Independent Contractor vs. Employee
When a planning unit is considering hiring an Independent Contractor (IC), it is important to ensure the potential hire is in fact an IC and not an employee of the University. An IC is normally engaged in an established business, trade, or profession and is an individual, sole proprietor, or a Single Member Limited Liability Company (LLC). This supplier is contracted to work utilizing their own methods and the means by which the work is accomplished is not controlled by the University. As such, an IC is not an employee of the University and is treated differently with respect to tax withholdings, employee benefits, and payment methods. Prior to engaging in services and executing a contract, Finance must review the W9 and Supplier/Payee Information Form to determine the IC status.
When determining whether a supplier is an employee or an independent contractor, the IRS states that three categories need to be considered:
- Behaviorial: Does the University control, or have the right to control, what the supplier does and how the supplier does the job?
- Financial: Are the business aspects of the supplier's job controlled by the University? Aspects include, but are not limited to:
- How the supplier is paid
- Whether expenses are reimbursed
- Who provides tools/supplies
- Type of Relationship: Are there written contracts or employee type benefits (pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the University?
Planning units considering an IC should use the guidelines below to determine if their service should be completed by an employee or an IC.
Guidelines for Service Providers
If the planning unit is able to answer Yes to any of the questions below, please reach out to Procurement and Contract Services for further guidance at firstname.lastname@example.org.
- Is the Independent Contractor a current or former employee of the University?
- Will the University be providing direction about when, where, or how the work is conducted?
- Will the University provide any training?
- Does the work have the right to hire, supervise, and pay assistants?
- Will the University establish the hours to work?
- Can the worker realize a profit or loss as a result of the services being rendered?
- Will the University be paying the supplier hourly, weekly, or monthly?
- Will the University compensate the worker for any business or travel related expenses?
- Will the University provide any tools, materials, or other equipment to the supplier?
- Does the supplier offer his or her services to the general public?
- Will the supplier be providing services that are part of the University's mission or are normally performed by an employee in the ordinary course of business?
- Does the University anticipate a continuing working relationship with the supplier?
- Does the University have the right to discharge the supplier?
- Does the supplier have the right to end the relationship with the University at any time without incurring liability?
If No is answered to each of the questions above, planning units can use one of the forms on the contracting guidelines page.