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Independent Contractor vs. Employee
Delta State University requires that a department intending to engage a service provider as an independent contractor (including consultants) receive approval before the performance of services. A university employee performing such services is not considered an independent contractor; rather, payment for the services is made through the university payroll and is included on the employee’s W-2 at year end.
Employee: An individual is an employee for federal employment tax purposes if the individual has the status of an employee under the “usual common law rules”. These rules provide that generally the relationship of employer and employee exists when the employer has the right to control and direct the individual who performs the service, not only as to results, but also details and means.
Independent contractor: An independent contractor is an individual (such as physicians, lawyers, dentists, contractors, and subcontractors) who is engaged in independent trade, business, or profession in which he/she offers his/her services to the public.
PROCEDURES and RESPONSIBILITIES
The existence of an employer-employee relationship between an individual and the University determines whether an individual can be paid as a consultant or independent contractor rather than through the payroll system. If it is determined that an employer-employee relationship would exist, the individual must be employed and paid through the payroll system.
The issue is one of collection of federal employment taxes (income, social security). The Internal Revenue Service holds employers responsible for deducting taxes if an employer-employee relationship exists. The IRS regulations are extremely conservative in their relief from this obligation. The IRS also generally does not allow an individual to receive both a Form 1099 and a W-2 in the same year from the same employer.
An individual is an employee for federal employment tax purposes if the individual has the status of an employee under the “usual common law rules”. These rules provide that the relationship of employer and employee exists when the employer has the right to control and direct the individual who performs the service, not only as to results, but also details and means. Conversely, individuals (such as physicians, lawyers, dentists, contractors, and subcontractors) who follow an independent trade, business, or profession in which they offer their services to the public generally are not employees.
As an aid in determining whether an individual is an employee under the common law rules, twenty factors or elements have been identified to indicate whether sufficient control is present to establish an employer-employee relationship. The twenty factors are designed as guides, and the degree of importance varies depending on the occupation and the circumstances under which the services are performed. See determination form below.
- Obtain information (Social Security name/number, mailing address) from individual performing services
- Complete Determination Form
- Attach completed form to purchase requisition
University Accounting Responsibilities
- Determine whether purchase requisition should be routed to payroll or accounts payable
- Determination Form
- Independent Contractor Form