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 scrutinize 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 identified 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 likelihood as to whether an individual is an employee or an independent contractor.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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 schedule.
- 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.
- 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.
- Payments by hour, week or month. Payments by the hour, week or month generally point to an employer-employee relationship.
- Payment of expenses. If the employer ordinarily pays the worker's business and/or travel expenses, the worker is ordinarily an employee.
- 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.
- 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.
- Right to discharge. The employer's right to discharge a worker is a factor indicating that the worker is an employee.
- Right to terminate. If the worker can quit work at any time without incurring liability, the worker is generally an employee.
If a department wishes to hire a U.S. citizen or permanent resident as an independent contractor, an independent contractor agreement form must be completed and signed by the contractor and appropriate university representative.
If a department wishes to hire a U.S. citizen or permanent resident to lecture or perform, the lecturer/performer agreement form must be completed and signed by the lecturer and appropriate university representative.
Language in these agreeements may only be modified with prior approval of the Vice President for Finance.
Departments wishing to hire a foreign visitor to lecture or perform should review requirements here.
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.