Employee or Independent Contractor?

It is important that payments to employees and independent contractors for services rendered be made in a proper manner. The University is subject to audit by The Internal Revenue Service (IRS) and Social Security Administration (SSA). If these audits reveal an instance where an employee has been improperly paid as an independent contractor, the University is responsible for both the employee and employer's share of FICA tax, as well as penalties. Furthermore, if a pattern of such cases can be established, the audit may be extended for five (5) years. Therefore, in addition to the monetary penalty, the University must devote significant resources to conduct this extensive research. The following procedures should be used to effect payment for services provided:

  1. Independent Contractors: should be paid through Accounts Payable on accounting vouchers.
  2. Employees: must be paid through Payroll Services so that proper tax withholding can occur.

To assist you in determining whether service providers are employees or independent contractors, a list of 20 common law factors used by the IRS is available. Additionally, you may contact Chris Jones with any questions regarding the classification of certain types of workers (568-3401).

20 Common Law Factors

Note: Special withholding rules apply to wages paid to foreign nationals who are nonresidents. Other US source income payments made to foreign nationals, including payments for self-employment services, are subject to 30% withholding tax unless an exception applies. Please contact Payroll Services for prior approval and additional required paperwork.

Payments to Short-Term Foreign National Visitors (i.e. Non-Residents)

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