AAC-17-08-00002-E Reporting Requirements of Service, Salary, and Deduction Information for Employers to NYSLRS

9/17/08 N.Y. St. Reg. AAC-17-08-00002-E

NEW YORK STATE REGISTER

VOLUME XXX, ISSUE 38

September 17, 2008

RULE MAKING ACTIVITIES

DEPARTMENT OF AUDIT AND CONTROL

EMERGENCY RULE MAKING

 

I.D No. AAC-17-08-00002-E

Filing No. 848

Filing Date. Aug. 29, 2008

Effective Date. Aug. 29, 2008

Reporting Requirements of Service, Salary, and Deduction Information for Employers to NYSLRS

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Amendment of sections 315.2 and 315.3 of Title 2 NYCRR.

Statutory authority:

Retirement and Social Security Law, sections 34, 334, 11 and 311

Finding of necessity for emergency rule:

Preservation of general welfare.

Specific reasons underlying the finding of necessity:

Recently conducted audits by the Office of the State Comptroller have raised substantial issues with respect to whether local governments and school districts are correctly classifying certain professionals engaged by local governments and school districts as employees eligible for membership in the NYSLRS and for service credit. The State Comptroller’s Office has promulgated these amendments to regulations governing NYSLRS to provide additional guidance to local governments and school districts, to help them determine whether an individual is an employee or an independent contractor. A certification of the determination that an individual is an employee will now be required when a local government or school district initially reports to the NYSLRS certain covered professionals- - those persons providing services as an attorney, physician, architect, engineer, accountant or auditor.

Promulgation of these regulations on an emergency basis is necessary to assist employers and the NYSLRS to prevent potential fraud, abuse or error from occurring in records for newly hired individuals that could otherwise result in taxpayers paying retirement contributions for persons who are not eligible for membership or credit in the NYSLRS.

Subject:

Reporting requirements of service, salary and deduction information for employers to NYSLRS.

Purpose:

To provide guidance to participating employees concerning whether an individual is an employee or independent contractor.

Text of emergency rule:

Section 315.2 is amended to read as follows:

§ 315.2 [Definition]Definitions.

(a) As used in this Part, the term employer shall mean the State, a participating employer, and any other unit of government or organization obligated or agreeing to make contributions to the retirement system on behalf of its employees.

(b) The term employee shall mean an individual performing services for the employer for which the employer has the right to control the means and methods of what work will be done and how the work will be done.

(c) The term independent contractor shall mean a consultant or other individual engaged to achieve a certain result who is not subject to the direction of the employer as to the means and methods of accomplishing the result. For purposes of this part, when making a determination as to whether an individual is an employee or an independent contractor, the factors set forth hereinafter in § 315.3 (c) (2) shall be considered by the employer.

Subdivision (c) of section 315.3 is amended to read as follows:

(c) Employees to be reported.

(1) Only persons who are active members of the New York State and Local Employees' Retirement System or the New York and Local Police and Fire Retirement System and who have been assigned a registration number shall be included in the above reporting requirements. In the case of employees who are in the process of being registered to membership, all service, salary and deductions data and mandatory contributions shall be accumulated by each employer and such accumulation shall be included with the first monthly report which is due after the employee's registration number has been assigned. Members of the New York State and Local Employees' Retirement System and the New York State and Local Police and Fire Retirement System must be reported on separate reports.

(2) Determination by Employer. An individual serving the employer as an independent contractor or consultant is not an employee and should not be reported to the retirement system. The employer has the primary responsibility for determining whether an individual is rendering services as an employee or as an independent contractor. When making such a determination, the employer must consider the following:

(i) Factors supporting the conclusion that an individual is an employee rather than an independent contractor:

(A) the employer controls, supervises or directs the individual performing the services, not only as to result but as to how assigned tasks are to be performed;

(B) the individual reports to a certain person or department at the beginning or during each work day;

(C) the individual receives instructions as to what work to perform each day;

(D) the individual’s decisions are subject to review by the employer;

(E) the employer sets hours to be worked;

(F) the individual works at established and fixed hours;

