3.07 Contractors and Consultants
29 Jan 2019
Executive Director, Business & Support Services
This policy applies to all individuals who wish to contract for supplemental services to be paid by Gallaudet University, regardless of the source of funds. A department intending to engage an individual as an independent contractor must follow the appropriate procedures prior to the start of any work or performance of services.
This policy defines the criteria to qualify as an 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 Department of Labor, Internal Revenue Service (IRS) and Social Security Administration (SSA). Significant tax penalties exist for incorrect classification of an employee as an independent contractor.
All Gallaudet University administrators have a responsibility in ensuring that services are carried out to the maximum extent possible by current employees. If the required services are unique, specialized, or highly technical that they cannot be performed economically or satisfactorily by existing employees, it may be necessary to secure the services of independent contractors. Prior to engaging the services of any individual or firm as an independent contractor, the department must follow University procedures and complete the Determination of Status checklist. The checklist will help determine the proper work status of the individual, either as an employee of Gallaudet University or an independent contractor.
It is important that payments to employees and independent contractors for services rendered be made in a proper manner. Payments to independent contractors are processed through the Finance Office whereas payments to employees are processed through Payroll Office. In special situations, a current University employee or student may provide service outside the scope of their normal position responsibilities. In these cases, the individual should be paid through Payroll Office.
Gallaudet University Administration
An employee depends on an employer for income on a continuing basis. An employee/employer relationship exists if the individual performs services that can be controlled and supervised by Gallaudet University. Additionally, any individual who has been paid on Gallaudet University payroll in the current calendar year is treated as an employee, even if the relationship might otherwise qualify as that of an independent contractor.
2. Independent Contractor
Individuals who render a service and meet contractor conditions established by the IRS. They typically have a separate workplace, are not supervised, and have a particular set of skills not available elsewhere within the organization. They are not entitled to employee benefits, are not covered by workers' compensation, and their pay is usually not subject to income tax withholding.
3. Determination of Status
The checklist is required to determine the status of the individuals. Departments are responsible for making an initial assessment of the employment status of individuals they hire. Departments are encouraged to contact Human Resources Services with specific questions prior to finalizing arrangements with the individual.
If the individual is considered an independent contractor, then the hiring department must work with the Contracts and Purchasing Department. The procedures are available below. If the individual is considered an employee, the hiring department must follow the regular hiring procedure through Human Resources Services.
Criteria for Identifying Independent Contractors
Gallaudet University is required to comply with federal and state laws to properly classify workers as employees or independent contractors. The penalties for incorrectly classifying employees as independent contractors are significant. If a worker is paid as an independent contractor and is reclassified by the IRS as an employee, the University will be liable for the amount of federal income taxes it failed to withhold, together with both the employer's and employee's share of FICA associated with that employee's compensation.
Indicators of Independent Contractors (must meet all indicators):
● Instructions: An individual who is not required to comply with instructions as to when or where, or how the individual is to work.
● Type of Service: An individual who provides service that no other Gallaudet employees could provide. It must also be outside of the University's usual course of business. For example, an individual teaching classes may not be classified as an independent contractor.
● Training: An individual should not receive training to learn how to do the work.
● Schedule: The hours of work are not established by Gallaudet University.
● Payment: An individual who is paid by the job, not by time. The individual must also not have been paid through Payroll Office during the same calendar year (The University will not issue a W2 and 1099 in the same calendar year).
● Status: An individual who is not a current employee at Gallaudet University. The individual cannot be classified as an independent contractor even if the relationship might otherwise qualify as an independent contractor.
● Risk: An individual who accepts the ultimate risk of profit or loss and insurance.
● Equipment: An individual who provides their own supplies, equipment, and office space.
● Length of Contract: An independent contractor works at the University on a temporary basis and short-term. If there is a continuing relationship, then the individual should be classified as an employee.
● Working for more than one client at a time: An individual who is capable of performing services for other employers and must not be solely dependent on Gallaudet University for work.
Individuals who retired from Gallaudet University may return as an independent contractor to fill a temporary need or help with the transition. The services provided must meet the criteria for independent contractors. Otherwise, they must go through the Payroll Office. Retirees who are approved as independent contractors may only work up to six months at the University. It is important to remember that any individual who has been paid on Gallaudet University payroll in the current calendar year is treated as an employee, even if the relationship might otherwise qualify as that of an independent contractor.
Guideline to Use When Hiring Independent Contractors
● Do not establish a work schedule.
● Do not provide office space or training.
● Do not furnish tools and materials.
● Do not give independent contractors authority for hiring, disciplinary actions, or termination decisions.
● Do not issue employee ID, parking pass, or keys.
● Payment for the services should be based on one fee for performing the services rather than by the hours spent on the assignment.
● Request proof of liability coverage.
● Be mindful that independent contractors who earn more than $10,000 a year from a single employer and who do not perform services for any other employer are likely to be considered employees by the IRS.
Each division should identify an employee who has oversight of all contracts within the division. This employee will provide final approval of all contracts within the division. If the contract is more than $10,000, this employee should question the need for such contract and ensure that the contract is short-term rather than a continuing relationship.
Independent Contractors must be paid through the Finance Office. There are two departments involved in this process: Contracts and Purchasing and Finance Office. It is important to note that a contract must be processed by Contracts and Purchasing before service begins.
1. Department must complete a requisition form and submit it to the Contracts and Purchasing Department. The form can be found here. Requesting department must verify that budget is available to pay for independent contractor expense and encumber funds. Any questions regarding this should be submitted to email@example.com.
2. The Contracts and Purchasing department makes every attempt to send out all contracts within 7 to 10 business days, provided all necessary information is included on the requisition. All requisitions for independent contractors must have a completed "Independent Contractor vs. Employee Requirements" form and a scope of work.
4. If identified as an independent contractor, a contract is sent to the vendor via FedEx (unless the address is a PO Box then it is mailed) or Adobe Sign for signature.
5. A PO is not obligated for a contract until the signed contract is returned to Contracts and Purchasing.
6. Once the contract is received the PO will be obligated and you will receive a PO and a copy of the contract via email.
8. The invoice submitted for payment has the payees name and address, the amount to be paid, an invoice number, and a description of the merchandise or service provided. For payment, have the authorized person sign the invoice, approving payment, write the account number from which it should be paid on the invoice, and send it to the Finance Office.
9. A purchase order was established to pay for the merchandise or service. The invoice, when received, should be signed by the authorized person, approving payment, write the purchase order number on the invoice, and forward it to the Finance Office. If the merchandise or service has not been received, please note that information on the invoice.