultant Recruitment Ad
Grant Writer (P/T), Howie Marketing & Consulting Established consulting firm providing grant writing, development, and marketing services to nonprofits is seeking a part-time writer. 20-30 hours per week. Work from home. Responsibilities:
Writing letters of intent, grant proposals, online applications, government grants etc., including needs statements, proposal descriptions, objectives, outcomes, evaluations, etc. Creating cover letters, budgets, and other required addendums. Drafting follow up reports. Researching grant possibilities using Foundation Center online, Guidestar, grants funding e-blasts, etc. Writing development copy (e.g. annual appeal letters, donor brochures). Writing marketing copy (e.g. newsletters, journals, brochures, websites, press releases).
Qualifications/Experience:
Bachelor’s degree, preferably in journalism, communication arts, or marketing. 3-5 years grant writing experience. Excellent writing and interpersonal skills. Experience writing for varied fields (e.g. youth, arts, disabilities, mental health, housing, hunger), a plus. Experience writing marketing and development pieces, a plus. Experience with federal grant writing, a plus.
Contact: Send cover letter, resume and hourly rate preferred to Lydia Howie at [email protected].
Interviewing
Give an overview of business – e.g. I mostly do foundation/corporate grants with some County and State and occasionally federal. I function as a virtual grants department handling everything – drafting, submission, implementation, and reporting. I provide marketing services like brochures, newsletters, PR, etc. My clients include ….
Talk about company goals and philosophy – e.g. I have been in business 16 years and have developed reputation as …. I pride myself in providing good and timely service. I try to make their life easy so I create everything (cover, application, all addendums, etc.). I provide value added services (advice on how other nonprofit’s handle a situation, funder contact information, marketing support). My unique niche is ….
What I am looking for in a sub-contractor – e.g. Minimum of 21 hrs a week. 5 years of experience. Excellent writer. Looking for a right hand to support me. Looking for diverse client experience. Ability to write a program from scratch. Someone to take existing grants and spruce up. Someone who has experience researching.
Skill questions: - Have you done all kinds of grants – LOI, full proposals, corporate online, state and federal? - Do you have experience with The Foundation Center online? - Do you subscribe to any RFP alerts? - How do you typically vet a funding source? - What sources do you use when looking up statistics for a needs statement? - Do you have experience creating budgets? - Have you done reports? - Do you consider yourself creative at coming up with compelling objectives and outcomes? - Do you do marketing writing? Do you know Publisher? Work preference questions: - Are you a more take charge person and seek answers yourself or do you prefer to be given all the direction and facts upfront, so you have a really clear idea of the scope of the project? - Do you prefer to use your imagination and make up copy or do you prefer to have lots of past grants and client supplied copy to cut and paste from? - Do you prefer researching and writing or do you like more client contact? - Can you give me an example of how you had to draft a new proposal from scratch? - Have you had to write a recap report with little tracked outcomes or perhaps poor results? - Would you be available on occasion to write an emergency grant due the next day? Expertise questions: - Do you attend the annual GPA conference and/or local chapter meetings? Do you attend other local AFP chapter meetings? - Do you teach any grant writing classes or guest speak? Passion questions: - What do you like about grant writing? - What is the grant writing success you are most proud of? - What about grant writing gives you the most professional and personal gratification?
