Legalities

September 1, 2011 - Volume 31 Issue 21

Legalities

By Richard Boothby           

SHORT ANSWER:  Yes, but generally not to perform the kinds of work a board’s regular employees already perform. If your board is engaging workers as “independent contractors” to perform the same kinds of work as your regular employees, you may have a problem with the IRS, among others.

Employers have a legal responsibility to collect all manner of taxes and other charges from their employees. This is not usually the case with most independent contractors (ICs). When an IC is compensated for work performed, the Payor (in this example, a school board) issues a 1099 form to the worker, not a W-2. Obviously, such an arrangement is generally less work for the Payor, as it leaves the responsibility of paying the appropriate type and amount of taxes (income tax, social security tax, Medicare tax, etc.) with the worker. Also, no benefits are paid to ICs by the Payor. 

Having said that, school boards must be very careful not to treat workers who are, in fact, employees as if they were ICs.  The penalties for doing so are considerable and should be avoided. As you can imagine, the State and federal governments would prefer that every worker be treated as an employee because this would require the employer to withhold taxes and transmit them to the State and federal governments on a predictable schedule. And in West Virginia, nearly all workers engaged by school boards are employees. However, from time to time, there will be work that school employees cannot or should not perform—either due to the danger involved, or a lack of specialized skills, equipment, or training. In these situations, a school board will hire an independent contractor to provide labor, equipment, and materials to perform this work.  Depending on the total cost of such work, such work may be subject to a bidding process.

In determining whether a person providing a service is an employee or an independent contractor, all evidence regarding the degree of control the school board has over the worker and the independence the worker exercises in completing the work must be considered.  The IRS looks to 11 factors within three general areas of analysis to determine whether a worker is an independent contractor or an employee. For more details about this, see http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.   

Consider this example: A section of roofing on an elementary school needs to be repaired with hot tar. A school board might hire Randy Roofer, a local contractor. Randy sets his own schedule, provides his own tools and equipment, and purchases the tar. The school board does not direct or control how Randy will accomplish his task. Randy will only be paid what he was promised and no more. Randy will bear the risk that he underbid this project. Randy will have his own insurance and workers compensation policies. When the work is completed, the school board will issue a 1099 form to reflect the payments made to Randy for this work. Randy will move on to his next job and the elementary school will have a water-tight roof (hopefully).

Randy is unquestionably an IC. 

Now consider this example: A school board hires Dan Driver to deliver packages between schools on an “as-needed” basis. Dan is a retired bus operator from a nearby county. He is treated as an independent contractor by the school board and paid a flat $18 for each hour he works. No taxes are withheld and no benefits are offered. Dan works when he is told to work and makes deliveries in the manner proscribed by the school board. He does not make deliveries for any other entity. Dan uses a school-owned van to make his deliveries. He has no general liability insurance policy to cover his delivery activities. Dan’s only “special skill” is that he possesses a West Virginia driver’s license. Imagine that Dan has a serious auto accident on one of his deliveries—let’s say he hit a car with two occupants. Dan’s leg is broken. And the occupants of the car have serious injuries too. Dan would now like to file a Workers’ Compensation claim.  The occupants of the car plan to file suit against Dan. Is Dan covered by the school board’s Workers’ Compensation policy? Does Dan have any insurance of his own to cover this loss if he is held liable for this accident? Do you think the occupants will sue Dan only? What will happen if the IRS comes looking for the taxes owed on the money the school board paid Dan (and on which he never paid any taxes)? 
 
Dan sure seems like an employee of the school board, don’t you think?  School boards often justify the treatment of workers like Dan as ICs because they do not need a full-time or half-time employee to do a particular task. School boards are also frustrated at having to go through the normal hiring process just to get some simple tasks completed. Perhaps the Legislature should consider giving school boards the authority to hire part-time/no benefits employees to cover these kinds of tasks. Until they do, some school boards will continue to be tempted to hire such workers as ICs, despite all the risks associated with doing so.

Volumes have been written about the horrible things that can happen when an employer incorrectly treats its employees as independent contractors. For that reason, I will not attempt to describe every problem that might arise as a result of such misclassification. Suffice it to say that no school board will want to discover this information the hard way.  

If there is a particular worker whose status as an independent contractor concerns you, take a look at the form found at http://www.irs.gov/pub/irs-pdf/fss8.pdf.  This form will help school boards to carefully think through this analysis. 

Rick Boothby is a member of the Education Law Group at Bowles Rice, LLP.  Rick is a former public school teacher and an honors graduate of the Moritz College of Law at The Ohio State University.