Human Resources: FAQs

Q: How do I determine if I am hiring an employee or an independent contractor?

A: The determination of whether an individual is classified as an employee or an independent contractor affects income tax withholding as well as social security, Medicare, and unemployment tax payments.  The Internal Revenue Service considers many factors in making the determination of employee or independent contractor.  No one factor is instrumental, instead the factors are balanced against each other.  These factors are grouped into three different categories dealing with the behavioral control of the worker, financial controls over the work, and the relationship between the parties.
Behavioral control examines whether or not the business directs how the work gets done, the timing and location of the work, specific methods for doing the work, and whether the employer provides training.  In general, the more freedom to self-direct aspects of the work , the more likely the individual is an independent contractor.
Financial controls point to the existence of a business venture for an independent contractor.  Investments in the business, assumption of financial risk, and unreimbursed expenses are factors indicating an independent contractor.
The relationship of the parties looks at the existence of a contract or written agreement to specify the intent of the parties.  In ambiguous circumstances, a contract may help make the contractor/employee determination.

Q: What is the difference between exempt and nonexempt employees?

A: Employees who are exempt from minimum wage and overtime requirements are called "exempt" employees.  Generally, these employees are paid a salary (as opposed to hourly wages) and fall into one of four categories: executive, administrative, professional or outside sales positions.   In general, except for outside sales positions, employees are classified as exempt if they manage a department or staff, perform non-manual work related to management policies, exercise discretion that have a substantive impact on the business, and may involve special skills or advanced education such as computer programming.  The specifics of classification are complex; classifying marginal cases can be a very challenging exercise in federal and state employment law, perhaps necessitating legal counsel.  Additional basic information is available from An Employer's Guide to Employment Law Issues in Minnesota, published by the Minnesota Department of Trade and Economic Development.

Q: How do I get an EIN (employer identification number) for my organization?

A: Nonprofit organizations should have an Employer Identification Number, or EIN, often referred to as a Federal ID Number, even if it has no employees. The EIN acts similarly to the social security number for individuals and may be requested when opening a bank account or in other fiscal operations. Organizations must incorporate prior to applying for an EIN and must receive their EIN before filing Form 1023.  There is no filing fee.
Organizations can file for their EIN over the telephone and receive their EIN immediately.  The IRS recommends completing IRS Form SS-4 — Application for Employer Identification Number (EIN) to prepare for telefiling.  Call 1-866-816-2065 to apply through Tele-TIN.      If application is through mail or fax, processing can take up to five weeks.  Minnesota organizations should mail their application to: IRS, Attn. Entity Control, Stop 6800, 2306 E Bannister Rd, Kansas City, MO 64999.  
For more information, call the IRS at 1-866-816-2065 between 7:30 a.m. and 5:30 p.m.   

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