Carol,Hello!  I wanted to check with you about a sentence that is in our Independent Contractor Agreement. No one has ever given us a W-9 before even though they have signed the agreement. Why are the contractors submitting any tax related information to us? I thought they were to complete all of that completely on their own. Is that part necessary? Can you please advise on this?

Thank you so much!!!
Tanya B

Tanya is referring to a sample independent contractor agreement I include in my Money Management for Homeschool Organizations and Paying Workers in a Homeschool Organization ebooks. Both are available at my bookstore.

The W-9 is the official way to collect an Independent Contractor’s name and SSN or business name and EIN(Employer Identification Number).  This information is needed if your pay them over $600 a year and issue them a 1099MISC.

It is also the unofficial way to determine if you are dealing with ethical people.  Some people do not like giving their information on a W-9 because they were not going to report the income on their tax return.  Having them fill in a W-9 indicates that your organization obeys the law and expects them to obey the law as well.

Carol Topp, CPA

Carol,
Actually the parents with students in the class pay the independent contractors directly.  It does not come from the co-op’s funds.  Do I still need to keep track of how much they get as an annual total from the parents and work complete these forms?  If so, we may need some additional guidance.
Thank you,
Tanya

According to CNNMoney, the IRS is going to do random audits of 6,000 companies that use independent contractors.

CNN Money: Auditors Crackdown on Indedendent Contractors

Homeschool organizations might be caught in the web if they are paying teachers as independent contractors.

Here’s what the article states:

(CNNMoney.com) — If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers.

When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren’t required to pay unemployment insurance, worker’s compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely “independent” are strict — and often flouted.

The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.

Should you as a homeschool leader be concerned? Maybe, if your organization has been paying people as independent contractors when they are really employees. How can you tell the difference?

I can help.

Here are some helpful blog posts:

Is Your Hired Teacher Really an Employee?

Update on Teachers as Independent Contractors

I also have a short ebook devoted to the subject of paying workers in a homeschool organization. You can read a sample chapter and the table of contents here.

Cost $7.00

This 20 page ebook is available for immediate download.

I also did a free webinar on the topic in January.  Listen to it here.

HomeschoolCPA’s Workshops

Finally, I do phone consultations to discuss the particulars of your situation.  More information here.

http://homeschoolcpa.com/services/consultation/

You do not need to be afraid of an IRS if you have done some research, reading and are prepared correctly.

Carol Topp, CPA

I frequently advise homeschool co-ops to be careful how they pay teachers.  I think it is best to treat paid teachers as employees or to have the parents in the co-op pay the teachers directly. In general I recommend homeschool co-ops avoid paying teachers as independent contractors from the co-op’s checking account.

See my other posts on the issue of paying teachers in a homeschool co-op

Is Your Hired Teacher Really an Employee?

Update on Teachers as Independent Contractors

JoAnn from Texas told me recently how her co-op pays teachers. It’s a new twist that I like and I believe the IRS would approve also.

The teachers in JoAnn’s homeschool co-op invoice the co-op for their services.

The co-op collects all the money from the families and pays the teachers’ invoices, rent and other necessary expense. Each  teacher creates a bill for the amount the co-op owes him or her for teaching.  The co-op provides 1099MISC forms to any teacher paid over $600 annually.

This makes the role of the teachers as independent contractors, and not as an employees of the co-op, very clear. One of the hallmarks of independent contractors is that they bill for their services and do not receive hourly wages or a salary.

This might be a system your co-op could adopt. Thanks JoAnn for sharing your idea!

My ebook Paying Workers in a Homeschool Organization covers paying workers as employees or independent contractors.  It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.

Price: $7.00

Available for immediate download as a pdf file

Click Here to Purchase

Carol Topp, CPA

Hi,

I am a 15 year homeschooling veteran who started a co-op last fall.  I am now being asked by my church for ‘official’ documents to include:  business status, liability insurance, tax information.  I have a checking account for our co-op.

