Payments to Independent Contractors
The Accounts Payable Staff in the Business Office processes payments to independent contractors; however, please use your College Purchasing Card whenever possible. For more information on obtaining a Purchasing Card, please refer to the Purchase Card Program web page.
Independent contractors are vendors who perform services for the college but are not employees of the college. They include many occupations where the worker is considered self-employed.
It is important that the college make the correct determination as to whether the person is an independent contractor, or should be paid as an employee. Employers who misclassify workers as independent contractors can end up with substantial tax liabilities and penalties. The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.
The Business Office may require that you complete and submit an Independent Contractor Checklist to help determine if your contractor should be paid as an employee or as an independent contractor.
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the college has the right to direct and control the worker. The college does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
Financial: Financial control refers to facts that show whether or not the college has the right to control the economic aspects of the worker’s job. The financial control factors fall into the categories of:
- Significant investment: An independent contractor often has a significant investment in the equipment he or she uses in working for someone else.
- Unreimbursed expenses: Independent contractors are more likely to have unreimbursed expenses than are employees.
- Opportunity for profit or loss: Having the possibility of incurring a loss indicates that the worker is an independent contractor.
- Services available to the market: Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
- Method of payment: An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. An independent contractor is usually paid by a flat fee for the job.
Type of Relationship: Type of relationship refers to facts that show how the worker and business perceive their relationship to each other. The factors, for the type of relationship between two parties, generally fall into the categories of:
- Written Contracts: Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status.
- Employee Benefits: Businesses generally do not grant benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.
- Permanency of the Relationship: If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
- Services Provided as Key Activity of the college: If a worker provides services that are a key aspect of the college, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.
Paying Independent Contractors
The compensation paid to independent contractors is taxable. Accounts Payable does not withhold taxes from the payments. The income is reported to the recipient and to the IRS at the end of each tax year on Form 1099. For this reason, it is very important that the payments to the independent contractors are made by Accounts Payable or with a College Purchasing Card. Please do not pay anyone who has performed a service with cash, personal check, or with a personal credit card. By doing so you would place the college in violation of the Internal Revenue Code and our ability to reimburse you is at a risk.
In order to make a check payment to an independent contractor, submit a completed Check Request or approved invoice to Accounts Payable. Along with the payment request, attach a W-9 form that has been completed and signed by the contractor. The W-9 form provides the tax identification number (TIN) of the contractor and certifies that the TIN is correct and that the contractor is not subject to backup withholding. These forms are available for downloading or in the forms cabinet outside the Business Office.
If the individual is from a foreign country, please contact the Business Office as soon as you decide to contract services. It takes several weeks to complete the paperwork necessary to pay nonresident aliens. For more information, please go to Guest Basics.