Parents paying homeschool teachers is getting cumbersome

paperworkrejection_istock

Hello Carol,

I am the Executive Director of a 501(c)3 non-profit homeschool co-op. We have always had all parents pay teachers directly for classes. Of course the number of checks written by members each semester,and unraveling the missing/lost checks each semester along with the myriad of other payment mysteries has prompted to us to wonder if we can have all parents submit the teacher payments to our group, then we cut a check to each teacher.

We would essentially gather all the money and then direct it to each teacher. One check from each parent for all their children’s classes, and one check to each teacher for all the classes they are teaching.

Can we do this?

Holly

Holly,

Thank you for contacting me.

Yes, you can collect all the payments from parents and then pay the teachers, but there are some things to warn you about:

1. Managing more money means you need good accounting software (links to some of my blog posts with software recommendations), one that can invoice parents and track who has paid and who still owes.

2. Additionally, since you have a lot more income, you may have crossed an IRS threshold and now need to be filing the annual Form 990 or 990-EZ (YouTube video explaining which form you need to file).

3. Worker classification. You need to determine if the teachers are employees or  Independent Contractors (opens a blog post series on worker status). This is not an easy determination to make. You need to consider many factors.

I’m in the process of updating my book, Paying Workers in a Homeschool Organization. I hope to have it ready by November 1, 2016.

I’ll also be offering a consultation service to help homeschool groups make a decision about employee or independent contractor status.

Sign up for my email list to be notified when the book and worker determination consultations will be available.

Carol Topp, CPA

Save

Paying Workers update will be available November 1

payingworkerscoveroutlined

I’m working hard at getting my book Paying Workers in a Homeschool Organization updated. It’s grown from a 20 page ebook, to a 130 page paperback (ebook version will be available soon as well).

Here’s the Table of Contents:

Chapter 1: Can You Pay a Volunteer?
Chapter 2: Paying Board Members and Other Leaders
Chapter 3: Employee or Independent Contractor? Worker Classification
Chapter 4: Guidelines for Hiring Independent Contractors
Chapter 5: Tax Forms for Independent Contractors
Chapter 6: Payroll Taxes for Employers
Chapter 7: Tax Forms for Employers
Chapter 8: Sample Independent Contractor Agreements
Chapter 9: Resources

 

The book is in the editing phase now and I hope it will be ready for sale by November 1st, 2016.

I know that can’t happen quickly enough for some of you! Just this week I received two emails from homeschool leaders asking if they are paying their teachers correctly.

I will also be offering a service to help assist homeschool leaders to make worker determinations. It will be a phone consultation followed up my helpful guidance on the next steps to take.

Be sure to sign up for my email list so you will be notified when the book is ready and when I will be offering worker determination consultations.

Carol Topp, CPA

Independent contractors and W-9 form

fromw-9

Carol,
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 our 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?

Thank you so much!!!
Tanya B

Tanya,

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 you pay them over $600 a year and issue them a 1099-MISC.

You can get the Form W-9 from the IRS website.

The W-9 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.

Your organization keeps a copy of the W-9 filled in by the Independent Contractor. You do not sent it into the IRS.

payingworkerscoveroutlined

Have more questions about paying workers in your homeschool organization? My book Paying Workers in a Homeschool Organization is being updated and expanded and will be available in print and ebook form later in 2016. Sign up for my email list to get notice of when its ready!

 

Carol Topp, CPA

 

Things to Know Before You Sign an Independent Contractor Agreement

contract_salesman_signature_pen_6424

Lots of homeschool organizations hire independent contractors (IC), usually as teachers in a class for homeschool students.

Here’s a great list of things to consider including in your IC agreements. It’s advice to the contractor, but the information is helpful to homeschool leaders hiring ICs, too. Don’t treat them like employees if they are paid like independent contractors.

For the full article, click here

11 Things to Know Before You Sign an Independent Contractor Agreement

(edited for bevity)

1. Intellectual property. If you are creating art, written work, computer programs or other creative works, then it may be an advantage to you to be an independent contractor. Generally, you own the copyright to works created as a contractor. But get it in writing!

2. Taxes. As a contractor, you’ll pay both halves of your Social Security and Medicare taxes. If you’re an employee, the employer pays half. This is a big chunk of pay to give up, so be sure you’re really a contractor before you sign. And be sure to set aside about 15%-25% of your pay to cover the taxes.

3. Control. If you perform services for someone and they control what you do and how you do it, you’re probably an employee. Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off. But, obviously, if you’re hired to teach a class, show up when the class is held. Duh!

4. Equipment and supplies. Independent contractors generally use their own equipment and supplies.

5. Assistants. If you are told who will assist you and can’t choose anyone you want to help you with your tasks, then you may be an employee. Independent contractors can usually hire their own assistants, or choose to work alone.

6. Evaluations. If you are evaluated about the process, details and methods of your work, you may be an employee. An independent contractor is evaluated on results — the end product, not the procedures used.

7. Training. If the company trains you on how they want the job done and the specific procedures to be used, then this is a good indication that you’re an employee. Training for independent contractors should be minimal — instruction on the overall results needed only.

8. Financial control. Pay for employees is normally done by the hour, day or week. Contractors are more frequently paid by the job, although are sometimes paid hourly. A contractor will have more opportunity to make a profit or take a loss than an employee.

9. Opportunity to work elsewhere. Contractors frequently advertise and are considered free to take work from other companies. Employees usually have to work for a single employer only.

10. Benefits. If the company provides insurance, sick days, vacation time, pension or other benefits, then you are likely an employee.

11. Indefinite time. If you are hired for an indefinite period of time, as opposed to working on a specific project or series of projects, then you may be an employee.

PayingWorkersCover

Need more help composing an independent contractor agreement? I’m updating my book, Paying Workers in a Homeschool Organization this summer. It will have sample IC agreements. If you can’t wait until it’s ready, the current ebook as a very usable agreement to get your started.

Carol Topp, CPA

Save

Is our homeschool band director an independent contractor?

saxaphone_pc_400_clr_1406

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,

You told 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 book 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 book.

I offer a worker classification consultation service to help you determine if your homeschool organization’s workers are employees or independent contractors. The consultation  (by phone) will be followed up with an email containing a fact-based determination and information to help you take the next steps.

To request a consultation, please contact me. I’m happy to help and relieve any anxiety you have about this confusing topic.

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

Carol Topp, CPA
HomeschoolCPA.com

 

 

Save

Save

Save

Can you discount a homeschool co-op class in lieu of paying the teacher?

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.

Cover Money Mgmt HS OrgFor 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

 

Tracking payments to homeschool co-op teachers

woman_pointer_book_400_clr_17526

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

Independent Contractors: Type of Relationship

contract_salesman_signature_pen_6424

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 written just for homeschool leaders.

Or perhaps you prefer a private phone consultation. I offer a worker classification determination to help homeschool groups know if they are classifying their workers correctly.

Carol Topp, CPA

Save

Independent Contractors: Financial control

holding_money_bag_400_clr_14048

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.

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

Or perhaps you prefer a private phone consultation. I offer a worker classification determination to help homeschool groups know if they are classifying their workers correctly.

Carol Topp, CPA

Save

Save

Save

Definition of Independent Contractor: Behavior

stickman_question_mark_Green

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  written just for homeschool leaders.

Or perhaps you prefer a private phone consultation. I offer a worker classification determination to help homeschool groups know if they are classifying their workers correctly.

 

Carol Topp, CPA

Save

Save