(G) the employer maintains time records for the individual;

(H) the employer has established a formal job description;

(I) the employer’s governing board formally created the position with the approval of the local civil service commission where necessary;

(J) the employer prepares performance evaluations;

(K) the employer requires that the individual attend training;

(L) the employer provides permanent workspace and facilities (including, but not limited to, office, furniture and/or utilities);

(M) the employer provides the individual with equipment and support services (including, but not limited to, computer, telephone, supplies and/or clerical assistance);

(N) the individual is covered by a contract negotiated between a union and the employer;

(O) the individual is paid salary or wages through the employer’s payroll system;

(P) tax withholding and employee benefit deductions are made from the individual’s paycheck; and

(Q) the individual is entitled to fringe benefits (including, but not limited to, vacation, sick leave, personal leave, health insurance and/or grievance procedures).

(ii) Factors supporting the conclusion that an individual is an independent contractor rather than an employee:

(A) the individual has a personal employment contract with the employer;

(B) the employer pays the individual for the performance of services through the submission of a voucher;

(C) the individual is authorized to hire others, at the expense of the individual or a third party, to assist the individual in performing work for the employer;

(D) the individual provides similar services to the public;

(E) the individual is concurrently performing substantially the same services for other public employers; and

(F) the individual is also employed or associated with another entity that provides services to the employer by contract, retainer or other agreement.

(iii) Presumption:

In the case of an individual whose service has been engaged by an employer in the capacity of attorney, physician, engineer, architect, accountant or auditor and who is also a partner, associate, including an attorney in an “of counsel” relationship, or employee of another organization or entity that has a contract, retainer or other agreement to provide professional services to the participating employer, it shall be presumed that the individual is an independent contractor and not an employee of the participating employer;

(iv) Examples:

(A) An attorney who, in providing services to a participating employer, sets his own hours, is not supervised in the manner in which the work is performed, uses his or her own office and staff and has no deductions from salary is considered to be an independent contractor.

(B) A physician who in performing examinations and providing medical services for a school district, is provided with office space in the school, has set hours, is provided with supplies and receives a fixed salary with regular payroll deductions is considered to be an employee;

(3) Written explanation by participating employers; certain professions. In the case of an individual whose service has been engaged by a participating employer in the capacity of attorney, physician, engineer, architect, accountant or auditor and the participating employer has determined that the individual is rendering service as an employee and, therefore, may be eligible for credit with a retirement system, such employer shall submit to the retirement system, in a form prescribed by the Comptroller and certified by the chief fiscal officer of the employer, an explanation of the factors that led to the conclusion that the individual is an employee and not an independent contractor or consultant. Such certification shall be submitted to the retirement system at the time the individual is registered to membership or, in the case of an individual who is already a member of the retirement system, at the time the individual is first reported by the participating employer to the system. In addition, such employer shall submit copies of documentation pertaining to the appointment of the individual as an employee and the decision to report the individual to the retirement system as well as the acceptance of the appointment by the local civil service commission where necessary. In the event appointments are made by a governing board of the participating employer, such documentation shall include a copy of the minutes of the meeting of such employer’s governing board.

(4) Explanation at the request of the retirement system. In the case of any individual who is currently a member or a retiree of a retirement system, the retirement system may require that an employer submit to the retirement system an explanation of the factors that led to the conclusion that an individual engaged by the employer was an employee. An employer receiving such a request shall submit a response within thirty days of the date of the request or provide an explanation as to why it is unable to do so.

(5) Adjustment reports. In the event the retirement system or an employer determines that an individual has been incorrectly reported to a retirement system, the employer, upon notification from the retirement system, or upon its own initiative, shall promptly file salary and service adjustment reports with the retirement system to correct the error.

This notice is intended

to serve only as a notice of emergency adoption. This agency intends to adopt the provisions of this emergency rule as a permanent rule, having previously submitted to the Department of State a notice of proposed rule making, I.D. No. AAC-17-08-00002-EP, Issue of April 23, 2008. The emergency rule will expire October 27, 2008.

