Can an Executive Director of a Nonprofit Be an Independent Contractor?

Should Nonprofits Classify Part-Fourth dimension Staff every bit Employees or Independent Contractors?

Many nonprofit organizations do not have the funds to pay a full-fourth dimension staff, or even 1 full-fourth dimension worker. They frequently rely on part-time aid.

Before the system can determine how to care for payments for any work performed, the organisation must first know the business relationship that exists between the organization and the person performing the services.

The person performing the services may exist (1) an employee or (2) an independent contractor.

Why does it matter?

Determining the appropriate concern relationship is of import because the condition determines if the organization withholds and pays taxes for the worker.

If the worker is an employee, the organisation must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee.

For independent contractors, the organization does not generally take to withhold or pay any taxes on payments to independent contractors.

What are the consequences of an wrong conclusion?

Nonprofits can exist held liable for employment taxes, plus involvement and penalties, if a worker is incorrectly classified as an independent contractor.

How is a determination made?

Several factors relating to the relationship betwixt the organisation and the individual performing the services must be assessed. No set number of factors or a specific cistron makes a determination. Instead the unabridged relationship is examined.

Beneath are some factors to consider that autumn nether three wide categories:

1. Behavioral: Does the nonprofit arrangement control what the worker does and how the worker does her job?

2. Financial: Are the business organization aspects of the worker'due south chore controlled by the nonprofit organization or the worker? Are expenses reimbursed? Who provides tools/supplies for the job?

three. Blazon of Relationship: Is the work performed a key aspect of the business?

Behavioral

• Control and Instructions. If the individual is required to comply with other persons' instructions about when, where, and how he or she is to work, she is ordinarily an employee. The more detailed the instructions are that the worker is required to follow, the more control the business exercises over the worker, and the more likely the business retains the correct to control the methods by which the worker performs the work. Absence of detail in instructions or training reflects less control.
• Services Rendered Personally. An employee often does non have the ability to assign his piece of work to other employees; an contained contractor may delegate the work to others.
• Continuing Human relationship. If a business concern engages a worker with the expectation that the relationship will continue indefinitely, rather than for a specific projection or period, this is generally considered evidence of its intent to create an employment relationship. A "standing relationship" between employer and employee may exist fifty-fifty where piece of work is performed at oft recurring although irregular intervals.
• Set Hours of Work. The institution of set hours of work by the principal for whom the services are performed is a factor indicating control and an employment arrangement. An independent contractor ordinarily establishes his ain hours and schedule.
• Full Time Required. If the worker must devote essentially total time to the business concern of the person or persons for whom the services are performed, such person or persons accept command over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An employee usually works total time for an employer. An independent contractor, on the other paw, is free to piece of work when and for whom he or she chooses.

Financial

• Payment by Hour, Week, Month. A worker who is compensated on an hourly, daily, weekly, or like basis is guaranteed a return for labor. This is generally evidence of an employer-employee relationship, even when the wage or bacon is accompanied past a commission. Payment made by the job or on a straight commission more often than not indicates that the worker is an independent contractor.
• Payment of Business organisation and/or Traveling Expenses. If the person or persons for whom the services are performed usually pay the worker's business concern and/or traveling expenses, the worker is normally an employee. If expenses are not reimbursed, and so the opportunity for profit or loss exists, and suggests an independent contractor relationship.
• Furnishing of Tools and Materials. The fact that the person or persons for whom the services are performed replenish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
• Realization of Turn a profit or Loss.If the worker tin brand a turn a profit or endure a loss, the worker may be an contained contractor. Employees are typically paid for their fourth dimension and labor
 and take no liability for business expenses. The ability to realize a turn a profit or incur a loss is probably the strongest evidence that a worker controls the business aspects of services rendered and is therefore an independent contractor rather than an employee.
• Worker's Power to Piece of work for More Than One Firm at a Time. If a worker performs services for a
 multiple of unrelated firms at the same time, that factor more often than not indicates that the worker is an independent contractor. Besides, the fact that a worker makes his services available to the general public on a regular and consistent basis indicates an independent contractor human relationship. An independent contractor is generally free to seek out business opportunities. Every bit a effect, independent contractors frequently annunciate, maintain a visible business location, and are available to work for the relevant market.

Type of Relationship

• Integration. If the worker'due south services are an integral and important role of the operations of the business, it suggests that the worker must exist subject to the direction and command of management, and, consequently, is an employee of the company. This is a primal factor in why many executive directors, even part-time executive directors, may be considered employees.

What tin can I do if my nonprofit made an incorrect decision?

How not-profits should classify their part-fourth dimension staff is determined past a variety of factors. If your arrangement has fabricated a fault, you may have an opportunity to correct information technology.

The IRS has instituted the Voluntary Classification Settlement Program to provide an opportunity for taxpayers to reclassify their workers every bit employees for employment taxation purposes for future tax periods with partial relief from federal employment taxes.

Resources:

IRS: Exempt Organizations: Contained Contractors vs. Employees

IRS: Contained Contractor (Cocky-Employed) or Employee?

Learn More than:

The Cullinane Law Grouping works exclusively with the nonprofit tax-exempt sector: new nonprofits, foundations, religious groups, and social entrepreneurs throughout the United States who seek to create positive change. Contact us today to larn how nosotros can help your organization.

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Source: https://cullinanelaw.com/how-nonprofits-should-classify-part-time-staff/

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