We offer 30 classes, one day a week, for 5 hours.  Six of the 30 classes are paid classes.  The student gives the co-op ~$2.00 each class.  I write a check to the teacher for $20.00 each time they teach.  The teacher always makes $20.00.  The student pays a varying rate dependant upon how many students are in the class.

What business status do I need?

What tax forms am I required to file?

What type of liability insurance do I need if the parents are always on site and never drop off students?

Thank you greatly for the information.

Sincerely,

Lauren T

My book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out covers a lot of your questions. It is available in print or electronic format. Read more here.

I hope that helps!

Hello,
I am the leader of a support group with around 65 families.  Our group has a board of elders and by-laws.  We also have a co-op of about half the members of the larger group.  The co-op requires members to be a member of the larger group.  The co-op has separate leadership and it’s own checking account. The by-laws don’t address the co-op specifically.

The co-op pays the leadership and teachers from their account.  Tuition and fees are charged for participating families.  Teachers are written checks from the co-ops account monthly. “Teacher Gift” is always written in the memo in the checks. For the most part, curriculum for the classes are decided upon by the leadership of the co-op. Those in the leadership of the co-op serve no other volunteer function in the main group (their leadership on the co-op has been counted as their volunteer service for all the 7 years the co-op has existed ). Another member of the group has complained that their paid leadership service is not volunteer service and should not be counted toward the main group.  I do agree with this.  But it seems that we need to address this and some other issues that aren’t quite right.

Should our groups separate?  The larger group has not reviewed the co-op’s financial records. The co-op only gave out 1099′s last year for the first time.  I know that whatever is done, there will be hurt feelings and I am at a loss to know where and how to tackle these issues.  Where and what should I start with?

Thanks in advance.

Tina

Tina,

Here’s my advice:
Read my ebook Paying Workers in a Homeschool Organizations. Available as a pdf for immediate download for $7.00 at
http://homeschoolcpa.com/bookstore/paying-workers-ebook/

Good for your group for finally giving 1099MISC to the teachers!  But you should stop writing “Teacher Gift” in the memo. These are not gifts. They are payments for services.

In my experience, it is untypical for homeschool co-op leaders to be paid. That is because most co-ops cannot afford to pay leaders. Instead, many leaders receive discounted tuition (or free classes) in appreciation for their volunteer efforts.

Since you are paying these leaders, they are employees, not independent contractors as your teachers apparently are (although this statement concerns me: “curriculum for the classes are decided upon by the leadership of the co-op.” It sounds as if they are employees and not independent contractors). Employees require quite a bit more paperwork and may involve paying unemployment tax and workers compensation taxes. I discuss the difference between independent contractors and employees in the Paying Workers ebook.

You asked: “Should our groups separate? The larger group has not reviewed the co-op’s financial records.” Obviously the larger support group has neglected some of their responsibilities. See my blog post on leader responsibilities here:
http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/ Perhaps it is time to weigh the pros and cons of being separate. A lot goes into that decision.

You also said: “Another member of the group has complained that their paid leadership service is not volunteer service and should not be counted toward the main group. I do agree with this. But it seems that we need to address this and some other issues that aren’t quite right.”
You are correct that you cannot pay a volunteer, so perhaps the volunteer service is not fulfilled because they are paid.

If you wish to discuss your group’s issues and concerns, I do offer private phone consultation with homeschool leaders. It’s one of my most popular services. Read more about it here: http://homeschoolcpa.com/services/consultation/

I hope that helps.

Carol Topp, CPA
HomeschoolCPA.com Helping homeschool leaders
————

Hi,

I wanted to thank you so much for writing back and give a little update.  The officers met and decided to work at correcting any errors we may be making.  We have a meeting scheduled with the co-op directors in the next couple of weeks.  I think it is so important to set a good example in everything you do.

I do want to add that I was incorrect in that the co-op leaders receive tuition waivers instead of being paid.  Once we get all the information on the finances, then we can make the necessary decisions about our groups.  I am praying for a smooth road.

Your website is very helpful and I have shared it with all the officers of our group.   We are so very appreciative.

