Independent Contractors vs. Casual Employees:
It is generally recommended that PTA’s in the Issaquah School District (ISD) pay independent contractors through the district rather than paying them directly. This avoids the PTA having issues with proper worker classification, and the need to issue 1099 forms. After reviewing several IRS and WA state worker classification tests, the ISD either classifies these individuals as independent contractors (paid on a 1099 without taxes taken out) or as casual employees (paid on a W-2 with taxes taken out). To be considered an independent contractor, they must meet all three of the following tests:
- The individual is free from direction and control over the performance of the service; and
- The service is either performed:
-Outside of the usual course of business for which the service is performed, or
-Outside of all the places of business of the enterprise for which the service is performed; and
- The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in service contract. They should generally have a tax ID number, and a State of WA business license.
If all of the above tests are not met, they are considered a casual employee.
If a PTA chooses to pay a subcontractor directly, a 1099 must be issued by the PTA if the individual is paid more than $600/year. It is also suggested that a contract be established with the individual and a copy of their WA state business license kept on file.
The WSPTA “Money Matters” manual contains the following information regarding payments to contractors:
3.5 Payments to Contractors
Regardless of its tax-exempt status, a PTA may have to complete an IRS 1099-MISC Form if it made combined payments of $600 or more in a calendar year (January-December) to any individual or unincorporated business as payment for services. The PTA should have all independent contractors (individuals) or businesses complete an IRS W-9 Form. The W-9 will indicate if a PTA needs to file a 1099-MISC and will also provide the information to complete the form. The completed 1099-MISC Form must be sent to the individual or business by January 31 for the preceding year. By February 28, a PTA will need to complete an IRS 1096 Transmittal Form and submit copies of all 1099s to the IRS. More information is available on the IRS website www.irs.org.
Generally speaking, a 1099-Misc must be filled out if the person or business you paid is an independent contractor. This means your PTA contracted for a particular outcome, but did not supervise the manner and means by which it was achieved. If the person was directly supervised by the PTA, then he or she was an employee, and other requirements apply. You can obtain more information from the IRS website www.irs.gov.
In summary, it is important that you work with your principal (or designated building staff) to determine how PTA subcontractors should be paid, particularly if the work is being performed during the school day. If paid through the district, it will help to ensure the workers are properly classified and all of the necessary paperwork is completed.