Determination of Independent Contractor versus Employee Status
When anticipating obtaining the services provided by an individual, an evaluation may be needed to determine whether the individual should be classified as a university employee or an independent contractor. The default legal classification is that of an employee, and there should be clear evidence to support classifying an individual as an independent contractor. Many workers are misclassified as independent contractors, which results in less revenue for the government. Because of this, the IRS, Labor Department, and state agencies have recently been placing greater emphasis on worker classification compliance audits. Misclassifications occur in all industries, and can lead to increased scrutiny and substantial tax and penalties for the university. The Office of Business Operations is responsible for determining the correct classification for service-providing individuals.
In general, the IRS focuses its status determination based on whether the employer has the right to control and direct the individual who performs the services, not only in terms of the result to be accomplished by the work, but also in terms of the details and means by which that result is accomplished. It is not necessary for the employer to actually control or direct the manner in which the services are performed; it is sufficient if the employer maintains the right to do so. The IRS looks at behavioral control, financial control, and relationship of the parties to assist in the determination. If additional information is desired, IRS Publication 15-A contains explanations of these three categories. All information that provides evidence of the degree of control and the degree of independence must be considered.
Below are criteria to assist the Office of Business Operations in determining the status of independent contractor:
- The person should have a history of advertising and providing similar services to other customers as an independent contractor.
- The person should not be directly supervised or trained by or supervise UNI employees.
- The person should not be providing services that are a key aspect of the normal business of UNI or the specific department.
- The person should not be a current or very recent UNI employee. There may be rare exception and the person may need to be approved as a Conflict of Interest Vendor.
- UNI will have a contract with the person clearly stating the scope, expected outcome, time frame, and payment for the work as an independent contractor.
- With some exceptions UNI would not be providing an office, supplies, telephone for an independent contractor.
Contact Linda Gruetzmacher, Office of Business Operations, with questions regarding the independent contractor classification.