Info You Can Use

Info You Can Use: Employee or Independent Contractor

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As usual, the folks at the Non-Profit Law Blog provide some useful links. I will quickly point out a short piece about the Senate has recently passing a jobs bill that will provide incentives to hire and keep employees.

The measure would exempt private employers, including nonprofit groups, from paying their share of Social Security taxes for employees they hire through the end of 2010. The new hires must have been out of work for at least 60 days.

They would get an additional $1,000 bonus if they kept the employee on the payroll for a full year

I had heard about this a few weeks ago, but it never occurred to me that this would be a real boon for the non-profit world where a little savings can go a long way. I wish I could remember where I heard it, but I was listening to a radio show where one of the panelists said he wished the money going to public works was directed to non-profits because you could create hundreds of non-profit jobs for every construction job created.

The main of what I wanted to discuss is examining the employment status of people who work for your organization. According to Jessica R. Lubar, a lawyer at Venable LLP, the IRS is undertaking a study of employment tax compliance. They will be focusing on three areas: worker classification, fringe benefits and officer compensation.

What I wanted to point out specifically was the issue of worker classification. I know of a number of organizations that call those who work for them independent contractors so that they don’t have to attend to any of the tax withholding details. However, if the IRS doesn’t call them the same thing you do, there could be a lot of trouble.

“A worker is considered an employee if the employer exercises the requisite amount of control over the employee under common-law principles. Over the years, the courts and the IRS have articulated certain factors that are considered in making that determination. The IRS organized the factors that are considered into three categories: (1) Behavioral Control – whether the business has a right to direct and control how the worker does the task for which the worker is hired; (2) Financial Control – whether the business has a right to control the business aspects of the worker’s job; and (3) Type of Relationship.”

If you have made a mistake in classifying an employee as an independent contractor, there is an opportunity to rectify that situation and obtain relief from the penalties of that mistake. Lubar outlines these in the entry. You would obviously want to consult a lawyer because I am already confused by the first of the three requisite criteria–not treating a person like an employee. That seems to me to imply you have been treating the person like an independent contractor which means you are in the clear.

Perhaps the distinction is in whether you contractually had the right to behavioral and financial control but never enforced it thereby treating someone as if they were an independent contractor when technically they were not.

Guess that is what the lawyers get paid to tell us.

Info You Can Use: Will You Have To Get Rid Of Your Wireless Mics?

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You may or may not be aware that after June 12, 2010, you will no longer be able to use wireless microphones that operate in the 700 MHz range. Arts Presenters has been following this issue very closely and has put together a good resource page on the subject. The page contains information on the ruling and has a link to help you figure out if your wireless mics operate in that range. If they don’t, you can keep using them. Some microphones can be re-tuned to operate outside that range which may also be good news.

I say may because APAP also hosted a conference call on the subject. The transcript may be found here. According to one of the speakers, Matthew Nodine, chief of staff for the FCC wireless bureau, the FCC has made room in the UHF band for all those displaced by this ruling. The question is whether you can stay there or will have to move again. From my reading the experts answering the questions don’t give any concrete assurances that wireless microphones can operate in that area over the long term. They even mention there are a number of other interests who wish to operate in the same area of the white space on an unlicensed basis.

“You have competing interest in the white spaces proceeding which has to be resolved for the commission to decide exactly what rule is going forward that should apply to wireless microphones, should apply to other users, should apply to the licensees and the other licensees in the band.”

There seems to be potential for being bumped from where you are operating at a later time if the FCC decides that space should be used for WiFi or cell phone internet operations. (Just as an example. I have no idea if operating in this span of bandwidth is viable for these functions.)

On a more positive note, it sounds like theatres could actually secure some frequencies by becoming licensed to use them. (my emphasis)

“The FCC is basically setting up a licensing opportunity as one of the possible destinations for operations on a permanent basis in the TV core spectrum. The value of licensing as you may have guessed is that you have enhanced interference protection as against white space devices. You are permitted, and I will just leave it there. You also have interference protections as against all unlicensed operations. You have flexibility to conduct two-way wireless mic related operations. Queuing is permitted for licensed operations for production personnel. It also permits certain types of uses of wireless devices to key stage hands, so sort of backstage uses which are related to performance. All are encompassed under the authority which licensed operators to which they are entitled.”

If you do employ a lot of two way communications, getting licensed may be a necessity. (again, my emphasis)

On the unlicensed side, if you chose not to be licensed, it seems like first of all the only sort of interference protection that you would enjoy would be to operate on certain set aside channels in the TV core where white space devices are not allowed to operate. I think this is a proposal in the commission’s order, but it says that such operations will be limited to 50 millowatts, 5-0 millowatts max power and would probably be limited to one-way only operations. …. it seems as if the queuing and the backstage kind of radio access, the two-way capabilities are very much a part of the performance experience and part of the production values which have been built into certainly into any sort of serious professional production. It looks to us for this particular community of users, that licensed use has a lot of the characteristics which really are the bedrock of any sort of quality performance.

What happens if you keep operating your 700 MHz devices after June 12, 2010? According to FCC wireless chief of staff Nodine,

“There are penalties that are going to be associated with wireless microphone system user who is using their wireless microphone system in the 700 megahertz range after June 12th. We don’t know – we can comment on what we believe those are going to be. And that’s probably going to be a, a fairly wide range of both civil and potentially criminal penalties. And it will be looked at on a case by case basis.”

Info You Can Use: Cell Phone Donations

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If you have been excited by the prospect of using cell phones as a mode of donation after hearing of the success in raising funds for Haiti, you may want to do some research and calculations. The cell phone and credit card companies have gone out of their way to make it easy to donate for Haiti relief and waived most of the ancillary costs.

