Section 1 - Employees vs. Nonemployees

Question 1

If the PEO fails to pay the employee or withhold and deposit employment taxes as required, the client firm is jointly liable.

True or False

Answer 1

True.

Much like with a temporary agency, if the PEO fails to pay the employee or withhold and deposit employment taxes as required, the client firm is jointly liable with the PEO.

Question 2

Employees are paid wages, such as

Answer 2

Employees are paid wages, such as salaries, fees, bonuses, commissions, and vacation, retirement, fringes or other pay. Wages might also include employee referral awards, gifts certificates, stock, life insurance, termination or overtime pay and reimbursed moving expenses.

Question 3

What is the purpose or a company using a leased employee or Professional Employer Organization?

Answer 3

Instead of a temporary help agency, some firms use a leasing agency or professional employer organization (PEO) to reduce the administrative burden associated with workflow management.

Question 4

Workers who meet the common-law test are considered employees, and the length of employment has no bearing.

True or False

Answer 4

True.

So long as the individual was considered a common law employee, they are considered an employee even if the working relationship only lasted for one hour.

Question 5

Employees are paid as an ordinary disbursement.

True or False

Answer 5

False.

There are six categories of workers, common law employees, statutory employees, statutory nonemployees, independent contractors, temporary help referred by an agency and leased employees. Of the six, only the first two categories, common law, and statutory employees are subject to payroll, the last 4 categories are paid as an ordinary disbursement.

Question 6

Payments to statutory nonemployees are exempt from federal income tax withholding, FICA (Social security and Medicare) tax as well as FUTA.

True or False

Answer 6

True.

Question 7

A company is liable for 100% of the federal income and FICA taxes they failed to withhold when:

Answer 7

If an employer misclassifies an employee as an independent contractor with no regard to whether due to intentionally trying to evade taxes and filings or a lack of knowledge, they are 100% liable for the federal income and FICA taxes they failed to withhold.

The amount the company must pay depends on whether the company filed their 1099’s to report payments.

Question 8

A driver who picks up and delivers laundry or dry cleaning and is the employer’s agent or is paid by commision is what type of worker?

Answer 8

Statutory Employee

Payments to statutory employees are not subject to federal income tax withholding, but they are subject to FICA and FUTA.

Question 9

An independent contractor must provide the payer with their taxpayer identification number (TIN) which can be either a ______ ______ ______ or ______ ______ ______

Answer 9

Social security number (SSN) or Employer identification number (EIN).

Question 10

If the agency fails to remit payment to employees or fails to pay or withhold employment taxes as required, the client firm can be found liable for the unpaid amount.

True or False

Answer 10

True.

The client firm and the temporary help agency are jointly responsible for compliance with the Federal, State and Local Wage laws and must adhere to that which is most favorable to the employee.

Question 11

What type of worker is subject to the unique payroll tax and reporting requirements

Answer 11

There are six categories of workers:

• Common Law Employees
• Statutory Employees
• Statutory nonemployees
• Independent contractors
• Individuals referred by a temporary help agency
• Leased employees

Employees (common-law and statutory) are subject to payroll which includes the employer withholding and depositing checks on behalf of employees, federal and state unemployment tax, as well as filing quarterly and annual returns with the appropriate agencies.

Question 12

If a referral agency only receives a referral or placement fee and does not receive or pay the sitter’s salary, the agency is not considered the sitter’s employer.

True or False

Answer 12

True.

In cases as such, the sitter is generally considered to be self-employed for federal employment and withholding purposes which means the sitter is solely responsible for payment of federal income taxes, FICA, and state income taxes, depending on the state.

Question 13

An independent contractor is different from an employee because

Answer 13

Generally, as an employee, the employer exercises control over who performs the work, what work is done, when and where the work is done as well as how. An independent contractor, on the other hand, has control over the methods and means by which the work is completed.

Question 14

As a statutory nonemployee, what information must the employer provide you stated explicitly in a written agreement?

