- February 2013
- •
- Volume # 93
Employer Question & Answer
Frequently Asked Questions from Employers to the Division
Question:
What’s the difference between an employee and an independent contractor?
Answer:
Employers often ask the Division if they can hire a PERS or TRS retiree or other worker as an independent contractor to temporarily fill a vacant position. In most cases, the answer is no. If a position is part of the normal job process the worker is more likely a temporary or non-permanent employee. (Unless they are in the business of providing such services to the general public and even in that situation, some jobs, including school superintendents, can only be filled by an employee.)
If you determine a worker is a contractor, and an audit by the State or the IRS later determines the worker is not a contractor, both the worker and employer will have to pay the following items.
The worker will be responsible for:
- repaying any and all retirement benefits received while working as a contractor.
- paying any employee contributions that should have been paid.
The employer will be responsible for:
- paying any employer contributions to the PERS that should have been paid and for all Federal reporting adjustments.
- paying all employee and employer taxes (Social Security/Medicare) that should have been withheld and reported.
Division of Retirement and Benefits auditors verify workers as employees or independent contractors. This falls under their responsibilities as State Social Security Administrator, which is a role Division auditors have held since 1991. When employer audits are performed, Federal Forms W-2, Forms 1099, and other tax reporting documents are reviewed. Many times, workers classified as independent contractors are actually PERS or TRS employees.
The IRS developed several cross-checks to identify workers who are not actually independent contractors. Some examples include:
- Review of Forms 1099 for governmental entities to see if the contractor received only one Form 1099 from a single employer, which would indicate the contractor is not actually running a business.
- Matching a governmental employer’s Forms W-2 and Forms 1099 to see if an employee also worked as an independent contractor.
When determining a worker’s status, evidence regarding the degree of control and independence should be considered. Independent contractors should:
- Perform duties that are not part of the normal work flow;
- Perform a task that has a specific result (end date);
- Expect to receive income from more than one source;
- Have a business license;
- Have a business premises; and
- Provide services to more than one employer.
Please note: Possession of a business license or insurance does not make a valid independent contractor. These are only beginning steps. The factors affecting a worker to be an employee or an independent contractor are not exhaustively defined.
A worker who meets the above requirements can be considered an independent contractor. However, filing form SS-8 with the IRS is the only acceptable means to protect an employer from past tax liabilities for incorrectly classified employees.
If you have questions, Division auditors are available to discuss this issue with you.
WebEx Training and Counselor Visit Offered
In Lieu of Benefits Fair
The Division will offer WebEx trainings and a visit from Regional Counselor, Roberto Aceveda in lieu of a Benefits Fair. Roberto will be visiting Kenai and Soldotna the week of February 25 and has scheduled the following seminars:
- TRS Retirement Process, Tuesday, February 26
- PERS Retirement Process, Wednesday, February 27
PERS and TRS Handbooks Available at Alaska.gov/drb
Share with Employees in the Defined Benefit Plans
PERS and TRS Information Handbooks are available online. Since the Division no longer prints the handbooks for distribution, it is important to share these links with employees on a regular basis. The information in the handbooks is valuable and clearly explains the PERS (Tier I, II, and III) and TRS (Tiers I and II) programs for employees.
Employees can request hard copies of the PERS or TRS Handbook via email or by calling (800) 821-2251, statewide or (907) 465-4460, in Juneau.
Alaska Retirement Management Board Meeting
April 18 and 19 at Centennial Hall in Juneau
Alaska Retirement Management Board (ARMB) meetings are open to the public. Minutes of past meetings and meeting agendas can be found online. If you have questions, email Judy Hall, ARMB liaison, or call (907) 465-3749.
March PERS and TRS Newsbreaks Available Online
Newsbreaks Will No Longer be Mailed to Employers
The Division of Retirement and Benefits will no longer mail PERS and TRS Newsletters to employers. Both of the March Newsbreaks are now available online for your review. Also listed are all archived newsletters to 2008.