Procedures for Independent Contractors

Independent Contractor Agreement Excel
W-9 Form (Request for Taxpayer Identification Number Verification)
Standard Services Invoice pdf doc

NEW: VENDOR PAYMENTS CAN NOW BE DONE VIA DIRECT DEPOSIT. DOWN LOAD "VENDOR DIRECT DEPOSIT FORM" BELOW, COMPLETE FORM AND ATTACH TO THE SSI OR INDEPENDENT CONTRACTOR AGREEMENT FORM.

• Definitions- Independent Contractor vs. Employee
• Documentation and Reimbursement
• Exclusions
• Preparing a  Personal Services Classification Analysis
• Preparing a Independent Contractor Agreement for Individuals Form
• Preparing a Standard Services Invoice
• Preparing a Check Request Form
• Purpose of this Document
• Special Considerations
• Vendor Direct Deposit Form
• Vendor Disclosure Statement

Purpose

The purpose of these documents is to outline the policies and procedures related to independent contractors doing business as individuals rather than companies.

Standard Services Invoice ($1-$4,999)

If the following criteria are met then you may use the Standard Services Invoice (SSI) procedure outlined below:

• The services performed were less than $5000 in total for the entire project.
• The time frame to complete the entire project was less than 6 months.
• The services performed were by an individual (not a partnership, corporation, or other organization).
• Payment is to be made in one lump sum after completion of work.

Independent Contractor Agreement

If the SSI criteria are not met and payment is to an individual between the amounts of $5,000-$25,000 then you must follow the Independent Contractor procedure outlined below.

Independent Contractor over $25,000

If the total dollar amount expended with the independent contractor will be $25,000 or greater, even though the payment will be made to an individual, then the purchasing procedures related to competitive pricing and bidding must be followed. Contact the Purchasing Office at 351-2288 for further clarification. Be prepared to give a general description of the service you require as well as a more detailed description of the product or result of the work performed by the independent contractor, information about the length of time the service must be provided, and qualification criteria the independent contractor must meet. Purchasing procedures define reasonable time for notice and response by qualified respondents; in the case of a formal bid the minimum solicitation time is 14 days and for a request for proposal the minimum solicitation time is 30 days.

Companies

When payments are made to a company, the normal purchasing procedures related to competitive pricing and bidding should be followed and payment will be made on a PO or DPO depending on the dollar limit.

Definitions

A careful evaluation must be made when classifying an individual as an independent contractor rather than an employee. An erroneous classification of an individual as an independent contractor when in fact the person is an employee could result in legal action being initiated by the Internal Revenue Service for violation of the Wage and Hour Laws relative to the withholding of taxes. In questionable situations, it is best to classify the individual as an employee.

Independent Contractor - An individual who is responsible to the University for the results of certain work but is not subject to the University’s controls to the means and methods of accomplishing those results. Some examples of independent contractors are: entertainment performers, guest speakers, officials for athletic events and consultants.

Briefly, an independent contractor generally:

1. Has a place of business and a business listing in a directory when the services are offered to the public.
2. Selects the clients and is free to work for one or more during any given interval.
3. Determines the time and place work will be performed.
4. Provides the tools and materials needed to perform the work.
5. Does not participate directly or indirectly in the benefit programs of the University.
6. May agree to perform specific services for a fixed price and generally does not receive regular amounts at stated intervals or is not reimbursed for business expenses.
   

Employee - an individual who is subject to the will and control of the employer not only as to what shall be done but how it shall be done. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so.

Some of the usual characteristics of an employee are:

1. The right to terminate the relationship with the employer at any time.
2. The furnishing of tools and a place to work by the employer.

Refer to Preparing a Personal Services Classification Analysis for a complete list of questions to be answered for determination of the proper classification.