Answer 14

The performance-based pay arrangement and the fact that statutory nonemployees are not treated as an employee for federal tax purposes must be stipulated in a written agreement by the employer and given to the employee.

Question 15

If an employer is ever unsure whether an individual should be treated as an independent contractor or employee, they are recommended to complete Form

Answer 15

Form SS-8, a 20 question evaluation that the IRS uses to determine an individual’s worker status.

Question 16

Under the _____ ______ _______employers are liable for 100% of the federal income and FICA taxes they failed to withhold.

Answer 16

“IRC” Internal Revenue Code,

Question 17

When a companion sitter considered self-employed?

Answer 17

If a referral agency only receives a referral or placement fee and does not receive or pay the sitter’s salary, the agency is not considered their employer, therefore, the sitter is considered self-employed for federal employment and withholding purposes.

Question 18

Payments made to those considered statutory employees are not subject to federal income tax withholding, but they are subject to FICA (Social Security and Medicare) tax withholding and federal unemployment tax (FUTA).

True or False

Answer 18

True.

Question 19

If a client makes a contractual agreement with an agency to use their employees for a specified period, usually during peak seasons or to replace employees out of work due to illness or vacation, the agency is referred to as a _______ _______ ________.

Answer 19

Temporary help agency

Question 20

Under IRC, the company is _____% liable for the federal income and FICA taxes they failed to withhold if an employee was misclassified as an independent contractor.

Answer 20

100%

Question 21

An individual who provides personal attendance, companionship, or household services to children, the elderly or disabled is called a ______ ______.

Answer 21

Companion sitter.

Question 22

Form W2 is filed for statutory employees.

True or False

Answer 22

True.

Statutory employees are treated similar to common law employees, the biggest difference, however, is that payments made to statutory employees are not subject to federal income taxes withheld, but still subject to FICA and FUTA.

Question 23

When an employer wants a written determination from the IRS about a worker’s status, Form _____ should be completed and submitted.

Answer 23

Form SS-8.

Question 24

When a company uses a PEO, they are paid as

Answer 24

When a company uses a PEO, they are paid as an ordinary disbursement, and the PEO is considered the employer.

Please note, the categories of workers subject to payroll are common law and statutory employees, on the other hand, statutory nonemployees, independent contractors, individuals referred by temporary help agencies and leased employees are paid as an ordinary disbursement.

Question 25

When are employers required to provide a Form 1099-MISC?

Answer 25

Employers must provide a Form 1099-MISC to reflect fees of $600 or more, paid for nonemployee compensation.

Question 26

If an independent contractor believes they should be considered employees, they have the option to get such matters determined by the IRS by

Answer 26

Completing and submitting Form SS-8.

If the worker’s SS-8 does indeed indicate an employment relationship, the IRS may choose to audit the employer’s tax records.

Question 27

If an individual is not considered an employee, this relieves the employee of the administrative burdens of payroll.

True or False

Answer 27

True.

Only employees (common-law and statutory) are subject to the unique tax and reporting requirements associated with the complex process known as payroll.

Please note, if a worker was referred by a temporary agency or a leased employee, the individual is considered an employee of the agency, however, if the agency fails to pay or withhold taxes, the client company could be held liable unless the company is a Certified Professional Employer Organization (CPEO).

Question 28

A statutory nonemployee is compensated based on

Answer 28

A statutory nonemployee is compensated based on sales and other achievements, but not by the hour.

As a statutory nonemployee, the employer is required to provide workers in this category with a contract explaining that they will not be treated as employees for the purposes of federal income tax withholding and FICA tax.

Question 29

Although the agency is the employer of an individual referred by a temporary help agency, what happens if the agency fails to pay the employee and withhold/deposit taxes on their behalf?

Answer 29

If the agency fails to remit payment to employees or fails to pay or withhold employment taxes as required, the client firm can be found liable for the unpaid amount. The client firm and the temporary help agency are jointly responsible for compliance with the Federal, State and Local Wage laws and must adhere to that which is most favorable to the employee.

