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.
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.
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.
|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.|
|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. HTML|