It is critical to correctly determine whether individuals providing services are employees or independent contractors. Generally, we withhold income taxes on wages paid to employees and do not withhold taxes on payments to independent contractors. If an employee is incorrectly paid as an independent contractor, the University can be held liable for employment taxes for that worker, plus a penalty.
What is an independent contractor?
IRS rules dictate the situations under which persons are hired as independent contractors. A general rule is that you as the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result as you would an employee. (http://www.irs.gov/taxtopics/tc762.html).
The following questions and answers may help clarify the relationship between the University and the individual to determine if an independent contractor relationship exists.
a. Does the worker provide the same or similar service to others? Members of a distinct trade, business or profession who offer services to the public, but are not under the control of those seeking benefit of their training or experience, are generally independent contractors.
b. How is the worker paid? An independent contractor usually receives one sum for the entire engagement, whether in a lump sum or installments.
c. At what location will the services be performed? If work is done on premises other than those of the University, it may be indicative of an independent contractor relationship.
d. Are materials supplied by the worker? Independent contractors are generally not provided with suppliers and materials.
e. Is a license, certificate, professional degree, or special skill required for this service? A person hired to do work not in the usual course (or specialization) of the University's business may be an independent contractor.
f. Will the worker receive close supervisor or instruction? An employer/employee relationship usually exists when the University has the right to direct and control the individual in the way he/she works, both as to final results and as to the details of when, where and how the work is to be done.
g. Will training be provided to the worker? Normally, independent contractors are not trained, but rather hired for their expertise in a field.
h. Will the worker be expected to follow daily or weekly schedules, etc. established by you (as opposed to complying with completion dates)? Normally,an employer/employee relationship exists for those persons who have established working hours and must perform certain tasks at certain times. They are paid a regular amount at stated intervals and can be discharged or have the right to terminate a relationship without incurring liability.
i. Do you have the ability to direct or change the methods used by the worker? Generally, employees perform services for someone who has the right to control the desired result or direct the method or accomplishing those results. An independent contractor usually works without direction or control and is only responsible for the completed job or result.
j.Will the worker be working full time or nearly full time on this project? Generally, employees work full time for an employer, while independent contractors work when and for whom they choose.
k. Does the worker have a significant investment (capital, equipment, licensing, etc.) in his/her business? Typically, employers provide employees with facilities, tools, materials and other equipment. When the worker invests in these assets, there is a tendency to indicate independent contractor status.
WORKERS WHO ARE EMPLOYED BY NEW YORK STATE AND ANY OF ITS AGENCIES ARE NOT PAID AS INDEPENDENT CONTRACTORS. QUESTIONS REGARDING PAYMENTS TO STATE WORKERS FOR EXTRA SERVICE SHOULD BE DIRECTED TO PAYROLL.
Independent Contractor Payment Process
- Complete Independent Contractor Checklist
- Complete Independent Contractor Contract
- Submit Checklist and Contract with approved PO number to Accounts Payable for purchases up to $2,500; for purchases greater than $2,500 submit Checklist and Contract with approved requisition number to Purchasing Department.