Rev. Rul. 74-45

Advice has been requested whether workers performing babysitting services, under the circumstances described below, are employees for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

An organization provides day care services for children that live in the county in which it operates. The organization is required to apply annually to the county for permission to provide such services and must submit, along with its application, a program format and a budget forecast which the county uses to negotiate the program cost with the organization. Part of the negotiations includes the determination of the baby sitters' rate of pay. The negotiated rate of pay that is formally adopted by the county government may not be changed or modified by the organization.

The organization serves as an intermediary between working mothers and the baby sitters. The working mother contacts the organization, which arranges a meeting between her and the prospective sitter to determine, through their mutual consent, (1) whether the services are to be performed in the sitter's home or the mother's home, and (2) the hours that will be satisfactory and convenient to both parties.

The sitters submit semimonthly reports to the organization of the number of hours they work, and they are paid semimonthly by the organization. The organization solicits evaluations from the mothers to determine whether they actually received the services and whether they were satisfied. It replaces any sitter the mothers desire to have replaced. Should a sitter become ill or otherwise unable to care for children placed with her, she is required to call the organization so that the children may be placed with other sitters.

Before the sitters are permitted to perform day care services for the organization, they are required, by the State in which they work, to attend at least ten hours of classroom training in family day care services. The premises where the services are to be performed must meet certain State requirements, such as minimum floor space per child, exists, and general conditions. The State further requires the sitters to provide the children in their charge an opportunity for both indoor and outdoor play on a daily basis and to provide periods of quiet rest after periods of activity. Toys must be suitable for the ages of the children and must be kept in a good state of repair. It is also the responsibility of the sitters to see that the school age children under their care go to, and return from, school at the proper time, and that they attend regularly. The organization must observe all State requirements and enforce them and may discharge sitters if they do not comply with such requirements.

When Federal or State training grants are available, the organization uses these funds to train its baby sitters. However, when such grants are not available, prospective sitters are referred to the local schools that offer courses in child care and they must pay their own fees for the courses.

Although no written agreement between the organization and the sitters prevents them from making separate contracts to perform day care services for other parents who have not contracted with the organization, there is a State requirement that limits the number of children that a sitter may care for at one time.

The organization provides supplies such as games, etc., and social and health services for the children. However, it does not require the sitters to use such supplies or services. Any breakage, wear and tear, or destruction of the premises where the services are performed is at the risk of the owner of the premises. Sitters are free to accept or reject any assignment and need not attend monthly meetings conducted by the organization for the purposes of exchanging ideas with each other. The arrangement with the sitters contemplates that substantially all the services are to be performed by the sitters personally.

The sitters who use their own homes in caring for the children are responsible for whatever expenses they incur and are not required to render an accounting of such expenses.

An individual is an employee for Federal employment tax purposes if he has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are set forth in three substantially similar sections of the Employment Tax Regulations, namely, sections 31.3121(d)-1(c), 31.3306(i)-1, and 31.3401(c)-1.

Generally, such relationship exists when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct and control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in each case, are the furnishing of tools and the furnishing of a place to work.

In addition, consideration must be given to such factors as the continuity of the relationship and whether or not the individual's services are an integral part of the business of the employer as distinguished from an independent trade or business of the individual himself in which he assumes the risks of realizing a profit or suffering a loss. See U.S. v. Silk and Greyvan Lines, Inc., 331 U.S. 704 (1947), 1947-2 C.B. 167 and Bartels v. Birmingham, 332 U.S. 126 (1947), 1947-2 C.B. 174.

Rev. Rul. 233, 1953-2 C.B. 294, holds that babysitters performing services for the customers of an establishment, engaged in a babysitter service, that furnishes rules instructing them in their conduct while on assignment and the nature of services to be performed as well as the manner of performance of such services are employees of that establishment for Federal employment tax purposes, including income tax withholding.

Rev. Rul. 56-70, 1956-1 C.B. 460, holds that an individual who performs child care services in her own home and determines the nature of the services to be performed and the manner of performance of such services is not an employee, for Federal employment tax purposes, of the parents for whom she performs such services. In that Revenue Ruling the parents rely on the worker's judgment and generally issue no instructions. The worker makes her own determinations as to the amount of attention the child requires, the meals to be served, the manner in which she shall cope with any situation likely to arise, and she is free to perform her own household chores at any time she feels the child does not require her personal attention.

Although there are certain factors indicative of a lack of direction and control exercised over the baby sitters in the instant case, they perform personal services for the organization at frequent intervals pursuant to a continuing relationship. Their services are both necessary and incident to part of the activities conducted by the organization. The sitters are not engaged in an independent enterprise in which they assume the usual business risks. In addition, since they are trained they do not require constant supervision, but the organization does retain the right to supervise them to the extent necessary for the satisfactory conduct of its business, in order to protect its reputation and to insure the receipt of adequate income in return for its financial risks. The organization has the right to determine not only what the sitters do, but how it shall be done, and the fact that some of the authority stems from statutory regulations does not negate the right to direct and control which is the dispositive test under the common law.

Accordingly, it is held that the workers are employees of the organization for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.

Rev. Rul. 56-70 is distinguishable since the facts therein do not establish a sufficient right to direct and control on the part of the parents. Some of the factors in the instant case not present in Rev. Rul. 56-70 are that (1) the baby sitters' salaries are negotiated between the organization and the county and must be accepted by the sitters, (2) the sitters must notify the organization if they become ill or otherwise unable to take care of the children placed with them so that the children may be placed with others, (3) the sitters must report to the organization on a semimonthly basis in order to be paid by it, and (4) the sitters must conform to State regulations that are enforced by the organization.

Rev. Rul. 56-70 is distinguished.