The University of Tennessee, Knoxville

Tennessee County Municipal Advisory Service

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Options for Compensation

Reference Number: MTAS-1425
Tennessee Code Annotated
Reviewed Date: April 28, 2017
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A municipality using volunteer firefighters has two options when it comes to compensation for volunteer firefighters.

Option 1:
The municipality should process any compensation (no matter how small) a volunteer firefighter receives through the municipality’s regular payroll system and issue the volunteer firefighter a W-2 at the end of the year. Compensation is defined as any money paid to the volunteer firefighter in the form of a per call stipend, per drill stipend, per diem allowance, monthly allowance for administrative services, etc. A person is an independent contractor if the payer (municipality) has the right to control or direct the result of the work only and not what is done and how it is done. Volunteer firefighters do not meet the definition of contractor, so reporting compensation on a 1099 form is not appropriate. It is important that the municipality classify volunteer firefighters properly. If the municipality improperly classifies a volunteer firefighter as an independent contractor, the municipality may be liable for employment taxes for that volunteer firefighter.

If the compensation is less than 20 percent of what a paid firefighter for the local area would make on an annual basis, the firefighter is considered a volunteer under FLSA. If the municipality pays the firefighter any type of hourly rate, or ties the compensation to the length of time worked or productivity, FLSA considers the person an employee and not volunteer. A part-time firefighter or full-time firefighter also cannot be a volunteer for the same agency, but can volunteer as a firefighter for a different agency.

Option 2:
Have true volunteers who serve without any compensation and establish an accountable plan whereby the volunteers are reimbursed for actual expenses allowed under IRS regulations. The plan must be in writing and include the requirement that the volunteers substantiate business expenses, allow no reimbursement for unsubstantiated expenses, and require that they return any amounts reimbursed over documented expense to the employer within a reasonable period. Under this plan, the volunteer firefighter is receiving reimbursement for expenses and is not receiving compensation for services, so the employer is not required to complete a W-2.

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