Individuals may be hired to perform services for the university
as an independent contractor rather than an employee and payment
is then issued through Accounts Payable rather than Payroll.
The university is not required to withhold taxes on payments
to independent contractors that are U.S. citizens or permanent
residents nor to pay FICA/Medicare tax on payments to independent
contractors. This creates an economic incentive to classify workers
as independent contractors instead of employees. For this reason,
the IRS has stated that it will scrutinze payments to independent
contractors in order to ensure organizations comply with rules
regarding worker classification and impose penalties on organizations
which do no comply.
For colleges and universities, the general rule is that instructors,
adjunct faculty, and proctors are employees. Guest speakers and
performers are independent contractors. Researchers and consultants
must be determined on a case to case basis. Full-time administrative
and clerical workers are employees.
The determination of whether a researcher or consultant is
an independent contractor or employee is based on the degree
of control the university exercises over the individual. The
more independence the individual has, the stronger the case for
classifying the individual as an independent contractor. Sometimes
it can be challenging to determine the correct classification
and to assist in this effort the IRS indentified several factors
that indicate whether the employer exercises sufficient control
to establish an employer-employee relationship. These factors
are listed below. It is not necessary for all to be present to
determine that an employer-employee relationship exists, but
they provide a good guide to assess the likelihoold as to whether
an individual is an employee or an independent contractor.
1) Instructions. An employee must comply with
instructions about when, where, and how to work. The control
factor is present if the employer has the right to require compliance
with the instructions.
2) Training. An employee receives training
from, or at the direction of, the employer. Independent contractors
use their own methods and receive no training for the purchasers
of their services.
3) Integration. An employee's services are
integrated into the business operations because the services
are important to the business. This shows that the worker is
subject to direction and control.
4) Services rendered personally. If the services
must be rendered personally, presumably the employer is interested
in the methods used to accomplish the work as well as the end
results.
5) Hiring, supervising and paying assistants. If
an employer hires, supervises and pays assistants, the worker
is generally categorized as an employee. An independent contractor
hires, supervises and pays assistants under a contract that requires
him or her to provide materials and labor and to be responsible
only for the result.
6) Continuing Relationship. A continuing relationship
between the worker and the employer indicates that an employer-employee
relationship exists. The IRS has found that a continuing relationship
may exist where work is performed at frequently recurring intervals,
even if the intervals are irregular.
7) Set hours of work. A worker who has set
hours of work established by an employer is generally an employee.
An independent contractor sets his/her own scehdule.
8) Full time required. An employee normally
works full time for an employer. An independent contractor is
free to work when and for whom he or she chooses.
9) Work done on premises. Work performed on
the premises of the employer for whom the services are performed
suggests employer control, and therefore, the worker may be an
employee.
10) Payments by hour, week or month. Payments
by the hour, week or month generally point to an employer-employee
relationship.
11) Payment of expenses. If the employer ordinarily
pays the worker's business and/or travel expenes, the worker
is ordinarily an employee.
12) Furnishing of tools and materials. If the
employer furnishes significant investment in the facilities where
the worker performs services, the worker is generally an employee.
13) Making services available to the general public. If
a worker makes his or her services available to the general public
on a regular and consistent basis, the worker may be an independent
contractor.
14) Right to discharge. The employer's right
to discharge a worker is a factor indicating that the worker
is an employee.
15) Right to terminate. If the worker can quit
work at any time without incurring liability, the worker is generally
an employee.
If an independent contractor is to be hired, the independent contractor agreement form must be completed and signed by the contractor and appropriate university representative.
For contracts in excess of $500, please see the university's policy on contract approval.
For more information or assistance regarding independent contractors,
please contact Carol Gable.
