When contracting with an individual for services the district must establish the nature of the employment relationship. This should occur prior to any services being performed and issuance of any payment once the legal relationship is determined; law prescribes the method of payment. The problem occurs in the area of who is or is not an employee. There is no clear-cut definition of what constitutes an employee. Instead, there are twenty common law factors that must be analyzed by the district and the district makes the determination.

IRS Publication SWR 40, Public Schools and Employment Taxes, lists workers that have already been determined by IRS to be employees. These are individuals performing the duties of:

Administrators

Teachers/instructors

Substitutes

School bus drivers

Clerical staff

Athletic coaches

Tutors

Cafeteria workers

Counselors

Examination Monitors

Proctors

Librarians

In addition to the categories above, the revenue agent recently reclassified the following categories as employees:

Nurses

Psychologists

Intern psychologist

Individuals "filling in" on an interim basis

Specialty teachers (art, poetry, music, etc.)

**What the district calls the individual is irrelevant to the analysis of the employment relationship. The IRS looks at the facts and the relationship on a case by case basis.

If the individual in question is not in one of the above categories, you may use the guidelines on the following page to analyze the employment relationship between the district and the individual. We recommend the completed guidelines be kept on file with the district consultant contract for any future IRS inquiries. The 20 common law factors have all been considered in developing the attached questionnaire.

**Occupational therapists

Interim employees

In service trainers

Anyone filling a position during the recruitment process

Audits and compliance checks continue to be made throughout California as the Internal Revenue Service examines whether districts and colleges are properly classifying employees and independent contractors.

Some workers have already been determined to be employees by the IRS. These positions cannot be classified as independent contractors under IRS guidelines. They are: teachers and instructors, substitutes, school bus drivers, clerical staff, athletic coaches, tutors, cafeteria workers, counselors, examination monitors, proctors and librarians. Also, recently placed into the employee category are nurses, psychologists and specialty teachers.

What the district or college calls the individual is irrelevant to the analysis of the employment relationship. The IRS looks at the facts and the relationships on a case by case basis.

Here are several questions to ask yourself as you determine how to classify a person providing services to your agency. If you answer yes to any of the following seven questions, the job position under review would be classified as an employee.

1. Has this category of worker already been classified an "employee" by the IRS?
2. Is the individual working as an employee prescribed by the Education Code? The IRS predisposes an employer/employee relationship when state law mandates such a relationship.
3. Is the individual already an employee of the district in another capacity?
4. Has the individual performed substantially the same services for the district as an employee in the past? Is the individual retired, returning to substitute, or train, etc?
5. Are there currently employees of the district doing substantially the same services as will be required of this individual?
6. Does the district have the legal right to control the method of performance by this individual? Consider whether the district has to train this individual or give instruction as to when, where, how, and in what order to work. Does the district require the individual to submit reports or perform the services at a district site? These factors would indicate the district maintains control, sufficient for an employer/employee relationship. However, it is not necessary that the district exercise this right or have the expertise required to do so. In many cases this would not be practical nor advisable.
7. Are the services, as being provided an integral part of school operations? Are the services being provided necessary to the operation of the school, program, project, etc? This indicates the district has an interest in the method of performance and implies the maintenance of legal control.

Here are three more questions:

If the answer to any of these three questions is yes, there is a good possibility that an employment relationship exists. Questions 8 and 9 are indicators of district control that, in conjunction with the factors, imply an employment relationship.

8. Must the required services be performed by this individual? Consider whether or not the individual may designate someone else to do the work without the districts' knowledge or approval.
9. Does the district have a continuing relationship with this individual? Is this an "one shot deal" or will the district continue to use the individual in the future? This could be on an infrequent or irregular basis but a continuous relationship exists.
10. Can this relationship be terminated without the consent of both parties?

If your answers are no, here are more questions.

11. Does the individual operate an independent trade or business that is available to the general public? A determining factor in judging independence is the performance of services to the general public. In evaluating these criteria, school districts are considered to be separate entities. Keep in mind: If the district is utilizing this individual’s services on a full-time basis, the individual is not available to the general public. NOTE: Possession of a business license or incorporation does not automatically satisfy this requirement. The determination must be made on the actual relationship between the district and the individual performing services.
12. Does the individual have a substantial investment in his/her business; i.e. maintains a facility, equipment, etc.?
13. Does the individual provide all materials and support services necessary for the performance of this service? This district should not be providing office space, clerical, secretarial or any other support for this individual such as materials, xeroxing, printing, office supplies, etc.
14. Is this individual paid by the job or on a commission?
15. Does the individual bear the cost of any travel and business expenses incurred to perform this service?

A couple more notes you should be aware of:

• Make sure your contractor’s contract does not include the terms "to supervise," "will direct," "to act as," "interim employment," or "entitled to fringe benefits."

• Keep all records of contractors in a vendor file, not a personnel file.

If the answer to any of the above questions is "YES"

Do not complete the rest of the questions. The individual is the district’s employee and must be paid and reported accordingly.

If all of the above are "NO", continue.

If the answer to question 8, 9 or 10 is "YES", there is a good possibility that an employment relationship exists. Questions 8 & 9 are indicators of district control that, in conjunction with other factors, imply an employment relationship. Go back to PART I and re-evaluate each question. If questions 1-7 are still all "NO" continue.

If either 11 or 12 are "NO", the individual is a district employee and process the individual through payroll.

If 11 and 12 are both "YES", continue.

If 11 and 12 are "YES", 13 through 15 should also be "YES" and are items that should be written into the consultant contract. This individual is an independent contractor. A "YES" on questions 13 through 15 supports the district’s conclusion and substantiates a "reasonable basis" for treatment as an independent contractor. While there are circumstances where the district might pay contractually provided expenses, these should be kept at a minimum to avoid giving the impression of an employment relationship.