VERY GOOD GRANT WRITING COMPANY Grant Writing & Marketing Communications Address Phone
Fax
Cell
Email
web address
INDEPENDENT CONTRACTOR AGREEMENT Page 1 of 4 This agreement is entered into between Very Good Grant Writing Company (“VGGWC”), a New York Incorporated Company with a legal address of ____________________ and ________________________________ (“Agent”), an individual residing at _____________________________. In consideration of the premises and obligations hereinafter set forth, the value and sufficiency of which are hereby acknowledged, and to induce Agent to perform certain services for VGGWC, the parties (VGGWC and Agent) hereby agree as follows: Agent represents, acknowledges and agrees that he/she is an independent contractor and not an employee of VGGWC. No provision of this Agreement shall be deemed to create an employment relationship between the Agent, including any employees and VGGWC. Agent agrees that he/she will not hold him or herself out or otherwise represent to any person or entity, that he/she is employed by or an agent of VGGWC. Furthermore, nothing in this Agreement or the nature of the business arrangement between VGGWC and Agent, shall be considered a business partnership in any form; accordingly, no distribution or profits or allocation of liabilities or losses shall be determined by partnership law. Agent understands that he/she is free from supervision and control; agent is free to determine when, where and how work is to be done and to sets his/her own schedule. Agent does not perform services exclusively for VGGWC, is free to offer services to others, set/negotiates own rates, free to hire help, may refuse work offers, etc. Agent has his/her own business, assumes risk for profit and loss of said business, has own business facilities, equipment and supplies and does not rely solely on the VGGWC’s tools and materials to complete the work, and pays own business expenses including phone, Internet, insurance, advertising, marketing, etc. Agent is not obliged to attend meetings and training sessions, provide oral or written reports, participate in performance evaluations, and obtain permission for absences. Agent agrees to pay his/her own federal, state and local taxes according to current laws. Agent agrees to maintain all written proof that he/she has complied with the requirements of all applicable taxing, insurance and other authorities, as an independent contractor. Shall the agent become a business, the Agent shall maintain copies of any documents deemed necessary to demonstrate that Agent is a business including, but not limited to, an employer identification number, business certificate, State incorporation, etc. Agent will notify VGGWC within two (2) business days of any inquiries by any third party, including, but not limited to federal, state or local employment or tax authorities inquiring into the relationship between VGGWC and Agent. Agent shall conduct its business so as to maintain and increase the goodwill and reputation of VGGWC and VGGWC’s services. Agent shall maintain in strict confidence, and shall not use or disclose all proprietary and/or confidential information of VGGWC, including but not limited to all information regarding the VGGWC services and its related documentation (e.g. operational details, marketing strategies, terms and conditions of VGGWC’s agreements,
Page 2 of 4 VGGWC’s business information and plans, client lists, client contacts, potential prospects). In no event shall Agent send any information to VGGWC clients, prospects, or companies that operate or who do business in competition with VGGWC without the express prior written consent of VGGWC in each instance. This obligation shall continue to apply after termination of this Agreement. Agent will not make available to third parties, information that VGGWC clients consider to be proprietary and/or confidential information without written permission of VGGWC’s clients. This includes things like their operating budgets, audits/990s, board lists, previous grants, and other documents that the client may consider proprietary or a “trade secrets,” except in the case of grant submissions that require aforementioned documents to be submitted along with grant narrative. AGENTS’ RESPONSIBILITIES: A. CUSTOM CONSULTING PROJECTS Agent is responsible for completing custom consulting project work commissioned by clients (charitable organizations) of VGGWC. Specifically, Agent will provide grant writing, grants researching, donor prospecting, marketing writing, development writing, and/or other related services for VGGWC. Agent will submit a bill for services rendered on or close to the last day of the month to VGGWC.
VGGWC RESPONSIBILITIES A. CONSULTANT SUPPORT VGGWC is responsible for producing and presenting proposals to potential/current clients, managing the client relationships, and for editing correspondence and work produced by the Agent for VGGWC clients, but shall seek Agent’s advice and counsel, where appropriate. B. LEGAL AND ACCOUNTING VGGWC is responsible for New York State licensing fees and legal fees for establishing and maintaining its Corporation structure. VGGWC is responsible for ensuring filing/payment of VGGWC company’s federal and state taxes. VGGWC is responsible for timely filing of IRS 1099 forms for Agent. VGGWC is solely responsible for contractual obligations with clients and vendors. C. MARKETING AND SALES VGGWC is responsible for marketing, promotion, communication, and other sales efforts/techniques to land clients and secure projects to be conducted by Agent.