Tina

This article from Forbes discusses independent contractors and employees.

The Department of Labor is considering requiring businesses (and that would include nonprofits) to give every IC a “Right to Know” document explaining why they are not classified as employees.

It would require giving each independent contractor a kind of written Miranda warning notifying the independent contractor about:

1. The federal tax obligations of an independent contractor;
2. The labor and employment law protections that do not apply to independent contractors; and
3. The right each independent contractor has to ask the IRS to determine whether he or she is an employee or independent contractor.

These might affect you if your homeschool organization hires independent contractors. A lot of homeschool co-ops hire teachers as independent contractors.

I’ll keep you posted if these regulations come to pass.

Carol Topp, CPA

Hi Carol,

Thank you so much for the wealth of information you provide through your writings!

Where might I find an example Independent Contractor Agreement we might use for our homeschool cooperative?

Thanks!

Lisa T in NYC

After reading through a bit of your material, we have decided that each family will pay our homeschool co-ops teachers individually. How would we label teachers that are not on a payroll, not volunteers, and not an independent contractor of the co-op?

The way we look at is that we simply provide a space and venue for outside teachers to offer their services. Is this correct? Our group will not provide them with any money. However, the group plans on “negotiating” the per student cost of a class.

Thank you for your insight

Heather

A homeschool nonprofit I work with called me quite frantic.  They had received a letter form the IRS.  It seems that a former teacher of one of their classes  was asking for an examination of her status as an independent contractor (using IRS Form SS-8).  She thought that she should be classified as an employee of this homeschool nonprofit.  If the IRS agrees with this worker, the homeschool organization may have to pay back taxes (Social Security and Medicare) and perhaps penalties.

Fortunately this homeschool group did many things right:

How about your homeschool group?  Would you pass an IRS examination?

Do your hired teachers sign an Independent Contractor agreement?

Do you avoid controlling their work as you might an employee?

Here’s a helpful IRS brochure regarding employee or independent contractor status (IRS Pub 1779).

I’ve written about paying teachers in a homeschool co-op setting:

Paying teachers in a homeschool co-op

W-2 and tax filings for teachers

Finally, my ebook Paying Workers in a Homeschool Organization is also helpful with examples of the forms your need to file.

Carol Topp, CPA

Hi Carol,

Our co-op is a nonprofit corporation. Almost all of our tutors in the co-op are moms with kids in the program. The moms do not get pay in money for teaching but are offered “credits” against tuition.

1) Are we correct to assume that we are not dealing with either Independent Contractors (IC) or employees in this circumstance?

2) We have one tutor who gets “credits” and payment. Can we regard her as an IC if she submit an invoice?

We do have a few tutors whom we pay and we will need to look more closely into invoices and 1099 MISC.

Thank you so much for your advice. If these questions are covered in your ebook, please let me know.

-MG

Dear MG,

Thank you for contacting me. Let’s see if I can answer your questions.

1. Sounds like your tutors are volunteers. You thank them with tuition discounts (or “credits” as you call them). The more a person volunteers, the larger the discount/credit. There is no problem with doing that.

Paying a Volunteer

2. Paying a volunteer gets very tricky. She’s no longer a volunteer because she is paid. She’s actually a mix; some volunteer and some paid. That’s what’s confusing. If you can clearly separate her volunteering and the discounts/credits from her paid tasks, then do that. For example, if she tutors and gets credits and then in addition designs your website for pay, it’s pretty easy to separate those two jobs.

Super volunteers

But some people are what I call “super volunteers.” They volunteer so much beyond their discounts or credits that the organization pays them for their extra volunteering. But volunteers cannot get paid, so she’s either an employee or an IC. If you want to treat her like an IC, then she cannot receive benefits like tuition credits. Bummer.  Employees can receive benefits like tuition credits, but not ICs.
I discuss this in Money Management in a Homeschool Organization. See Chapter 12.

The Money Management book will be helpful and so will my Paying Workers in a Homeschool Organization ebook, because it shows the forms needed for ICs.

