Procedures for Independent Contractors
The purpose of this document is to outline the policies and procedures related to independent contractors doing business as individuals rather than companies.
- Definitions- Independent Contractor vs. Employee
- Methods of Payment
- Special Considerations
- Preparing a Personal Services Classification Analysis
- Preparing a Standard Services Invoice
- Preparing the Independent Contractor Agreement for Individuals
- Preparing a Check/ACH Request Form
- Vendor Direct Deposit Form
- Vendor Disclosure Statement
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 as 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:
- Has a place of business and a business listing in a directory when the services are offered to the public.
- Selects the clients and is free to work for one or more during any given interval.
- Determines the time and place work will be performed.
- Provides the tools and materials needed to perform the work.
- Does not participate directly or indirectly in the benefit programs of the University.
- 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.
- 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:
- The right to terminate the relationship with the employer at any time.
- 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 to determine the proper classification between independent contractor and employee.
Download the Personal Services Classification Analysis (PDF)
The Personal Services Classification Analysis form is completed in consultation with the contractor 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 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 two weeks 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 and then initial the contractor agreement. Both forms will be returned to the originating department after review.
If after review it is determined that the worker is not an independent contractor the department will be contacted and a different means of payment will be discussed.
When requesting payment, the original forms are attached to a completed Check/ACH Request Form (see Preparing a Check Request Form) and submitted to the Accounts Payable Office.
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.
Standard Services Invoice ($1-$4,999)
If the following criteria are met then you may use the Standard Services Invoice (SSI) procedure:
- The services performed were less than $5,000 in total for the entire project.
- 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 ($5,000-$25,000)
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.
Independent Contractor over $25,000
If the total dollar amount paid to 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 351-2287 for further clarification.
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 Check/ACH Request or PO depending on the dollar limit.
If partial payments are to be made, the original forms are attached to the first Check/ACH Request Form. Subsequent payment requests should include 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 indicate on page four of the agreement the amount of payment being made and how much has been paid on previously submitted payment requests.
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 Human Resources department.
- Continuing education faculty.
- Individuals who are considered employees of the University in another capacity.
- A former employee who has been called back to train a new employee in their former position.
- A contractor who is performing the same tasks an employee would perform.
Students Employed by the University - Students employed by the University (work-study, hourly, GA or TA) cannot be paid as independent contractors. Example: A Graduate Assistant in the College of Education plays in a musical combo for a reception on campus. Contact Student Employment to determine the payment method for the additional services performed by these individuals.
Former Employees of the University - Individuals cannot be paid as independent contractors and employees in the same calendar year. Therefore, if you will be paying an individual for services who is not a current UNC employee, but was paid as an employee at any time during the current calendar year, they cannot be paid as an independent contractor. Contact Student Employment or Human Resources to determine the appropriate payment method.