You on the other hand, probably won’t be so lucky.

Hawaii Public Radio had a short piece covering a meeting sponsored by a local foundation on the subject of cell phone donations this week. (link downloads mp3 file. This link if first doesn’t work. Look for raising funds..social media) A representative from a cell phone company talked about the costs to set something like this up- $500 set up fee, $400 monthly fee and a a .35 per transaction fee.

With costs like that, it would likely only be worth your while if you had a large group of people already giving that you wanted to provide an alternative mode for donating.

Now that said, I can easily see the costs coming down as those for whom it makes sense use the service. Once all those involved with the transactions create more efficient processes, the service may become more affordable. Someone is likely to invent an app for the iPhone or Facebook which will facilitate the whole exchange and two years from now it will be a $2 billion business in $25 average increments.

Another observation that is made in the story related to social media was in regard to who one puts in charge of coordinating it. One speaker cautioned against putting the youngest person in the office in charge of social media just because they understand the software the best of anyone. “They know the tools, but they don’t understand the sophistication of your message and they don’t always understand the intangible qualities…of how you actually communicate with people out there.”

I have a suspicion this is something a lot of people have already thought to themselves but were afraid to say it for fear of showing just how out of touch with social media and its great power they are. It just takes a visit to sites like Failbooking.com to see some pretty poor choices when using Facebook. Though to be fair, I sort of question the wisdom of this water safety ad by Royal Life Saving Society Australia.

Information You Can Use: Tax Treaties and 30% Withholding

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I was recently fortunate enough to get into a conflict with my disbursing office on the subject of the 30% withholding for foreign performers.

Well, admittedly, I didn’t feel lucky at the time. The whole issue is very confusing and time consuming. However, the outcome is such that I am a good deal wiser and more informed about the process. And more importantly, I managed with the help of the artist’s agent and the IRS to secure full payment for the foreign performers.

For those of you who may not be familiar with the issue, count yourself lucky but also be aware that you may become embroiled in a situation requiring you to withhold 30% of an artist’s fee in the future in the absence of a treaty or the proper tax paperwork. I did a couple entries about five years ago which you may want to take a look at to gain some background.

The group we were looking to bring is coming from New Zealand. Their agent was on the ball and sent me the requisite tax paperwork claiming exemption back this summer. Not wanting to have any problems crop up when it came time to send the deposit, at the end of July I sent a memo accompanying the paperwork which included the details of the engagement asking if the 30% would be withheld. I was told it wouldn’t be. It wasn’t until the check was cut and on its way over to me that the decision was made to cancel that check and issue another one less 30%.

At question was Article 7 of the US-New Zealand Tax Treaty which reads:

“The business profits of a Contracting State shall be taxable only in that state unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the business profits of the enterprise may be taxed in the other State but only much of them as is attributable to that permanent establishment. “

The agent provided an interpretation where the first Contracting State was NZ. Our disbursing office interpreted the first Contracting State to be the U.S. and deemed the performance to be goods “created” in the U.S.

In came the IRS to the rescue! You won’t see that phrase too much in life so let me say it again. In came the IRS to the rescue!

The Central Withholding Agreements office provided the following guidance which they have given me permission to reprint for your edification. Be aware that all countries have different tax treaties, but many of them are very similar to the one the US has with New Zealand so this information can be applicable in many cases.

In the following, “business entity” refers to a production company or other type of operation which owns the rights to the production and performances being presented. The presumption here is that the artists/performers are either employees or contract players for the business entity, having no ownership interest or risk from loss in the production, thus making the business entity, rather than a venue or other payer, the withholding agent for payments to the artists. Payments to these performers would be subject to rules, regulations, and treaty considerations for the individuals as artists. The business entity may apply for a tax treaty benefit with regards to payments made to the business entity if the business entity is permanently located in a country that has a tax treaty with the United States.

A valid withholding certificate, W-8BEN, presented by the business entity to the venue is used to claim a tax treaty benefit for Business Profits. CAVEAT: The business entity MUST have a US Employer ID Number on the form W-8BEN to qualify for the exemption, otherwise 30% of gross income is required to be withheld and deposited with the US Treasury on behalf of the business entity.

Tax Treaties between the US and other countries are worded so that each country reads it and approaches it as a reciprocal agreement. In each case, the “Contracting State” is the country of residence of the business entity and the “other Contracting State” is the country in which they are performing services for remuneration.

Therefore, a US business entity applying Article 7 of the US-NZ tax treaty would use the US as “Contracting State” and New Zealand as the “other Contracting State” thereby claiming exemption from tax in NZ but being subject to full taxation in the US. The business entity could not claim exemption if they had a permanent establishment in NZ.

SIMILARLY, the NZ business entity would flip-flop the terminology taking NZ as the “Contracting State” and the US as the “other Contracting State” thereby claiming exemption from US taxation and subjection to full taxation in NZ. The business entity could not claim exemption if they had a permanent establishment in the US.

As a result, a non-resident alien business entity as described above will provide to the venue a Form W-8BEN claiming the business profits tax treaty provision. The venue is relieved from any withholding responsibilities for payments to the business entity.

The business entity is still required to withhold and deposit on any payments made to or for the benefit of the actual performers.

For the withholding requirements on the individual non-resident alien artists or athletes, you may contact the IRS at CWA.Program@IRS.gov

It should be noted, that while the payment may be exempt from the 30% withholding, the foreign company must still deduct U.S. taxes from payments made to their performers. More information on this may be found on the Artists from Abroad website.