Independent Contractor Independent Contractor or Employeeor Employee
BYU IdahoBYU Idaho
Controllers Meeting Controllers Meeting
May 14, 2009May 14, 2009
Independent Contractor Independent Contractor PolicyPolicy
Significant legal consequences and penaltySignificant legal consequences and penaltyassessments may result if an individual who assessments may result if an individual who
meetsmeetsthe legal definition of an employee is the legal definition of an employee is
erroneouslyerroneouslyhired as an independent contractor.hired as an independent contractor.
Generally most individuals hired by the Generally most individuals hired by the University are employees. However those University are employees. However those that meet certain requirements might be that meet certain requirements might be classified as independent contractors. classified as independent contractors.
Independent Contractor Independent Contractor PolicyPolicy
Normally the reasons for contracting work Normally the reasons for contracting work out are to achieve something ordinarily out are to achieve something ordinarily not within the usual capabilities of the not within the usual capabilities of the
University’s regular employees. University’s regular employees.
Employees of the university including Employees of the university including students are not eligible to be students are not eligible to be
independent contractors of the University.independent contractors of the University.
Independent Contractor Independent Contractor Classification Classification
Three elements the IRS uses to determine Three elements the IRS uses to determine worker classification:worker classification:
1. Behavioral control1. Behavioral control2. Financial control 2. Financial control 3. Type of relationship3. Type of relationship
Behavioral ControlBehavioral Control Behavioral controlBehavioral control
Anyone who performs services for you is Anyone who performs services for you is your employee if you can control what your employee if you can control what will be done and how it will be done. will be done and how it will be done. What matters is that the employer has What matters is that the employer has the right to control the details:the right to control the details: When and where to do the work When and where to do the work What tools or equipment to use What tools or equipment to use Where to purchase supplies and Where to purchase supplies and
services services If BYU Idaho trains individualsIf BYU Idaho trains individuals
Financial ControlFinancial Control Financial controlFinancial control
Does the worker have a significant Does the worker have a significant investment in assets or tools? investment in assets or tools?
Are there unreimbursed expenses that Are there unreimbursed expenses that the worker has to bear themselves? the worker has to bear themselves?
Are the worker’s services available to the Are the worker’s services available to the public? public?
Do they get paid only if they finish the Do they get paid only if they finish the job? job?
Independent contractors can realize a Independent contractors can realize a profit or loss on a job. profit or loss on a job.
Type of RelationshipType of Relationship Relationship of the partiesRelationship of the parties
Whether the worker gets any type of Whether the worker gets any type of benefits – vacation and sick pay, benefits – vacation and sick pay, pension plan, and health or life pension plan, and health or life insurance. insurance.
The permanency of the relationship The permanency of the relationship such as continuing indefinitely or only such as continuing indefinitely or only for a specific project or period. for a specific project or period.
Does the worker have his own business, Does the worker have his own business, which he markets to others? which he markets to others?
Test Proctors (Expertise needed)Test Proctors (Expertise needed) ConsultantsConsultants Sports OfficialsSports Officials Dance JudgesDance Judges Trimming Horses (Must have business and use own Trimming Horses (Must have business and use own
tools)tools) Guest Speakers and Presenters (non credit)Guest Speakers and Presenters (non credit) Entertainment (short term engagement)Entertainment (short term engagement) ArtistArtist Professional Photography (short term engagement)Professional Photography (short term engagement) Student Teacher SupervisorsStudent Teacher Supervisors Student Teacher Coordinators (other than Student Teacher Coordinators (other than
University employees)University employees)
Independent ContractorsIndependent Contractors
Employee or ContractorEmployee or Contractor
Website to help determine:Website to help determine:http://www.byui.edu/AccountingOffice/IndContractor.htm The IRS has developed a twenty question The IRS has developed a twenty question
test for Independent Contractors to help test for Independent Contractors to help determine classification as an employee or determine classification as an employee or contractor.contractor.
If an employee relationship is determined If an employee relationship is determined contact Human Resources to proceed.contact Human Resources to proceed.
Taxable CompensationTaxable Compensation All payments for services by individuals and All payments for services by individuals and
business entities represent taxable compensation business entities represent taxable compensation to the recipient. to the recipient.
If an employer-employee relationship exists, the If an employer-employee relationship exists, the compensation is considered wages and is subject compensation is considered wages and is subject to withholding tax and applicable FICA to withholding tax and applicable FICA contributions. Wages are reported on a W-2contributions. Wages are reported on a W-2
If an independent contractor relationship exists If an independent contractor relationship exists then cumulative annual payments over $600.00 then cumulative annual payments over $600.00 will be reportable to the IRS on a 1099 MISC.will be reportable to the IRS on a 1099 MISC. Reimbursed travel expenses will be included in Reimbursed travel expenses will be included in
taxable amount of the 1099 Misc.taxable amount of the 1099 Misc.
Independent Contractor Independent Contractor RelationshipRelationship
If the recipient is considered an independent If the recipient is considered an independent contractor they receive payment by means of an contractor they receive payment by means of an Independent Contractor Payment Request. .
This needs to be done before the contractor This needs to be done before the contractor performs the service to allow time for Accounts performs the service to allow time for Accounts Payable to review the request.Payable to review the request.
All requests for payment to a foreign individual All requests for payment to a foreign individual must be reviewed by the Accounts Payable Office must be reviewed by the Accounts Payable Office for tax treaty issues and withholding for tax treaty issues and withholding requirements. requirements.
PaymentPayment Checks will be mailed to the Independent ContractorChecks will be mailed to the Independent Contractor On On rare occasionsrare occasions, some vendors may require payment , some vendors may require payment
upon completion (day of show) for their services.upon completion (day of show) for their services. When this is the case, the requisitioning department When this is the case, the requisitioning department
must clearly indicate in the “Description Field” of the must clearly indicate in the “Description Field” of the request that a payment upon completion is requested request that a payment upon completion is requested and the reason for the request for pick up and who will and the reason for the request for pick up and who will pickup the check. The department should request the pickup the check. The department should request the check to be picked up the afternoon before the service or check to be picked up the afternoon before the service or performance. performance.
Website for Independent Website for Independent ContractorContractor
BYU I Home Page Employees Frequent BYU I Home Page Employees Frequent Links Accounting Office Links Accounting Office
Under Features select Independent Contractor
QuestionsQuestions
