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

Video Transcription

Video Summary

Badge 8 explains why school districts must correctly classify workers as independent contractors (paid through accounts payable) or employees (paid through payroll). Misclassification can create major financial liability and involves multiple agencies: IRS (tax reporting), Labor & Industries (workers’ comp), Employment Security (unemployment), and DRS (retirement). Classification is based on behavioral control, financial control, and the relationship of the parties—not on paying a higher “consultant rate.” Written contracts help, but no single factor is decisive; districts can use the DRS independent contractor questionnaire and, if needed, request an IRS determination (Form SS-8).<br /><br />Accounts payable plays a key role because workers may be hired via purchase orders without HR awareness. AP should flag purchase orders/invoices issued to employees and coordinate with HR. Employees generally should not be paid through AP except for non-taxable travel reimbursements or when an employee has a separate, registered business doing substantially different work (e.g., teacher’s moving company). AP should require W-9s, verify UBI/registered business status, use personal services contracts, and watch for improper payments via ASB accounts or p-cards.<br /><br />The module also highlights special DRS “2008 early retirement factor” retirees: if they work for a DRS employer as a contractor (or employee) before age 65, they can lose their entire monthly pension and the district may be billed for overpayments—so AP must help verify retirement status.

Keywords

worker classification

independent contractor vs employee

school district accounts payable

misclassification liability

IRS Form SS-8

DRS independent contractor questionnaire

early retirement factor pension forfeiture