Question 30

If the common law test is met, the worker is considered:

Answer 30

An employee*

Question 31

What is a companion sitter?

Answer 31

A companion sitter is one who provides personal attendance, companionship, or household services to children, the elderly or disabled.

Question 32

A PEO assumes the responsibility associated with recruiting, paying and reporting wages for tax purposes as well as personal recordkeeping for the company.

True or False

Answer 32

True.

When a company uses a PEO, they are paid as an ordinary disbursement, and the PEO is considered the individual’s employer, not the client firm. However, if the PEO fails to pay the employee or withhold and deposit employment taxes as required, the client firm is jointly liable unless the organization is a CPEO.

Question 33

Employee rights are also protected by wage-hour law, civil rights law that prohibits discrimination in pay based on race, sex, age or other non-job-related factors and immigration law.

True or False

Answer 33

True.

Question 34

After submitting Form SS-8, while awaiting a decision from the IRS, the employer should treat the individual as

Answer 34

An Employee*

Question 35

Employers report an employees annual wages and withheld federal, state and local taxes on Form

Answer 35

W-2 ‘Annual wage and Tax statement’

Question 36

A statutory nonemployee is compensated based on hours worked.

True or False

Answer 36

False.

A statutory nonemployee is compensated based on sales and other achievements, but not by the hour.

Question 37

A homeworker who uses materials or goods supplied by the employer, meets specifications given by the employer and mandated to return the goods or materials to the employer or person named by the employer is what type of worker?

Answer 37

Statutory Employee

Payments to statutory employees are not subject to federal income tax withholding, but they are subject to FICA and FUTA.

Question 38

Direct selling is a system of

Answer 38

Direct selling is a system of marketing and retailing goods and services directly to consumers.

Direct selling can take place in a customer’s home, where products are demonstrated to an individual, or group, on a buy-sell basis where the consumer is left with a catalog and calls in later to place orders or in a place of business other than a permanent retail establishment. Direct sellers also include newspaper distributors, carriers and directly related businesses such as those who collect payment for the distributors or carriers.

Question 39

Effective July 1, 2016, a PEO can obtain a certification from the ______ ______ ______ which allows them to be treated as a sole employer, which means the client firm will have no liability for unpaid federal payroll and withholding tax.

Answer 39

Internal Revenue Service

Question 40

What is the purpose of Form SS-8?

Answer 40

The IRS uses Form SS-8 to determine common law employment for purposes of federal income and employment tax withholding

Question 41

A client firm has the right to hire or fire a leased employee.

True or False

Answer 41

True.

Although not the employer, the client firm has the legal right to hire or fire leased individuals on an at-will basis.

Question 42

Payments to statutory nonemployees are exempt from

Answer 42

Payments to statutory nonemployees are ordinary disbursements and are exempt from federal income tax withholding, FICA (Social security and Medicare) tax as well as FUTA.

Question 43

Individuals can only be classified as statutory nonemployees if

Answer 43

Individuals can only be classified as statutory nonemployees if substantially all of their compensation is based on sales or performance, as opposed to hours worked.

Question 44

The main difference between an employee and Independent Contractor is

Answer 44

The main difference to note between an employee and Independent Contractor is how they’re paid. As mentioned before, only employees and statutory employees are subject to the complex and unique process known as payroll, whereas Independent contractors are paid as ordinary disbursements.

Question 45

Only the wages of employees are subject to employment tax, payroll withholding and reporting requirements, which include federal income tax withholding, FICA, federal and state unemployment insurance, state and local income tax withholding and other taxes.

True or False

Answer 45

True.

When a worker is paid as an independent contractor, their payment from the individual or business is not subject to payroll, however, the wages of employees are subject to employment tax, payroll withholding and reporting requirements.