COMPENSATION CONSULTING PROJECTS VGGWC will pay Agent $________ per hour billable for Agent’s contribution to projects through VGGWC. EXPENSE REIMBURSEMENT Agent will be reimbursed for pre-approved expenses pertinent to work for VGGWC clients, such as printing for a client, purchasing an item for an event, postage for mailing a grant, etc. Outside vendor (e.g. printer, store) costs must be pre-approved and billed directly to VGGWC. There is no reimbursement for everyday printing, telephone usage, etc. as they are the responsibility of the independent contractor in the course of doing his/her daily business.
Page 3 of 4 TRAVEL If travel to client site is more than 60 miles from Contractor’s place of business, then appropriate pre-approved travel expenses would be added to the fee. Thus, Agent would be paid $20.00 per hour for travel time plus the full travel expenses (e.g. room, car rental, airfare, mileage). There is no reimbursement for travel incurred in the everyday course of doing business as they are the responsibility of the independent contractor in the course of doing his/her daily business. SALES VGGWC will pay Agent a bonus to be negotiated based on the sales of consulting projects, which Agent brings to VGGWC.
TERMINATION OF AGREEMENT This contract shall stay in effect indefinitely. Either party can terminate the terms of this contract with 30 days written notice to the other party. At time of notice, it will be decided what work will be completed. Agent will be paid during this period according to the terms specified above in “Compensation” for work completed by the end of the 30 day period. While affiliated with VGGWC, and for one year after cancellation of this contract, it is expected that Agent will not bid on any contracts in direct competition with VGGWC. The indemnification provisions and obligations to compensate and reimburse Agent for all work performed shall survive the termination of this Agreement. Indemnification – Both Parties shall indemnify and hold each other harmless from any and all claims, causes of action, liabilities, expenses and damages for any loss, injury, disability or death to any person, or loss, damage, or injury to any property, resulting from or in connection with their acts or omissions or their performance or nonperformance of obligations under this Agreement, or any other breach by the Parties of this Agreement. Arbitration – Any dispute arising under or relating to this agreement if not resolved amicably by the parties, shall be resolved by arbitration, conducted in the State of New York, under the commercial arbitration rules of the American Arbitration Association and judgment on the award rendered may be entered in any court having jurisdiction. The party that substantially prevails in such arbitration, and in any suit or action for enforcement of the arbitration award, shall be entitled to recover costs and expenses incurred in such arbitration, suit or other action, including reasonable attorney’s fees. Modification – This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements or understandings between VGGWC and Agent. No change, modification or waiver of any term of this Agreement shall be valid unless it is in writing and signed by both Parties. Applicable law – This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York without regard to conflicts of law principles. This Agreement shall be governed in all respects by the laws of the United States of America and by the laws of the State of New York; as such laws are applied to agreements entered into and to be performed entirely within New York between New York residents. Each of the parties irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in New York, as applicable, for any matter arising out of or relating to this Agreement, except that in actions seeking to enforce any order or any judgment of such federal or state courts located in New York, such personal jurisdiction shall be nonexclusive.
Page 4 of 4 THE PARTIES, INTENDING TO BE LEGALLY BOUND, have executed this agreement as of the last date set forth below: Agreed Upon by:
___________________________________________ NAME, COMPANY NAME
________________________ Date
___________________________________________ NAME, INDEPENDENT CONTRACTOR
________________________ Date
Select the Scenario that Applies to You:
I am an independent contractor or in business for myself If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center. (https://www.irs.gov/individuals/self-employed)
I hire or contract with individuals to provide services to my business If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.
Determining Whether the Individuals Providing Services are Employees or Independent Contractors Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –
An independent contractor ( https://www.irs.gov/businesses/small-businesses-self-employed/independentcontractor-defined) An employee (common-law employee) (https://www.irs.gov/businesses/small-businesses-selfemployed/employee-common-law-employee) A statutory employee (https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees) A statutory nonemployee (https://www.irs.gov/businesses/small-businesses-self-employed/statutorynonemployees)
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Common Law Rules Facts that provide evidence of the degree of control and independence fall into three categories: 1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? (See page3) 2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) (See page 4) 3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? (See page 5) Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
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Form SS-8 If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status. (See page 6-9) Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).
