August 19, 2008
Employee or contractor: Will the IRS have the last word?
New York State's attorney general or comptroller may not have the last word on whether a school district attorney, accountant or physician is an outside contractor, who thus is not qualified for government pension benefits.
A little federal agency known as the Internal Revenue Service may have a different opinion.
That reminder comes from a recent IRS ruling that an upstate New York school district wrongly classified its school physician as an independent contractor. In January and again in a March, the IRS said the physician at an unnamed district "was an employee of the school district for purposes of taxes," including social security, unemployment insurance and withholding taxes.
The IRS used a number of tests to reach its conclusion. Noting the physician worked for the district part-time for several years, it said:
Although she is not directly supervised and her time not specifically scheduled, it is expected that she will accomplish the tasks within the time frames necessary during the day/days she is on the school premises. A worker who is required to comply with another person's instructions about when, where, and how he or she is to work is ordinarily an employee.
Across the Table, a publication of the NYS Conference of Mayors, recently warned municipal officials that "worker miscalculation can be an expensive error." The decision on who is an employee or independent contractor can be "confusing" and should "not be lightly made"-- because if an employee erroneously is listed as a contractor, the employer could be liable for retroactive taxes, interest and penalties.
In light of the controversy over retirement benefits, where "someone other than the IRS [i.e., the state attorney general or comptroller] has determined these individuals are contractors, municipal officials should tread cautiously," advises the article.
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