AP Badge #08: Employee vs. Contractor-AP Badge #8

AP Badge #8 - PowerPoint

Pdf Summary

This WASBO Badge #8 module explains how school districts must correctly classify workers as independent contractors, employees, or vendors because misclassification can create significant financial liability. A key operational distinction is that independent contractors and vendors are typically paid through Accounts Payable (AP), while employees must be paid through payroll with required tax withholding, reporting, and mandatory benefits (FICA/Medicare, unemployment, workers’ compensation) and receive a W-2.<br /><br />The training highlights the regulatory agencies involved—IRS (tax), Labor & Industries (workers’ comp), Unemployment Security, and the Department of Retirement Services (DRS)—noting that each uses similar criteria to determine worker status. Classification is evaluated using three main factor groups: behavioral control (who directs how/when/where work is done, tools used, training), financial control (unreimbursed expenses, ability to profit or incur loss), and the relationship of the parties (benefits, written contracts, intent). No single factor is determinative; districts may use DRS’s Independent Contractor Status form and can request an IRS determination via Form SS-8.<br /><br />AP plays a critical role because HR may not see payments processed through AP. Staff should scrutinize personal services contracts and unusual cases (therapists, nurses, consultants, retirees rehired as “consultants,” ticket takers, off-duty police, purchase orders issued to employees). Employees generally should not be paid through AP except for non-taxable travel reimbursements or when an employee operates a truly separate business providing substantially different services (e.g., bookkeeper hired for photography). Districts should use W-9s, vendor vetting, registration checks (UBI/Tax ID), and written contract language.<br /><br />A special AP responsibility is identifying DRS retirees, especially “2008 Early Retirement Factor” retirees: before age 65 they cannot work for a DRS-covered employer as a contractor without stopping benefits, and failure to verify/report timely can cause pension overpayment liability. AP should verify retirement status for new vendors/third-party workers using DRS forms and eServices.

Keywords

worker classification

independent contractor vs employee

vendor payments

accounts payable vs payroll

IRS behavioral financial relationship tests

Form SS-8 determination

DRS Independent Contractor Status form

W-9 and vendor vetting

school district misclassification liability

DRS retiree early retirement factor compliance