Documentation And Reimbursement

Download the Personal Services Classification Analysis

The Personal Services Classification Analysis form (see Preparing a Personal Services Classification Analysis) is completed in consultation with the contractor for each individual in order to determine the status of the person. If it is determined that the person is an independent contractor, the Independent Contractor Agreement for Individuals form (see Preparing a Independent Contractor Agreement for Individuals Form) must be prepared and the appropriate signatures secured. The completed Independent Contractor Agreement and the Personal Services Classification Analysis form are submitted to the Accounts Payable Office at least one week before any work is done. The Accounts Payable Office will review the contractor agreement and the analysis form and will acquire all other signatures required then initial the contractor agreement. Both forms will be returned to the Department after review. If after review it is determined that the worker is not an independent contractor the Department will be contacted and different means of payment will be discussed. When requesting payment the original forms are attached to a completed check request form (see Preparing a Check Request Form) and submitted to the Accounts Payable Office.

Multiple Payments

If partial payments are to be made, the original forms are attached to the first check request. Subsequent check requests should have copies of both forms attached with an original signature certifying the work was done satisfactorily on the bottom of the contract for each multiple payment request. Also please fill out the lower portion of the check request with the amount of payment being made and how much has been paid on previously submitted payments.

Exclusions

Materials purchased or services provided by firms or businesses are to be paid through the purchasing procedures. The following categories of individuals are not considered independent contractors and therefore are paid through the Payroll Office:

1. Continuing Education faculty.
2. Individuals who are considered employees of the University in another capacity.
3. A former employee who has been called back to train a new employee in their former position.
4. A contractor who is performing the same tasks an employee would perform.
   

Special Considerations

1. Students Employed by the University - Students employed by the University (work-study, hourly, GA or TA) cannot be paid as independent contractors. A personal services agreement, available from Payroll, should be used to request payment. Example: A Graduate Assistant in the College of Education plays in a musical combo for a reception on campus.
2. Stipends Paid to Grant Participants - A Non - Employee Stipend request and a check request form are used to pay stipends to grant participants if no specific services are required to receive the stipend. (see PSA form)
   

Instructions For The Preparation Of Personal Services Classification Analysis

Download Personal Services Classification Anaysis

Employee vs. Individual Independent Contractor Status

Questions A and B: If either question A or B is answered yes, the individual is an employee and payment must be made through the payroll office.

The following definitions are taken from the Social Security Administration internal procedures manual and are intended to be used as guidelines in preparing the Personal Services Classification Form.  Please refer to the corresponding numbers on the attached questionnaire:

1. Instructions:  There is a control factor present indicating an employee relationship if the person or persons for whom the services are performed have the right to require compliance with instructions.  These instructions may be manuals or written procedures that show how the desired result is to be accomplished.  Negotiated time for all participants to meet does NOT constitute instructions.
2. Training:  Training of a worker by an experienced employee working with him or her, by correspondence, by required attendance at meetings and by other methods is a factor of control because it is an indication that the employer wants the services performed in a particular method or manner.  This is especially true if the training is given periodically or at frequent intervals.  An independent contractor uses his or her own methods and receives no training from the purchaser of the services.  It is usually the methods of the independent contractor that bring him or her to the attention of the purchaser.
3. Integration:  A worker whose services are an integral part of the business of the individual or firm that employs him or her is usually subject to direction and control.  To determine whether integration exists, determine the scope and function of the business and then determine whether the services of the individual are merged into it.  When the success or continuation of a business depends to an appreciable degree upon the performance of certain kinds of services, the workers who perform these services must necessarily be subject to a certain amount of control.  The direction and control would indicate an employee relationship.
4. Services Rendered Personally:  If the worker is required to do the work personally, it is an element of control because it indicates that the employer is interested in the methods as well as the results.  The employer is interested not only in getting a desired result but also in who does the job.  Lack of control may be indicated when the worker has the right to hire a substitute without the permission or knowledge of the employer.
5. Hiring, Supervising, Paying Assistants:  Where the employer hires, supervises and pays other workers on the same job, he or she usually exercises control over all the workers on the job.  Sometimes it is the worker who hires, supervises and pays the other workers.  This is usually as a result of a contract in which the worker agrees to provide materials and labor and is responsible only for the attainment of a result.  This indicates an independent contractor.  On the other hand, if the worker does so at the direction of the employer, he or she may be acting as an employee in the capacity of a supervisor for or as a representative of the employer.
6. Continuing Relationship:  A worker who has a continuing relationship with the employer is more likely to be an employee than one who is engaged for a single job or for sporadic or infrequent jobs.  If the arrangement contemplates continuing or frequently recurring work (even on irregular intervals), the relationship is considered permanent even if the services are part-time, seasonal or of short duration.
7. Set Hours of Work:  A worker whose hours of work are set by the employer is usually an employee.  The condition prevents the worker from being master of his or her own time, which is the right of the independent contractor.  Set hours do NOT include the time of the performance but refer to preparation time.
8. Full-time Required:  A requirement that a worker devote his or her full time to the business of the employer implies control by the employer.  It gives the employer control over the amount of time the worker spends working and  restricts him or her from doing other gainful work.  An independent contractor, on the other hand, is free to work when, and for whom, he or she chooses.
9. Doing Work on University Premises:  The fact that the worker does the work on an employer's premises is not control in itself; however, it does imply that the employer has control especially where the work is of such a nature that it could be done elsewhere.  The use of desk space and telephone and stenographic services provided by an employer places the worker within the employer's direction and supervision.
10. Order or Sequence Set:  If a person must perform certain tasks at certain times, he or she is not free to follow his or her own pattern of work.  If the employer does not set the order of the services but retains the right to do so, he or she can still be considered to have control.
11. Oral or Written Reports:  A requirement that regular oral or written reports should be submitted to the employer is an element of control.  It shows that the worker is compelled to account for his or her actions.
12. Payment by Hour, Week or Month:  Payment by the job generally indicates a consulting relationship, even if based on the number of hours worked at a fixed rate per hour.  Paying a worker regular amounts at stated intervals strongly indicates an employer-employee relationship.
13. Payment of Business and/or Travel Expense:  An independent contractor is paid on a job basis and he or she takes care of all incidental expenses.  Payment or reimbursement of business or travel expenses would indicate an employee relationship.
14. Furnishing Tools and Materials:  The fact that an employer furnishes tools and materials tends to show the existence of an employee relationship because the employer can determine which tools are used, and to some extent the order and how they will be used.  An independent contractor ordinarily furnishes his or her own tools.
15. Right to Discharge:  An independent contractor cannot be fired except under the terms of the contractual termination clause.
16. Right to Terminate:  An employee has the right to end his or her relationship with an employer at any time without incurring liability.  An independent contractor works pursuant to the terms of the applicable contract and may be legally obligated to make good for failure to provide the services contracted for.
17. Significant Investment:  Investment in facilities such as equipment, premises, office furniture and machinery, indicates independence from the employer and, therefore a consultant relationship.
18. Realization of Profit or Loss:  An independent contractor can generally realize a profit or suffer a loss as a result of his or her services, but an employee cannot.  For example, a consultant's services establish or affect the consultant's reputation and not the reputation of those who purchase the services.  A negative answer to this question will result in the person being classified as an employee.
19. Working for More Than One Firm at a Time:  A person who works for a number of firms at one time is generally an independent contractor.  His or her connection with a number of firms keeps him or her free from the control of any one firm.  Working only for the University would indicate an employee relationship.  A negative answer to this question will result in the person being classified as an employee.
20. Making Services Available to the General Public:  A person who makes his or  her services available to the general public is usually an independent contractor.  This can be accomplished in a number of ways:  a worker may have an office and assistants, may hang out a "shingle", may hold business licenses, may be listed in business or telephone directories or may advertise in newspapers, trade journals or magazines.  A negative answer to this question will result in the person being classified as an employee.

These are general guidelines intended to aid in classifying workers as employees or independent contractors and are not intended to compel a particular conclusion.  The weight given to these factors is not always constant.  Their degree of importance may vary somewhat depending on the occupation being considered and the reasons for their existence.  Some of them do not apply to particular occupations.  Judgment and discretion must be used in applying these guidelines.  If the classification analysis indicates an independent contractor relationship but the Independent Contractor Agreement indicates an employee relationship, the individual will be considered an employee and must be paid through the payroll office.