Carol Topp, CPA

I am hoping you can help me. I recently got hired as a homeschool teacher. I am reading articles that say I am not an independent contractor and this is really concerning me. I am hearing that I am an employee and to do things legally my employer has to fill out all this paperwork.

I want to be legal, but I don’t want to burden my new employer with all of this.

She did give me materials, an hourly wage and the times she wants me to come over.
Thanks,
Stephanie

Stephanie,

Thank you for contacting me. Worker status as an employee or independent contractor is a difficult and confusing issue.

What the IRS says about worker status
The IRS says that the facts and circumstances of each situation determines the worker status, not our desire to avoid paperwork and taxes(!). But they are the IRS, so of course they will say things like that!

What to do as a independent contractor
In practice, you and the family who hired you need to have a common understanding of your employment situation. If you agree to be an IC, then make sure you act like one. Have a written agreement stating you agree to do a certain job for a certain amount of pay. Both parties should sign it. Invoice the family on a regular basis listing the times and hours you worked for them. Make sure the family does not tell you how to do your job; you should already know how to do your job. You should also bring your own tools and supplies, although the student can have their own school supplies and books as well.

I think it is also fairly typical for private tutors to be ICs rather than employees. You are much like a piano teacher who agrees to go to a family’s home to teach. The IRS has a tendency to look at industry practice when determining worker status.

You cannot avoid some paperwork
Make sure the family gives you a 1099MISC and you report the income on your taxes at the end of 2014. You should also fill out a W-9 form Request for Taxpayer Identification Number and give it to them, so they have your legal name and SSN.

All these practices will help confirm your worker status as an IC, rather than an an employee.

I hope that helps.

Carol Topp, CPA
HomeschoolCPA.com

We have recently started an inclusive homeschool co-op. I have three of your ebooks and I’m a bit confused on a few issues.

1. Each family pays the outside teachers directly. We do a registration process, but the cash or checks go to the teacher, not the co-op. Do we mark that money “in the books” or is that outside of co-op money?

2. I am also confused with the differences between volunteer parents teaching a class for reduced fees for classes and  an Independent Contractor working off their tuition.

What am I missing?

Thank you so much for your time,
Heather

Heather,
Thank you for contacting me. To answer your questions:
1. Since the funds never come to your group, they are not recorded in your books as income to your group.

2. Volunteer vs Independent Contractor (IC). It’s a world of difference because an IC is not supposed to receive any fringe benefits such as free or reduced tuition. If you give an IC fringe benefits, then they are an employee and you need to set up payroll, pay unemployment taxes, workers comp, SS/Medicare taxes, etc…The IRS is very clear and very strict about ICs not receiving benefits.
Employees can receive tax-free tuition discounts. Colleges and private schools do that a lot for their employees.

On the other hand, a volunteer can receive reduced or free tuition, because she is volunteering and not paid.

This explanation may help:
(this is from an article “Money, Taxes and Your Homeschool Family” in the March/April edition of The Old Schoolhouse magazine. Read the full article here: http://ow.ly/uAkhI

Teresa, a homeschool mom who teaches at a co-op where her own children take classes, was told by her co-op that they would just deduct her co-op tuition from her income as a teacher. Teresa’s co-op paid her as an independent contractor and this arrangement didn’t seem correct to her.

Fortunately, she emailed me, asking, “Can I work off my co-op fees by teaching a class?”

The answer is no, you cannot.

The homeschool co-op should pay Teresa with a paycheck. Then, as a separate transaction, Teresa should pay her fees to the co-op. It is important to separate the two transactions because of taxes. Being paid for teaching is earning taxable income. Paying tuition is a personal expense and not tax deductible. The two do not negate each other for tax purposes.

It may seem like more work for the co-op’s treasurer to pay and collect money from the same person, but the separation is important for clarity and correct reporting of taxable income to Teresa.

I hope that helps explain the difference.

Carol Topp, CPA

Carol,

We started homeschooling our daughter who is special needs. We hired a special ed teacher and now with taxes around the corner we don’t know what we need to file.

