Miss. Code. tit. 27, pt. 1, ch. 8, APPENDICES, app 27-1-8-C
Administrative Procedures
IRS Code stipulates that compensation paid to contractual workers is subject to the same federal employment tax requirements as that of salaried workers. The IRS categorizes contractual personnel as either independent contractors or employees for the purpose of withholding and paying employment taxes. Generally, while independent contractors are responsible for the proper payment of employment taxes for themselves and their employees, the contracting agency is responsible for withholding and paying employment taxes for those contract personnel determined not to be (nor working for) an independent contractor. The State of Mississippi has a more narrow definition of "employee" than that used in the IRS regulation. Mississippi statute states that an "employee" is any person legally occupying a position in state service. Miss. Code Ann. § 2-1-103(l)(1972, as amended). In order to prevent potential confusion caused by IRS terminology and Mississippi statutory terminology, contractual personnel determined not to be (nor working for) independent contractors will be referred to as "contract workers." Therefore, contractual personnel who do not meet the definition of independent contractors should be classified as contractual workers and subject to the proper withholding of employment taxes. See Miss. Code Ann. § 25-9-120 (1972, as amended).
Agency and institutional heads are responsible for determining what work is being performed by contractual workers and ensuring that proper procedures are followed to comply with the IRS Code. Prior to entry and submission of the "Request for Contract Personnel Services Approval" form, each contractor should be classified using the criteria referenced below. If the contractor fails to qualify for classification as an independent contractor, then the contractor must be treated as a contractual worker. The department or agency should give consideration to the contract type. If the contractor is classified as a contractual worker, the agency is liable for the employer's share of employment taxes. In budgeting for the contract, the department should allow for this additional cost.
Please refer to the Department of Finance and Administration for instructions concerning the accounting codes and proper withholding of federal and state income taxes, Social Security/Medicare matching funds and unemployment insurance taxes. Refer also to IRS Publication 15-A, 2009 Edition (available for downloading from http://www.irs.gov/pub/irs-pdf/p15a.pdf. The IRS has eleven main tests, organized into three main groups, to determine whether an employer-employee relationship exists, or whether the contractor is an independent contractor. These tests replace the IRS's previous "Twenty Factors" test.
I.BEHAVIORAL CONTROL
Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:
Instructions the business gives the worker-
An employee is generally subject to the business' 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
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.
Training the business gives the worker-
An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.
II. FINANCIAL CONTROL
Facts that show whether the business has a right to control the business aspects of the worker's job include:
The extent to which the worker has unreimbursed business 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 they perform for their business.
The extent of the worker's investment-
An employee usually has no investment in the work other than his or her own time. An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else; however, a significant investment is not necessary for independent contract status.
The extent to which the worker makes services available to the relevant 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.
How the business pays the worker-
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.
The extent to which the worker can realize a profit or loss-
Since an employer usually provides employees a workplace, tools, materials, equipment, and supplies needed for the work, and generally pays the costs of doing business, employees do not have an opportunity to make a profit or loss. An independent contractor can make a profit or loss.
III. TYPE OF RELATIONSHIP
Facts that show the parties' type of relationship include:
Written contract describing the relationship the parties intended to create-
This is probably the least important of the criteria, since what really matters is the nature of the underlying work relationship, not what the parties choose to call it; however, in close cases, the written contract can make a difference.
Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay-
The power to grant benefits carries with it the power to take them away, which is a power generally exercised by employers over employees. A true independent contractor will finance his or her own benefits out of the overall profits of the enterprise.
The permanency of the relationship-
If the company engages 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.
The extent to which services performed by the worker are a key aspect of the regular business of the company-
If a worker provides services that are a key aspect of the company's regular business activity, it is more likely that the company will have the right to direct and control his or her activities. For example, if a law firms 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.
Note: For questionable situations, the f ederal g overnment will assist agencies in making the independent contractor vs. contract worker determination with the submission of FSS-8, Determination of Worker Status for Purposes of Federal Employee Taxes and Income Tax Withholding.
Miss. Code. tit. 27, pt. 1, ch. 8, APPENDICES, app 27-1-8-C