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Memorandum #1079 <br />May 21, 2007 <br />Page 5 <br />Ci /County Managers: Regardless of whether they are part time, full time, or interim, managers <br />are still considered employees as the entity has right of control over how they do their job. <br />Appointed officials serve at the pleasure of the governing board and follow state law and <br />city/county ordinances (G.S. 160A -147-I50). <br />Cit /County Attorneys: There has been a case in North Carolina where the IRS said an attorney <br />on retainer to a unit was an employee although the person worked for a private law firm. The <br />issue here also is related to the right of control. By appointing the city/county attorney; the <br />governing board will have some control over when that attorney provides services. Usually, the <br />attorney is required to attend all board meetings and provide set services to the board. Due to this <br />level of control, the IRS argues that this is an employer -employee relationship. Unit's may wish <br />to contract with a law fum instead of an individual member of that firm and any of the attorneys in <br />the firm may then provide services to the unit. This arrangement is more indicative of a contract <br />relationship rather than an employer-employee relationship. <br />Local governments must be diligent when contracting for services of anyone. that they are going to <br />treat as an independent contractor to make sure they are clearly independent and that the unit has <br />no behavioral control, financial control or relationship control that would result in an IRS adverse <br />decision should they be challenged. In order to prove this diligence, the local government should <br />develop some form of documentation system and checklist to use in every establishment of an <br />independent contractor relationship. This documentation should cover each of the three areas of <br />concern to the IRS -behavioral, financial, and relationship control. Documentation of the <br />decision-making process is essential, and the unit should strive to be consistent in its application <br />ofthe law. <br />As with any payroll-related issue, please seek the assistance and guidance of your payroll <br />advisor and independent auditor before making any changes to your policies and <br />procedures. <br />If there are questions or comments regarding this memo, please contact Ken Wease at (919) 807- <br />2391 or ken.wease~a?nctreasurer.com. <br />r '~ <br />