Employment Tax Obligations Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.
Forms and associated taxes for independent contractors (See page 10) Forms and associated taxes for employees (See page 11)
Misclassification of Employees Consequences of Treating an Employee as an Independent Contractor If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information. Relief Provisions If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) for more information. (https://www.irs.gov/pub/irs-pdf/p1976.pdf) Misclassified Workers Can File Social Security Tax Form Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information. (https://www.irs.gov/uac/misclassified-workers-to-file-new-social-securitytax-form) Voluntary Classification Settlement Program The Voluntary Classification Settlement Program (VCSP) is a new optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS. (https://www.irs.gov/businesses/small-businesses-selfemployed/voluntary-classification-settlement-program)
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Behavioral Control Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work. The behavioral control factors fall into the categories of: Type of instructions given Degree of instruction Evaluation systems Training
Types of Instructions Given An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work. When and where to do the work. What tools or equipment to use. What workers to hire or to assist with the work. Where to purchase supplies and services. What work must be performed by a specified individual. What order or sequence to follow when performing the work.
Degree of Instruction Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor. Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.
Evaluation System If an evaluation system measures the details of how the work is performed, then these factors would point to an employee. If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.
Training If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.
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Financial Control Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. The financial control factors fall into the categories of: Significant investment Unreimbursed expenses Opportunity for profit or loss Services available to the market Method of payment
Significant investment An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.
Unreimbursed expenses Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.
Opportunity for profit or loss The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.
Services available to the market An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
Method of payment An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
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Type of Relationship Type of relationship refers to facts that show how the worker and business perceive their relationship to each other. The factors, for the type of relationship between two parties, generally fall into the categories of: Written contracts Employee benefits Permanency of the relationship Services provided as key activity of the business
Written Contracts Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self-employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.
Employee Benefits Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.
Permanency of the Relationship If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
Services Provided as Key Activity of the Business If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employeremployee relationship.
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Forms and Associated Taxes for Independent Contractors Form W-9 If you’ve made the determination that the person you’re paying is an independent contractor, the first step is to have the contractor complete Form W-9 (PDF), Request for Taxpayer Identification Number and Certification. This form can be used to request the correct name and Taxpayer Identification Number, or TIN, of the worker. A TIN may be either a Social Security Number (SSN), or an Employer Identification Number (EIN). The W-9 (PDF) should be kept in your files for four years for future reference in case of any questions from the worker or the IRS.
Form 1099-MISC Form 1099-MISC (PDF) is most commonly used by payers to report payments made in the course of a trade or business to others for services. If you paid someone who is not your employee, such as a subcontractor, attorney or accountant $600 or more for services provided during the year, a Form 1099-MISC (PDF) needs to be completed, and a copy of 1099-MISC (PDF) must be provided to the independent contractor by January 31 of the year following payment. You must also send a copy of this form to the IRS by February 28 (although the form does not have to be sent to the IRS until March 31 if the business files the 1099s electronically, using the FIRE system). Also note that independent contractors may have their own employees or may hire other independent contractors (subcontractors). In either case, they should be aware of their tax responsibilities, including filing and reporting requirements, for these workers. There are certain situations where a 1099 is not required. These exceptions are listed in the 1099 Instructions (PDF).
Filing Electronically The Filing Information Returns Electronically (FIRE) system is set up for financial institutions and others to file Information Return Forms 1042-S, 1098, 1099, 5498, 8027 or W-2G. Information Returns can be filed electronically, however, you must have software that can produce the file in the proper format as required by Publication 1220. FIRE does not provide an electronic fill-in form option.