Text of rule and any required statements and analyses may be obtained from:

Jamie Elacqua, Office of the State Comptroller, 110 State St., Albany, NY 12236, [phone], email: [e-mail]

Regulatory Impact Statement

1. Statutory authority: Sections 34 and 334 of the Retirement and Social Security Law, as added by chapter 510 of the Laws of 1974, require that the Comptroller adopt rules and regulations, which shall have the force and effect of law, for the reporting of service, salary and deductions information for all member-employees of employers which participate in the New York State Employees' Retirement System and the New York State Police and Fire Retirement System. Said statutes further provide that the chief fiscal officer of the participating employer, or other officer exercising similar duties, shall file the required report in such form and at such times as may be prescribed in the said rules and regulations. Sections 34 and 334 make the refusal or willful neglect to file the required report a violation which shall subject the officer so refusing or neglecting to a penalty of $5 per day for each day's delay beyond seven days. Sections 11 and 311 of the Retirement and Social Security Law establish the Comptroller as the administrative head of the retirement system and authorize him to adopt and amend rules and regulations for the administration and transactions of the business of the retirement system.

2. Legislative objectives: Elected officials, public officers and employees of participating employers are eligible for membership in the retirement system; independent contractors are not. Public employers participating in the retirement system are required to report service and salary information for all their employees so that the retirement system may accurately determine the employers’ obligation to contribute to the funding of the retirement system, the employees’ entitlement to the benefits provided to members of the retirement system and, ultimately, calculate the amount of benefits due to members upon retirement or death. To prevent the assessment of unnecessary employer contributions and the unauthorized distribution of retirement funds, individuals providing services to a public employer who are not in an employment relationship with the employer should not be reported to the retirement system. The existing regulation instructs employers to report employees who are active members of the retirement system or who are in the process of being registered to membership and it provides some instructions for the reporting of these individuals.

3. Needs and benefits: The amendment to the existing regulation provides employers with more specific guidance to aid them in determining whether an individual is an employee and, therefore, eligible to be reported to the retirement system, or an independent contractor who should not be reported to the retirement system. The amendment includes a list of factors to be considered in making this determination as well as examples of individuals serving employers in both capacities. Furthermore, the amendment requires that, when an individual is engaged by a participating employer in the capacity of attorney, physician, engineer, architect, accountant or auditor and is first reported to the retirement system, the employer submit to the retirement system a certified form explaining the factors that led to the conclusion that the individual is serving as an employee and not an independent contractor. Finally, it requires an employer to submit a certified form in response to a request from the retirement system and requires employers to file salary and service adjustment reports to correct errors.

4. Costs: While there may be a modest administrative cost for employers associated with the preparation and submission of the form explaining the conclusion to consider certain individuals to be employees and not independent contractors, we anticipate that any such cost will be offset by the savings to employers resulting from the reduction in incorrect reporting of independent contractors and the associated contributions to the retirement system.

5. Local government mandates: The proposed rule imposes a duty on county, city, town, village, school district, fire district or other special district participating employers to submit to the retirement system a form explaining the factors that led to the conclusion that individuals in certain professions are serving as an employee and not an independent contractor.

6. Paperwork: To reduce the incorrect reporting of independent contractors, the proposed amendment will require the employer to complete and submit a form when deciding to report individuals providing certain professional services.

7. Duplication: This action does not conflict with or duplicate any state or federal requirements.

8. Alternatives: No significant alternatives were considered.

9. Federal standards: Not applicable

10. Compliance schedule: Not applicable

Regulatory Flexibility Analysis

A regulatory flexibility analysis is not submitted with this notice because the proposal will not impose any adverse economic impact or significant reporting, record keeping or compliance requirements on small businesses or local governments. Rather, this proposal may result in an economic savings by local governments as a result of the reduction in incorrect reporting of independent contractors and the associated contributions to the retirement system.

Rural Area Flexibility Analysis

This action will not impose any adverse economic impact, reporting, recordkeeping or other compliance requirements on public or private entities in rural areas.

Assessment of Public Comment

The agency received no public comment.