Classification of Employees/Independent Contractors
To establish policies and procedures for the classification of individuals who provide services to the University as an employee or independent contractor and to ensure consistency in complying with governmental regulations for proper classification and reporting of payments to employees and independent contractors.
Any person who has received pay as a University employee within the last twelve months who meets the classification of an employee after applying the common law factors ( Exhibit A).
Personal effort which is compensated for work assigned by the University. An individual receiving pay must stand the test of the common law factors (Exhibit A) in order to determine the status as an employee or independent contractor.
An established business concern and/or individual who deals with the general public, who meets the classification of an independent contractor after applying the common law factors ( Exhibit A) and whose services are procured through a written contract, consulting agreement, or purchase order.
A prestigious award generally made to graduate students in recognition of scholastic achievement and for which no services are required. Usually individuals receiving fellowships are not considered to be employees. However, if the monetary amount paid is for services, then the individual receiving payment is considered an employee.
A payment to an individual for the purpose of conferring distinction or to symbolize respect, esteem, or admiration. The individual usually possesses a specific knowledge or unique capability. If, however, any such payment is made for services, the payment cannot be classified as an honorarium. In such a case, the common law factors ( Exhibit A) need to be applied in order to determine if the individual receiving the payment is classified as an employee or independent contractor.
Merit and Performance Awards
A payment to an individual for the purpose of recognizing the individual for a specific achievement or for the quality or efficiency of work done by an individual. Usually individuals receiving merit and performance awards are considered employees.
A grant-in-aid made to a student for the purpose of rewarding scholarship and/or other attributes. Individuals receiving scholarships are not considered employees.
A fixed monetary amount paid periodically for educational assistance. If the monetary amount paid is for services, then the individual receiving payment should be considered salary or wages. If the monetary amount is for the specific purpose of providing educational assistance without services, it is considered a stipend or an allowance.
Any individual who receives compensation for services for the University, and who substantially meets the criteria for classification as an employee after applying the common law factors ( Exhibit A) will receive such compensation through the University’s payroll system.
- The classification of individuals receiving compensation for services rendered should be compared with this policy statement to determine if the individual should be classified as an employee or as an independent contractor. This determination must be made before any services are rendered or commitments made to the individual.
- All individuals classified as employees will be paid through the University’s payroll system. Each new employee must be submitted on one of the following forms: Faculty Payroll Form, Classified Personnel Action Form, or Student Employment Status Form.
- If an individual meets the criteria for classification as an independent contractor,
requests for compensation for services rendered should be processed as follows:
- The “20-Factor Common Law Test for Classifying an Individual as an Employee or Independent Contractor” ( Exhibit A) must be completed and submitted with the request for payment. It is preferable to have payment requests submitted to the Business Office with required information. If this is not possible, information must be furnished to the Business Office before the check can be released.
- Payments should be made according to terms established in a written contract, consulting agreement, or purchase order which has been approved by the proper authorities. Any question relating to types of payments covered by this policy should be directed to the Business Office. The Business Office maintains record of all such payments and completes necessary reports for mailing to the government.
- The University is required by the IRS and the state to report non-payroll expenditures for personal services. The government requires name, address, and taxpayer identification number (social security) for each individual receiving payment. These payments are reported to the IRS, as required, on Form 1099. A copy of the form is furnished to the taxpayer by the State.
The foregoing paragraphs should help you make a determination of whether a particular individual should be appointed as an independent contractor or alternatively as an employee of the University. If you cannot make a clear definition, you should contact the Business Office for guidance.