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Employment Taxes If you are self-employed, visit the Self-Employed Individuals Tax Center page for information about your tax obligations. Understanding Employment Taxes Understand the various types of taxes you need to deposit and report such as, federal income tax, social security and Medicare taxes and Federal Unemployment (FUTA) Tax. https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes Depositing and Reporting Employment Taxes You must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes. You also must report on the taxes you deposit, as well as report wages, tips and other compensation paid to an employee. https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes Employment Tax Due Dates You must deposit and report your employment taxes on time. https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates Correcting Employment Taxes "X" forms are used to report adjustments to employment taxes and to claim refunds of overpaid employment taxes. https://www.irs.gov/businesses/small-businesses-self-employed/correcting-employment-taxes e-File Form 940, 941 or 944 for Small Businesses If you are a small business owner, you have two options to e-file tax forms of the 94x series. https://www.irs.gov/businesses/small-businesses-self-employed/e-file-form-940-941-or-944-for-small-businesses Updating Your Business Address There are several ways to notify the IRS that your address has changed. https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/irsprocedures/address-changes/address-changes
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Samples Grant Writing Consultant Recruitment Ad
Grant Writer (P/T), Howie Marketing & Consulting Established consulting firm providing grant writing, development, and marketing services to nonprofits is seeking a part-time writer. 20-30 hours per week. Work from home. Responsibilities:
Writing letters of intent, grant proposals, online applications, government grants etc., including needs statements, proposal descriptions, objectives, outcomes, evaluations, etc. Creating cover letters, budgets, and other required addendums. Drafting follow up reports. Researching grant possibilities using Foundation Center online, Guidestar, grants funding e-blasts, etc. Writing development copy (e.g. annual appeal letters, donor brochures). Writing marketing copy (e.g. newsletters, journals, brochures, websites, press releases).
Qualifications/Experience:
Bachelor’s degree, preferably in journalism, communication arts, or marketing. 3-5 years grant writing experience. Excellent writing and interpersonal skills. Experience writing for varied fields (e.g. youth, arts, disabilities, mental health, housing, hunger), a plus. Experience writing marketing and development pieces, a plus. Experience with federal grant writing, a plus.
Contact: Send cover letter, resume and hourly rate preferred to Lydia Howie at [email protected].
Interviewing
Give an overview of business – e.g. I mostly do foundation/corporate grants with some County and State and occasionally federal. I function as a virtual grants department handling everything – drafting, submission, implementation, and reporting. I provide marketing services like brochures, newsletters, PR, etc. My clients include ….
Talk about company goals and philosophy – e.g. I have been in business 16 years and have developed reputation as …. I pride myself in providing good and timely service. I try to make their life easy so I create everything (cover, application, all addendums, etc.). I provide value added services (advice on how other nonprofit’s handle a situation, funder contact information, marketing support). My unique niche is ….
What I am looking for in a sub-contractor – e.g. Minimum of 21 hrs a week. 5 years of experience. Excellent writer. Looking for a right hand to support me. Looking for diverse client experience. Ability to write a program from scratch. Someone to take existing grants and spruce up. Someone who has experience researching.
Skill questions: - Have you done all kinds of grants – LOI, full proposals, corporate online, state and federal? - Do you have experience with The Foundation Center online? - Do you subscribe to any RFP alerts? - How do you typically vet a funding source? - What sources do you use when looking up statistics for a needs statement? - Do you have experience creating budgets? - Have you done reports? - Do you consider yourself creative at coming up with compelling objectives and outcomes? - Do you do marketing writing? Do you know Publisher? Work preference questions: - Are you a more take charge person and seek answers yourself or do you prefer to be given all the direction and facts upfront, so you have a really clear idea of the scope of the project? - Do you prefer to use your imagination and make up copy or do you prefer to have lots of past grants and client supplied copy to cut and paste from? - Do you prefer researching and writing or do you like more client contact? - Can you give me an example of how you had to draft a new proposal from scratch? - Have you had to write a recap report with little tracked outcomes or perhaps poor results? - Would you be available on occasion to write an emergency grant due the next day? Expertise questions: - Do you attend the annual GPA conference and/or local chapter meetings? Do you attend other local AFP chapter meetings? - Do you teach any grant writing classes or guest speak? Passion questions: - What do you like about grant writing? - What is the grant writing success you are most proud of? - What about grant writing gives you the most professional and personal gratification?
