|  POLICY
To provide
consistency in complying with governmental regulations for
proper classification and reporting of payments made to
employees and independent contractors. The initial classification
determined by the University is subject to final determination
by the appropriate governmental agency.
PURPOSE
The
purpose of this policy is to establish policy and procedures
for the classification of individuals who provide services
to the University as an employee or independent contractor.
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BACKGROUND
In
1989 the IRS expressed concern that the misclassification
of individuals was resulting in the loss of significant
amounts of revenue. Since that time, the IRS has examined
many employers for proper classification of individuals
as independent contractors or as employees. Many cases have
been resolved with significant penalties, interest, and
taxes being assessed to employers. Utah State University
is required to comply with IRS regulations; therefore, proper
classification of independent contractors and employees
is essential. The IRS has developed the "20-Factor
Common Law Test for Classifying an Individual as an Employee
or Independent Contractor" (below)
to help employers determine whether individuals should be
classified as employees or independent contractors.
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|
DEFINITIONS
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| 1. |
Employee.
Any person who has received pay as a University employee within
the last twelve months or meets the classification of an employee
after applying the common law factors (below). |
| 2. |
Fellowship.
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. |
| 3. |
Honorarium.
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.
At times the payment may be made for services. Therefore,
the common law factors (below) need
to be applied in order to determine if the individual receiving
the honorarium is classified as an employee or independent
contractor. |
| 4. |
Independent
Contractor. Any established business concern
and/or individual who receives a payment for services or goods
who deals with the general public and who meets the classification
of an independent contractor after applying the common law
factors (below) and whose services are procured through an official
written contract (i.e., purchase order, subcontract).
|
| 5. |
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.
|
| 6. |
Scholarship.
A grant-in-aid made to a student for the purpose of rewarding
scholarship and/or other attributes. Individuals receiving
scholarships are not considered to be employees.
|
| 7. |
Services.
Personal effort which is compensated for work assigned by
the University. An individual receiving pay must stand the
test of the common law factors (below)
in order to determine the status as an employee or independent
contractor. |
| 8. |
Stipend.
A fixed monetary amount paid periodically for educational
assistance. If the monetary amount paid is for services, then
the individual receiving payment is considered an employee.
If the monetary amount is for the specific purpose of providing
educational assistance without services, it is considered
to be a stipend. |
PROCEDURAL GUIDELINES |
| 1. |
All
proposed payments to individuals representing compensation
for services should be compared with this policy statement
to determine whether the payment should be made through the
HRS (payroll) system or procurement system. It is necessary
that these procedures be followed before any services are
rendered or commitments made to the individual. |
| 2. |
If
the payment is to be made through the HRS (payroll) system,
contact either the Human Resources Office or the Student Employment
Office based on the following criteria: |
| |
a) |
If
the employee is to receive benefits and/or the terms of employment
are greater than four months and greater than 50 percent time,
contact the Human Resources Office for appropriate hiring
procedures. |
| |
b) |
If
the terms of employment are for less than four months or 50
percent time or less, contact the Student Employment Office
for appropriate hiring procedures. |
| 3. |
If
the proposed payment meets the criteria for classification
as an independent contractor, the request should be completed
and processed as follows: |
| |
a) |
If
the payment is to be made from sponsored funds (contracts,
grants, etc.,), form "20-Factor Common
Law Test for Classifying an Individual as an Employee or Independent
Contractor" (below) and form
"Request for Taxpayer Identification
Number Substitute Form W-9" (below)
should be completed and submitted to the Contract and Grant
Office for processing in accordance with University procurement
policy. |
| |
b) |
If
the payment is to be made from other than sponsored funds,
a requisition should be prepared and submitted along with
completed forms "20-Factor Common Law
Test for Classifying an Individual as an Employee or Independent
Contractor" and "Request for
Taxpayer Identification Number Substitute Form W-9"
(below) to the Purchasing Services Office
for processing in accordance with University procurement policy. |
| |
c) |
On
occasion, there may be some question as to the proper classification
of individuals or exceptions which may be justified based
upon individual circumstances. If assistance in classification
is needed or potential exceptions exist, a request for a ruling
can be submitted on a "Request for
Ruling to Clarify or Review Exceptions to Classifying Employees/Independent
Contractors" (below) to the
Contract and Grant Office for sponsored funds and the Purchasing
Services Office for other than sponsored funds. |
| FORMS
referenced above: |
| 1. |
20-Factor
Common Law Test for Classifying an Individual Employee or
Independent Contractor. Adobe .pdf |
| 2. |
Request
for Taxpayer Identification Number Form W-9.
pdf |
| 3. |
Request
for Ruling to Clarify or Review Exceptions to Classifying
Employees / Independent Contractors.
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Questions concerning the above may
be directed to Pam Hill,
Accounts Payable Department, (435) 797-1049.
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Last revised 9/28/01 |