Regards, B

Dear B,

I wrote a blog post on this topic that you may find helpful: Can I hire a homeschool governess?

In the article I mention the term “Household employee.” That’s the IRS term for nannies, housekeepers, gardeners, etc. who work in or around a personal residence.

Your hired teacher is probably not a “household employee.” Your hired teacher is probably similar to hiring a piano teacher or a tutor.Piano teachers and tutors are business owners, not household employees.  You are a customer of a person who is running her own business.

The teacher is the one who has to worry about reporting her income from you (or anyone else she works for) and deducing her expenses on her tax return.

I hope you had a clear discussion or written agreement with the special ed teacher about her employment status.

You do not get a tax deduction for what you pay her. There are (probably) no tax forms for you to give her.

Carol Topp, CPA

From Veneable.com, a website with articles focusing on nonprofit law, comes this excellent list of items to have in an agreement with an independent contractor.

Many homeschool organizations hire independent contractors to teach a class or offer a service, so having a good, strong IC agreement is important.

I included a sample independent contractor agreement in my book Money Management in a Homeschool Organization. I might need to tweak it and include some of these provisions.

I hope you find this list helpful.

Preparing Strong Independent Contractor Agreements

“Must-haves”:
–Written agreement signed by both parties
–Clearly defined scope of work
–Worker decides how the work is to be performed
–Require invoicing and, if practicable, fixed-fee-type payments
–Clearly defined and, if practicable, limited termination rights
–Clear statement of independent contractor status and ineligibility for benefits

“Like-to-haves”:

–Limited training or instruction required
–Worker decides when and where work is to be performed or works off-site
–Worker provides own tools, equipment, staff
–Worker has freedom to contract with others for his or her services
–Compensation should not resemble a salary
–Termination only for nonperformance/breach of contract
–Avoid circumstances where contractor position is identical to those of W-2 employees

Source: https://www.venable.com/files/Event/624c3096-6e46-4d2c-8fdc-a674c30ad5f0/Presentation/EventAttachment/48ae10be-17a8-426b-af57-5124c79aab61/Focus_on_Nonprofit_Employee_Misclassification_slides-06-16-15.pdf

Carol Topp, CPA

Here at HomeschoolCPA, I get a lot of questions about the difference between employees and independent contractors (IC). Many homeschool organizations hire workers as ICs and wonder if they really should be treated as employees.

This is the first of a 3-part series on the definition of IC. I hope it’s helpful.

Lets start with Behavioral Control.

My source is straight from the IRS website: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/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.

Read the other factors that determine IC status:

Type of Relationship

Financial Control

And always remember this advice from the IRS (emphasis added)

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.

Still confused? Maybe my book, Paying Workers in a Homeschool Organization can help. It’s a short ebook, designed just for homeschool leaders.

Carol Topp, CPA

Since so many homeschool organizations hire workers as Independent Contractors, it might be helpful to examine the difference between employees and independent contractors.

This is the second of a 3-part series on the definition of of independent contractor and  will examine one of the factors the IRS uses to determine worker classification: Financial Control.

The IRS has some helpful information on how to distinguish between an employee and an independent contractor at  https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Financial-Control

 Financial control refers to facts that show whether or not the business (or nonprofit organization) 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.

Read the other factors that determine IC status:

Behavioral Control

Type of Relationship

And always remember:

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.

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.

Still confused? Maybe my book, Paying Workers in a Homeschool Organization can help. It’s a short ebook, designed just for homeschool leaders.

Carol Topp, CPA

We’ve looked at two factors the IRS uses to distinguish between employees and independent contractors: Behavioral Control and Financial Control. This blog post will discuss the third factor: Type of Relationship. 

As you read through this factor and the other two, consider how your homeschool group is treating its workers. Make changes to clearly distinguish your employees from your independent contractors.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/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 employer-employee relationship.

Read the other factors that determine worker status:

Financial Control

Behavioral Control

And always remember:

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.

Still confused? Maybe my book, Paying Workers in a Homeschool Organization can help. It’s a short ebook, designed just for homeschool leaders.