Please check that the individual's name and social security number or federal ID  number are filled in the appropriate spaces on the front of the form and that the project director, department head or Dean signs on the back of the form.

Instructions for Completing Independent Contractor Forms

Download the Independent Contractor Agreement

1. Fill in the date the agreement is being made.
2. Fill in the name of the contractor, as it should appear on the check and the 1099 tax form.
3. Complete the performance section giving a complete a description of the service(s) to be provided.
4. Please fill out the:

• Place where the service will be provided,
• Dates for submission of reports or other deliverables, or dates for completion (include specific begin and end dates)
• Times, if available.
• Do not use “Contractors Choice” (or similar terms) for the above information.
• Enter the FOAPAL where funds will be expended from
• Enter the Department Name whom is responsible for the contract.

5. The total payment must include a ceiling amount for reimbursable expenses, if any. The total payment should not read “$[amount] plus expenses.”
6. Partial payments should include estimated dates of payments, i.e., quarterly, monthly, etc. and amounts
7. The person authorized on the FOAPAL should sign and date the proper line.
8. The contractor should sign and date on the proper line, include the SSN, address and phone number.
9. Complete the Personal Services Classification Analysis and attach to the contract.
10. Have the contractor complete form W-9 and attach to the contract. CAUTION: Contracts with Non-Resident Aliens, i.e., individuals that are not citizens of the U.S., will require additional IRS forms to be completed before payments can be made.
11. Send the completed, signed contract and attachments to Accounts Payable BEFORE THE CONTRACTOR BEGINS WORK. Accounts Payable will obtain State Controller designee approval on all agreements and determine if additional routing to the Research Corp., or Human Resources is required.

After the contract is approved, it will be returned to the department. When service is complete or payments are required, the person authorized on the FOAPAL will sign and date on the appropriate line in the lower box, attach the check request, and submit the completed and approved documents to Accounts Payable.

Questions should be directed to Dorothy Swenson, 1-2387

Instructions for Completing a Standard Services Invoice (SSI)

Download the SSI Form

1. Fill in the detailed information of the work performed.
2. Fill in the following:

• Place Service was provided
• Service begin and end dates
• Lump sum payment amount
• University FOAPAL/S
• University Department name
• Department Contact name and phone number

3. The person authorized on the FOAPALt should sign and date the proper line.
4. Check the box that applies (Dept will pick up check or mail to provider).
5. Have the service provider fill out his/her name, address, Social Security number and phone number.
6. Have the service provider sign and date the proper line.
7. Complete the Verification of Non-Employee Status form on back of form. Please print this form back to back since no additional signatures or names are required on this page of the form.
8. Have the contractor complete form W-9 and attach to the contract. CAUTION: Contracts with Non-Resident Aliens, i.e., individuals that are not citizens of the U.S., will require additional IRS forms to be completed before payments can be made.
9. Send the check request, SSI, 10 questions and W9 to Accounts Payable for payment. It should be submitted for payment after the services are complete unless the Department will deliver the check to the service provider upon completion of the work.

Questions should be directed to Dorothy Swenson, 1-2387

Instructions For The Preparation Of a Check Request Form

Download a Check Request Form

1. Date - Enter the date the document is being prepared.
2. Department Name - Enter the name of the department that is responsible for the payment.
3. Originator Name and Phone # - Enter the name and phone number of the person who is to be called if there is a question or problem concerning the payment.
4. Authorized Signature - Only a person who is authorized on the FOAPAL being charged can sign. If more than one FOAPAL is being charged there must be an authorized signature for each account.
5. Vendor Identification # - Enter the bear number, if known, of the person being paid.
6. Vendor & Address - Enter contractor's name and a complete address.
7. FOAPAL - Enter the FOAPAL(s) to be charged.
8. Amount - Enter the total amount to be charged to the FOAPAL on that line.
9. Check Stub Information - This is the information that is printed on the check stub for the contractor. Please be concise and use meaningful abbreviations. The computer will only accept two lines at fourteen spaces per line. It is not necessary to repeat information for multiple FOAPALs if it all pertains to the same transaction.