VERY GOOD GRANT WRITING COMPANY Grant Writing & Marketing Communications Address Phone
Fax
Cell
web address
INDEPENDENT CONTRACTOR AGREEMENT Page 1 of 4 This agreement is entered into between Very Good Grant Writing Company (“VGGWC”), a New York Incorporated Company with a legal address of ____________________ and ________________________________ (“Agent”), an individual residing at _____________________________. In consideration of the premises and obligations hereinafter set forth, the value and sufficiency of which are hereby acknowledged, and to induce Agent to perform certain services for VGGWC, the parties (VGGWC and Agent) hereby agree as follows: Agent represents, acknowledges and agrees that he/she is an independent contractor and not an employee of VGGWC. No provision of this Agreement shall be deemed to create an employment relationship between the Agent, including any employees and VGGWC. Agent agrees that he/she will not hold him or herself out or otherwise represent to any person or entity, that he/she is employed by or an agent of VGGWC. Furthermore, nothing in this Agreement or the nature of the business arrangement between VGGWC and Agent, shall be considered a business partnership in any form; accordingly, no distribution or profits or allocation of liabilities or losses shall be determined by partnership law. Agent understands that he/she is free from supervision and control; agent is free to determine when, where and how work is to be done and to sets his/her own schedule. Agent does not perform services exclusively for VGGWC, is free to offer services to others, set/negotiates own rates, free to hire help, may refuse work offers, etc. Agent has his/her own business, assumes risk for profit and loss of said business, has own business facilities, equipment and supplies and does not rely solely on the VGGWC’s tools and materials to complete the work, and pays own business expenses including phone, Internet, insurance, advertising, marketing, etc. Agent is not obliged to attend meetings and training sessions, provide oral or written reports, participate in performance evaluations, and obtain permission for absences. Agent agrees to pay his/her own federal, state and local taxes according to current laws. Agent agrees to maintain all written proof that he/she has complied with the requirements of all applicable taxing, insurance and other authorities, as an independent contractor. Shall the agent become a business, the Agent shall maintain copies of any documents deemed necessary to demonstrate that Agent is a business including, but not limited to, an employer identification number, business certificate, State incorporation, etc. Agent will notify VGGWC within two (2) business days of any inquiries by any third party, including, but not limited to federal, state or local employment or tax authorities inquiring into the relationship between VGGWC and Agent. Agent shall conduct its business so as to maintain and increase the goodwill and reputation of VGGWC and VGGWC’s services. Agent shall maintain in strict confidence, and shall not use or disclose all proprietary and/or confidential information of VGGWC, including but not limited to all information regarding the VGGWC services and its related documentation (e.g. operational details, marketing strategies, terms and conditions of VGGWC’s agreements,
Page 2 of 4 VGGWC’s business information and plans, client lists, client contacts, potential prospects). In no event shall Agent send any information to VGGWC clients, prospects, or companies that operate or who do business in competition with VGGWC without the express prior written consent of VGGWC in each instance. This obligation shall continue to apply after termination of this Agreement. Agent will not make available to third parties, information that VGGWC clients consider to be proprietary and/or confidential information without written permission of VGGWC’s clients. This includes things like their operating budgets, audits/990s, board lists, previous grants, and other documents that the client may consider proprietary or a “trade secrets,” except in the case of grant submissions that require aforementioned documents to be submitted along with grant narrative. AGENTS’ RESPONSIBILITIES: A. CUSTOM CONSULTING PROJECTS Agent is responsible for completing custom consulting project work commissioned by clients (charitable organizations) of VGGWC. Specifically, Agent will provide grant writing, grants researching, donor prospecting, marketing writing, development writing, and/or other related services for VGGWC. Agent will submit a bill for services rendered on or close to the last day of the month to VGGWC.