Question 46

How can a Professional Employer Organization (PEO), protect their clients from the liability of unpaid wages and taxes not withheld and deposited by the PEO?

Answer 46

To avoid putting their clients at risk, effective July 1, 2016, a PEO can obtain a certification from the Internal Revenue Service which allows them to be treated as a sole employer, which means the client firm will have no liability for unpaid federal payroll and withholding tax.

This type of professional employer organization is distinguished as a Certified Professional Employer Organization (CPEO)

Question 47

Based on the IRS guidelines, an individual is considered a ‘Common Law Employee’ when

Answer 47

A worker is classified as a common law employee once it is determined the employer has control of the working relationship in the following areas:

Who performs the work
What work will be done
When and where the work will be done
How the work will be done.

Question 48

What are employers required to do when they hire statutory nonemployees?

Answer 48

Employers are required to provide statutory nonemployees with a contract explaining that they will not be treated as employees for the purposes of federal income tax withholding and FICA tax.

Question 49

As of 2017, the federal backup tax rate is

Answer 49

28%

The current federal law does not provide for voluntary withholding of backup tax from independent contractors, thus an employer should not withhold federal backup tax unless the IRS requires it.

Question 50

What does CPEO stand for?

Answer 50

Certified Professional Employer Organization.

To avoid putting their clients at risk, effective July 1, 2016, a PEO can obtain a certification from the Internal Revenue Service which allows them to be treated as a sole employer, which means the client firm will have no liability for unpaid federal payroll and withholding tax.

Question 51

If an employee leaves a firm to become a consultant and continues to provide the same services they did as an employee of the company, the IRS and other regulators in most cases would consider them to be

Answer 51

An employee.

Question 52

The six categories of workers are:

Answer 52

1. Common Law Employees
2. Statutory Employees
3. Statutory nonemployees
4. Independent contractors
5. Individuals referred by a temporary help agency
6. Leased employees

Question 53

Employee Erinne currently works for XYZ Co was referred by an agency.

Who is Erinne’s employer?

Answer 53

The agency, not XYZ Co is Erinne’s employer. Therefore, the agency is responsible for withholding federal, state and FICA taxes as well as paying federal and state unemployment insurance taxes on Erinne’s behalf.

Question 54

A licensed real estate agents compensation is based on?

Answer 54

Like a direct seller, a licensed real estate agent is considered a statutory nonemployee, therefore, compensation is earned based on sales or other achievements as opposed to hours worked.

Question 55

Companies are subject to minimum wage and overtime pay rules under ____ law.

Answer 55

Federal

So long as an employee is covered under the Fair Labor Standards Act of 1938, the company is subject to minimum wage and overtime pay rules under Federal law and depending on the state, higher minimum wage rates and additional taxes and filings.

Question 56

Effective in 2015, the _____ ______ Act requires that employers with 50 or more employees provide employees with minimum, affordable health insurance or pay a federal excise tax and file information returns and statements concerning employee’s health insurance coverage.

Answer 56

Affordable Care

Question 57

A full-time life insurance sales agent whose principal activity is selling life insurance or annuity contracts, or both, primarily for one carrier as opposed to being an independent agent who sells for multiple carriers is an example of (a/an) _________

Answer 57

A statutory employee.

Question 58

If a full-time life insurance agent is paid solely by commission, they are exempt from FUTA and FICA.

True or False

Answer 58

False.

Full-time life insurance agents paid solely by a commission are exempt from FUTA but subject to FICA.

Question 59

Individuals who receive U.S. source income and are not eligible to obtain a SSN are assigned

Answer 59

Individuals who receive U.S. source income and are not eligible to obtain a SSN are assigned an individual taxpayer identification number (ITIN).

Question 60

What is an independent contractor?

Answer 60

An independent contractor is an individual or business contracted to perform work or provide services to an individual or entity as a non-employee.

An independent contractor is distinguished from an employee because the individual or business performing the work has control over the methods and means by which the work is completed as opposed to the company for whom the work is being done.