Carol Topp, CPA

If teachers are paid directly how does the homeschool co-op know about who has paid in order to keep track of payments?

It’s very common got homeschool co-ops and tutorial programs to ask parents to pay the teachers directly and not pay through the co-op or homeschool tutorial. This eliminates payroll paperwork and lessens the income and financial transactions flowing through the homeschool organization (and this makes life easier on your treasurer!).

Your homeschool co-op doesn’t need to keep track of which families paid the teachers. It’s the teachers job to get payments from the families.

The teachers are independent contractors and therefore are supposed to bear the burden of the risk of not getting paid. Your co-op should not carry this risk.

The IRS definition of an independent contractor says “Having the possibility of incurring a loss indicates that the worker is an independent contractor.”

Source: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Financial-Control

I hope that helps,

Carol Topp, CPA

Are volunteer teachers in a homeschool co-op allowed to get free or discounted classes? Do they need to claim the amount on their yearly income?

We have independent contractors  who work for our homeschool organization. Are they allowed to get discounted classes instead of getting paid their full amount of payment?

How do we do the paperwork properly?

Mr M.

Dear Mr M,

Volunteers are treated differently than your paid independent contractor teachers, so I will respond to each separately.

Volunteers

Volunteers may receive discounts or free classes from your homeschool organization. It is not included in their taxable income, if it is insignificant. It should be understood by everyone that the discount is in appreciation of the volunteer’s efforts and not payment for services. The volunteers should understand that discounts are not guaranteed.

Independent Contractors

Independent Contractors (IC) can receive discounts from their class fees, but the discount needs to be added to their compensation when reported on a 1099MISC. Even if the IC doesn’t receive an 1099MISC from you, the value of the discounted classes should be reported as income on his or her tax return. You may want to explain that in a  letter or include it in your written Independent Contractor agreement.

Can you discount a class in lieu of paying a teacher?

Homeschool organizations should not be offsetting an independent contractor’s payments for her services, which is taxable earned income, by the amount the contractor owes for her child to attend your co-op classes,  which is a personal  expense (i.e. not tax deductible).

I recommend that the teacher should be paid the full amount earned and in a separate transaction, she should pay her tuition to your co-op. I know it seems like extra work and more complicated, but netting or offsetting the two transactions could distort the total amount of compensation the IC needs to report to the IRS. It’s mixing taxable income with a non-tax-deductible personal expense.

For more information on paying workers and correctly recording transactions in an accounting system, you may find my book, Money Management in a Homeschool Organization, helpful.

Carol Topp, CPA

We are in the very beginning stages of becoming a non profit homeschool band.  We will charge a monthly tuition which will cover compensating the band director for directing/teaching the bands. The band director teaches at another business as well. He is planning on incorporating as an LLC. He gets a percentage of each students monthly tuition (he quoted us the percentage he wanted).

Would he be considered an employee or an independent contractor? Again, we are in the very beginning stages, and we want to make sure we do everything correct and legal.

Thank you for any information you can give us.

Heather

Heather,

I do not make worker classification determinations. I leave that to the organization and the IRS! I’m a CPA, not a lawyer nor an expert in worker classification or human resources.

You did tell me 3 things that seem to imply that your band director looks like an independent contractor (IC):
1. He teaches at another business
2. He is setting himself up as a business owner (“planning on incorporating as an LLC”)
3. He is not paid by the hour (“He gets a percentage of each students monthly tuition”).

But there are many other factors to consider, mainly how much control your organization will have over him and his work. I discuss the other factors to consider in my ebook Paying Workers in a Homeschool Organization

If you determine he is an IC, then I strongly advise you to have a written contract with him and clearly spell out that he is hired as an IC and responsible for his own taxes (i.e. your organization will not be withholding any tax). Have him fill out a W-9 to collect his legal name and Social Security Number (or EIN for his business), too. This is all covered in the Paying Workers ebook.

Good luck to you! I hope the band is a great success.

Carol Topp, CPA
HomeschoolCPA.com