PLR 200234007: Medical assistant is an employee of the federal agency

Plain-English summary

A federal agency sought an employment tax classification for a medical assistant it engaged under a services contract. The agency set her hours and assignments, supplied her equipment, supervised her daily work, and offered annual and sick leave. The IRS found enough direction and control to treat her as an employee under the common law test, regardless of the contract's label. Her pay is wages subject to federal employment taxes and income tax withholding. The letter also notes the statutory FUTA exception for services performed for the federal government and applies its ruling to similarly engaged workers.

Ruling snapshot

• Question: Is the medical assistant an employee or an independent contractor for federal employment tax purposes?
• Outcome: Employee; her pay is wages subject to applicable employment taxes and withholding
• Key authorities: IRC §§ 3121(d)(2), 3306(c)(6); Treas. Reg. §§ 31.3121(d)-1, 31.3401(c)-1

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200234007
Washington, DC 20224
Release Date: 8/23/2002
Index Number: 3121.04-01, 3306.05-00, Person to Contact:
3401.04-02
Telephone Number:

Refer Reply To:
CC:TEGE:EOEG:ET1-PLR-122380-01
Date:
April 19, 2002

Key:

Firm =

Worker =

Dear

This is in reply to a request for a ruling to determine the federal employment tax status of the above-named Worker with respect to services provided the Firm.

The Federal employment taxes are those imposed by the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages.

According to the information submitted the Firm is a federal agency. The Worker provides her services as a medical assistant under a Order for Supplies or Services, DD Form 1155 (contract). Terms in the contract provide that the Worker’s services are to be performed at the Firm’s facilities, on a schedule determined by the Firm and that the Firm will provide all the equipment and supplies needed by the Worker in the performance of her services. Terms in the contract require that the Worker arrive for each scheduled work shift in a well rested condition and that she have a least six hours of rest from all other duties as a medical assistant. Terms in the contract also provide that the Worker is eligible to accrue both annual and sick leave. The contract provides that the Worker’s activities are subject to the day-to-day supervision and control by the Firm in a manner comparable to the supervision and control exercised over its employees engaged in comparable work. The contract further states that “the term ‘supervision and control’ is defined as that process by which the provider receives technical guidance, direction, and approval with regard to an element of work or a series of tasks within the requirement of this contract.”

The information provided by both the Firm and the Worker is in substantial agreement. 2 PLR-122380-01

Both parties state that the hours of work and the work assignments are determined by the Firm. Both parties state that the Worker is required to contact her immediate supervisor who is responsible for resolving problems or complaints. Both parties also state that she is required to submit reports including personal time sheets.

Both parties indicate that the Worker is not paid directly by the Firm’s clients and that she cannot incur an economic loss or financial risk beyond the normal loss of salary. Both the Firm and the Worker indicate that she does not perform a similar service for others, that she is represented to the Firm’s clients as a member of its staff, and that she is required to attend staff meetings.

Section 3121(d)(2) of the Internal Revenue Code (the Code) defines “employee” as any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.

The question of whether an individual is an employee under the common law rules or an independent contractor is one of fact to be determined upon consideration of the facts and the application of the law and regulations in a particular case. Guidance for determining the existence of that status is found in two substantially similar sections of the applicable Employment Tax Regulations: section 31.3121(d)-1 relating to the Federal Insurance Contributions Act (FICA), and section 31.3401(c)-1 relating to federal income tax withholding.

Section 31.3121(d)-1(c)(2) of the regulations provides that generally, the relationship of employer-employee exists when the person for whom the services are performed has the right to direct and control the individual who performs the services not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished. It is not necessary that the employer actually direct or control the manner in which the services are performed, it is sufficient if he or she has the right to do so.

Section 31.3121(d)-1(a)(3) of the regulations provides that if the relationship of an employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, if an employer-employee relationship exists, it is of no consequence that the employee is designated as partner, coadventurer, agent, or independent contractor or the like.

In determining whether an individual is an employee or an independent contractor under the common law, all evidence of both control and lack of control or autonomy must be considered. In doing so, one must examine the relationship of the worker and the business. Relevant facts generally fall into three categories: (1) behavioral controls, (2) financial controls, and (3) the relationship of the parties.

Behavioral controls are evidenced by facts which illustrate whether the service recipient has a right to direct or control how the worker performs the specific tasks for which he or she is hired. Facts which illustrate whether there is a right to control how a worker 3 PLR-122380-01

performs a task include the provision of training or instruction.

Financial controls are evidenced by facts which illustrate whether the service recipient has a right to direct or control the financial aspects of the worker’s activities. These factors include whether a worker has made a significant investment, has unreimbursed expenses, and makes services available to the relevant market; the method of payment; and the opportunity for profit or loss.

The relationship of the parties is generally evidenced by the parties’ agreements and actions with respect to each other, including facts which show not only how they perceive their own relationship but also how they represent their relationship to others. Facts which illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts, the provision of or lack of employee benefits, the right of the parties to terminate the relationship, the permanency of the relationship, and whether the services performed are part of the service recipient’s regular business activities.

Based on the information submitted, it is determined that the services performed by the Worker are sufficiently subject to the direction and control by the Firm to establish an employer-employee relationship. Accordingly, it is held that the Worker is an employee of the Firm and amounts paid to her for services provided are wages, subject to federal employment taxes and income tax withholding.

Section 3306(c)(6) of the Code, pertaining to the FUTA, provides that service performed in the employ of the United States Government are excepted from the definition of employment.

This ruling is applicable to any individuals engaged by the Firm under similar circumstances. The Firm is responsible for advising all of the affected workers of the results of this ruling.

This ruling is directed only to the taxpayer(s) to whom it is addressed. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent

Sincerely,
Will E. McLeod
Acting Chief, Employment Tax Branch 1
Division Counsel/Associate
Chief Counsel
(Tax Exempt and Government Entities)