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Six keys for classifying employees, independent contractors
On Board Online • Legal Agenda • August 4, 2008
By the New York State Association of School Attorneys
Many school boards have sought clarification on classifying individuals as employees or independent contractors in the wake of news articles and state oversight reports on the issue. Classification decisions determine whether an individual is eligible for state retirement and health benefits.
Below are six points that boards of education should bear in mind when presented with a classification question. Because in-depth analysis may be required in certain cases, we recommend boards of education routinely seek the advice of counsel before making classification decisions.
The six points are:
1. Instructional service providers must be employees.
The commissioner of education has consistently held that school boards lack the authority to retain independent contractors to perform core educational or instructional services. Teachers, school social workers, school psychologists and other certified staff implementing a school district’s curriculum must either be school district employees or be employed under a contract with a board of cooperative educational services. However, school psychologists and other certified staff may be hired as contractors to provide ancillary or supplementary services such as evaluations and special programs. We recommend school boards seek the advice of counsel before approving such contracts.
2. Professional service providers are presumed to be contractors.
The Office of the New York State Comptroller has issued regulations that create a presumption that certain professional service providers be classified as independent contractors. These include attorneys, physicians, engineers, architects, accountants and auditors. However, boards may properly classify professional service providers and others as employees if the board files documents and certification required by the comptroller (see www.osc.state.ny.us/ retire/employers) and the individual’s position meets certain criteria (see 3, below).
3. The key issue: Who controls the work being done?
Regulations issued by the state comptroller set forth 17 factors that school boards should use to determine whether a genuine employer-employee relationship exists with an individual. These factors are similar to common law standards used by courts and the U.S. Internal Revenue Service. The regulations focus on whether a school district has “the right to control the means and methods of what work will be done and how the work will be done.” Along with other factors, an individual properly is classified as an employee when the school district has supervision and control over the means and methods of the individual’s service.
4. Retirement benefits are subject to state oversight.
If a school district has determined that an attorney, physician, engineer, architect, accountant or auditor is a district employee, it must file supporting documents for the individual to be eligible for state retirement benefits. The school district must provide the retirement system with an explanation of the factors “in a form prescribed by the comptroller and certified by the chief fiscal officer of the employer.” For individuals presently enrolled in the state retirement system, the comptroller has the responsibility of determining whether a particular individual is, in fact, serving as an employee and therefore eligible for pension benefits.
5. Empire Plan benefits are limited to employees.
Independent contractors are not entitled to participate in the New York State Health Insurance Plan (Empire Plan). Employees, their dependents and retirees are eligible to participate in the Empire Plan, subject to the terms and conditions of collective bargaining agreements and civil service regulations. Under certain circumstances, elected officials including school board members may also participate in the Empire Plan (at their own expense for those in unpaid service).
6. Improper classification can result in tax penalties.
A contract with an independent contractor should address the classification of the service and tax treatment of compensation. Under the Internal Revenue Code, employers are required to determine whether individuals are providing services as employees and, if so, pay employment taxes for those employees. Employers that misclassify employees as independent contractors may be liable for back taxes and penalties.
Using criteria similar to those endorsed by the comptroller, courts have validated contracts between governmental agencies and contractors for various services including “indirect” custodial services, security guards and construction supervision. In each case, the courts have analyzed the factual circumstances of the principal-independent contractor relationship and the common law classification test.
School boards should note that contracting with service providers rather than using employees may, under certain circumstances, trigger a board’s obligation to negotiate under the Taylor Law.
School boards should approve contracts with independent contractors, and those contracts should set forth the terms and conditions of service and the contractor’s compensation. The rationale for each classification decision should be documented, and the contract award should comply with the district’s purchasing policy and General Municipal Law Section 104-b.
The determination of whether an individual is properly classified as an employee or independent contractor is fact-dependent. We recommend school districts consult with counsel on a case-by-case basis. In addition, we recommend any contracts with independent contractors be reviewed by counsel prior to consideration by the school board.
Members of the New York State Association of School Attorneys represent school boards and school districts. This article was written by John Sheahan, a partner in the Guercio & Guercio law firm.

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