Update on teachers as independent contractors

In Is Your Hired Teacher Really an Employee? I mentioned a homeschool group dealing with the IRS over teacher classification as an employee or independent contractor (IC).

They replied to the IRS via a letter stating their case for worker status as an Independent Contractor. They heard back from the IRS and the IRS determined that the teacher was misclassified as an independent contractor and should be reclassified as an employee.  The IRS wants $500 in back taxes (at least there are no penalties!)  The homeschool organization strongly disagrees and contacted a labor law attorney to help draft a letter back to the IRS.

Update:  The IRS issue was settled with the IRS winning the issue. The homeschool organization reclassified all their teachers as employees. There were no penalties to pay to the IRS, but then the State of Ohio audited this homeschool group and has fined them  $3,000-$4,000 a year for three years for unpaid unemployment taxes.  The State of Ohio sided with the IRS that the workers were employees and the organization should have been paying unemployment taxes on them.  Thankfully, the state can only audit back for three years.

The issue brought to light that many (perhaps most) homeschool organizations that hire teachers pay them as independent contractors.  Most homeschool groups are small nonprofits without accounting staff to manage the paperwork of withholding and paying employment taxes, creating W-2s, etc.  It’s easier to deal with an IC than an employee.  But the IRS reminds us the the facts of the situation determine worker status, not the organization’s preference.

Also, most hired homeschool teachers are only teaching about one hour a week and are given a lot of freedom in how to conduct their class.  This was all true for my client, but the IRS still determined the teacher was an employee. She even signed a IC agreement three years in a row, so even a contract was not enough evidence for the IRS.

Here’s what I’m doing:

1. Telling my homeschool clients that hire teachers to carefully consider worker classification.  Having a signed IC agreement is not enough.
2. Advising some of my homeschool clients to reclassify teachers as employees and start withholding federal income tax, Social Security and Medicare taxes.  These clients hire several teachers for several hours a week and exert a lot of control over what and how they teach.  One group also does teacher training and evaluations so the workers definitely look like employees.

3. Change the way my small co-op pays teachers.  The IRS letter stated , “if the worker had been an independent contractor, the parents would have directly paid the worker for the services she provided for their children.” Starting next semester we will have parents pay the hired teachers directly. See Paying teachers in a homeschool co-op to read our story

4. Trying to get out the word to homeschool leaders about the potential problems of worker misclassification and in general the employment laws regarding hiring paid teachers.

5. Encourage homeschool leaders to read my book Paying Workers in a Homeschool Organization. It can buy you a lot of peace of mind.

 

Please pass on this information to homeschool groups that you know hire paid teachers.  It doesn’t pay to be ignorant.

Carol Topp, CPA

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Comments

  1. Nate Boony says:

    I understand that one organization has the teacher create an agreement and they sign theirs, not the other way around. This more cements that it’s their entity, and they should be ICs.

    Do you have experience with this? Do you know whether it’s successful in keeping them as ICs?

  2. Carol Topp says:

    Nate,
    An independent contractor can create an agreement instead of the hiring organization creating the agreement.
    When I do jobs for clients, I (the IC) create the agreement and the client signs it.

    Who creates the agreement is not one of the factors that the IRS considers in making a worker classification. It is the terms in the agreement that matter more. And more importantly than the agreement is the behavior of the organization to the IC.

    Carol Topp, CPA

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