VGGWC RESPONSIBILITIES A. CONSULTANT SUPPORT VGGWC is responsible for producing and presenting proposals to potential/current clients, managing the client relationships, and for editing correspondence and work produced by the Agent for VGGWC clients, but shall seek Agent’s advice and counsel, where appropriate. B. LEGAL AND ACCOUNTING VGGWC is responsible for New York State licensing fees and legal fees for establishing and maintaining its Corporation structure. VGGWC is responsible for ensuring filing/payment of VGGWC company’s federal and state taxes. VGGWC is responsible for timely filing of IRS 1099 forms for Agent. VGGWC is solely responsible for contractual obligations with clients and vendors. C. MARKETING AND SALES VGGWC is responsible for marketing, promotion, communication, and other sales efforts/techniques to land clients and secure projects to be conducted by Agent.
COMPENSATION CONSULTING PROJECTS VGGWC will pay Agent $________ per hour billable for Agent’s contribution to projects through VGGWC. EXPENSE REIMBURSEMENT Agent will be reimbursed for pre-approved expenses pertinent to work for VGGWC clients, such as printing for a client, purchasing an item for an event, postage for mailing a grant, etc. Outside vendor (e.g. printer, store) costs must be pre-approved and billed directly to VGGWC. There is no reimbursement for everyday printing, telephone usage, etc. as they are the responsibility of the independent contractor in the course of doing his/her daily business.
Page 3 of 4 TRAVEL If travel to client site is more than 60 miles from Contractor’s place of business, then appropriate pre-approved travel expenses would be added to the fee. Thus, Agent would be paid $20.00 per hour for travel time plus the full travel expenses (e.g. room, car rental, airfare, mileage). There is no reimbursement for travel incurred in the everyday course of doing business as they are the responsibility of the independent contractor in the course of doing his/her daily business. SALES VGGWC will pay Agent a bonus to be negotiated based on the sales of consulting projects, which Agent brings to VGGWC.
TERMINATION OF AGREEMENT This contract shall stay in effect indefinitely. Either party can terminate the terms of this contract with 30 days written notice to the other party. At time of notice, it will be decided what work will be completed. Agent will be paid during this period according to the terms specified above in “Compensation” for work completed by the end of the 30 day period. While affiliated with VGGWC, and for one year after cancellation of this contract, it is expected that Agent will not bid on any contracts in direct competition with VGGWC. The indemnification provisions and obligations to compensate and reimburse Agent for all work performed shall survive the termination of this Agreement. Indemnification – Both Parties shall indemnify and hold each other harmless from any and all claims, causes of action, liabilities, expenses and damages for any loss, injury, disability or death to any person, or loss, damage, or injury to any property, resulting from or in connection with their acts or omissions or their performance or nonperformance of obligations under this Agreement, or any other breach by the Parties of this Agreement. Arbitration – Any dispute arising under or relating to this agreement if not resolved amicably by the parties, shall be resolved by arbitration, conducted in the State of New York, under the commercial arbitration rules of the American Arbitration Association and judgment on the award rendered may be entered in any court having jurisdiction. The party that substantially prevails in such arbitration, and in any suit or action for enforcement of the arbitration award, shall be entitled to recover costs and expenses incurred in such arbitration, suit or other action, including reasonable attorney’s fees. Modification – This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements or understandings between VGGWC and Agent. No change, modification or waiver of any term of this Agreement shall be valid unless it is in writing and signed by both Parties. Applicable law – This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York without regard to conflicts of law principles. This Agreement shall be governed in all respects by the laws of the United States of America and by the laws of the State of New York; as such laws are applied to agreements entered into and to be performed entirely within New York between New York residents. Each of the parties irrevocably consents to the exclusive personal jurisdiction of the federal and state courts located in New York, as applicable, for any matter arising out of or relating to this Agreement, except that in actions seeking to enforce any order or any judgment of such federal or state courts located in New York, such personal jurisdiction shall be nonexclusive.
Page 4 of 4 THE PARTIES, INTENDING TO BE LEGALLY BOUND, have executed this agreement as of the last date set forth below: Agreed Upon by:
___________________________________________ NAME, COMPANY NAME
________________________ Date
___________________________________________ NAME, INDEPENDENT CONTRACTOR
________________________ Date
