Transcript Employee vs. Independent Contractor

EMPLOYEE VS.
INDEPENDENT
CONTRACTOR
Julie Camp,
Director, Payroll
Jennifer Collins,
Manager,
Accounts
Payable
WHAT IS AN INDEPENDENT
CONTRACTOR?
 An independent contractor is a person, business, or
corporation that provides goods or services to another entity
under terms specified in a contract or within a verbal and
physical agreement.
 USG Definition: An individual who performs services for the
institution where the institution has the right to specify the
result to be accomplished by the work, but not the means and
methods by which the result is to be accomplished.
 In the United States, any company, or organization engaged in
a trade or business that pays $600 or more to an independent
contractor in one year is required to report this to the Internal
Revenue Service using Form 1099 -MISC. This form is a report
of monies paid to independent contractors. Independent
contractors do not have income taxes withheld from their pay
as regular employees do.
WHAT IS AN EMPLOYEE
 USG: An individual who performs personal services for the
institution where the institution has the right to control and
direct the individual who performs the services, not only as
the result to be accomplished, but also as to the details and
means by which that result is to be accomplished. It is not
necessary that the institution actually direct or control the
manner in which the services are performed; it is suf ficient to
establish an employee-employer relationship that the
institution has the right to do so.
CONSEQUENCES
 Misclassifying workers as independent contractors can cause
substantial tax issues as well as penalties for failing to pay
employment taxes and failing to file required tax forms.
ACTUAL CASES
 From Keep Up To Date on Accounts Payable : A California
based company was charged with misclassifying a group of its
employees as independent contractors. The end result was
$11 million in penalties. This company had employees and
independent contractors handling many of the same tasks.
The court found that the company didn’t do enough to clearly
distinguish between the two positions.
 Also from Keep Up To Date On Accounts Payable :
 A task force in New York found 20,200 instances of workers treated
as IC’s, representing more than $282.5 million in unreported wages.
 In Connecticut a 12-month audit reclassified 3,487 workers and
uncovered $68.2 million in unreported wages.
 Last year, Massachusetts identified 5,491 misclassified workers,
carrying a $46 million dollar price tag of unreported wages.
INTERNAL REVENUE SERVICE
 In September 2009, IRS announced its intention to conduct
an employment tax National Research Program beginning in
2010.
 Employment tax audits focusing on worker classifications.
 Penalties can be severe. UGA could be liable for employment taxes,
interest, penalties, and retroactive benefits. Penalties may also be
imposed for failure to file required tax forms.
 According to the December 20, 2010 edition of The Chronicle of
Higher Education, the IRS stated that it is increasing its scrutiny of
colleges. Included in this increased attention is the issue of
employment taxes and whether or not these taxes are being
deducted from all eligible employees.
 The IRS has brought this up for numerous years and called it a point
of emphasis.
UGA INTERPRETATION
 UGA is conservative in approach to the issue. The final cost
and potential negative publicity can be significant. The IRS
has emphasized this topic for years.
 If the individual has been on payroll before (not a specific
time period) and is doing any type of work that exhibits
characteristics of the previous employee/employer
relationship, he/she should be paid through payroll.
 Teaching is an employee function (we will discuss the
dif ference between a guest lecturer and teaching in an
upcoming slide.)
 If the individual was on payroll immediately before or after
the event that you wish to pay him/her as an independent
contractor, he/she will need to be paid as an employee.
HOW CAN YOU DETERMINE HOW TO
CLASSIFY?
 Three characteristics viewed by IRS:
 Behavioral Control-Whether or not UGA has a right to direct or control
how the work is done through instructions, training, or other means.
 Financial Control- Whether or not UGA has a right to direct or control
the financial and business aspect of the worker’s job.
 Type of Relationship-How the workers and business owner perceive
their relationship.
TEACHING VS. GUEST LECTURER
 If the individual is presenting information covered in a UGA cour se
syllabus, it is teaching.
 If the individual is the primar y instructor in a depar tment course being
of fered for academic credit towards a university degree, it is teaching
and should be paid through Payroll.
 If the individual is the primar y instructor in a non -credit adult
continuing education course of fered by UGA , it is teaching.
 If the individual presents multiple times at a specified time, then the
individual should be treated as an employee.
 Typically, guest lecturers are individuals who possess an advanced
knowledge of a par ticular subject area, and who speak about that
subject area to a group or organization with which he/she is normally
not involved. The purpose of the arrangement is generally to enrich a
course through the inclusion of relevant, specialized knowledge which
that course’s normal lecturer does not possess.
 True guest lecturers can be paid through Accounts Payable as an
independent contractor.
EXAMPLES
EXAMPLES 1 & 2
 Example 1: A graduate assistant on payroll in Chemistry plays
the violin at a Terry College reception.
This individual should be classified as an independent contractor
(and should be paid through Accounts Payable) for this event.
 Example 2: In contrast to the previous example, a graduate
assistant in the School of Music plays the violin at a Terry
College reception.
In this case, the individual should be paid via Payroll. Since the
individual is an employee for the School of Music and the activity
is related to music, the IRS would likely view this as relating to the
individual’s employment with UGA.
EXAMPLES 3 & 4
 Example 3: An individual gives a presentation in Genetics.
He was employed by UGA previously as a research assistant in
Genetics.
This individual should be paid through Payroll.
 Example 4: A lecturer who was previously employed by UGA in
the History department returned to briefly help with a project
in History.
This individual should be paid through Payroll.
EXAMPLES 5 & 6
 Example 5: An individual is engaged to perform services during
Summer 2013 for Terry College. The department in Terry intends
to hire this person as a faculty member in the Fall of 2013.
This person must be paid through Payroll for the Summer 2013
ser vices.
 Example 6: A faculty member here at UGA serves as the Editor
for a journal and utilizes the services of an Assistant Editor who
lives in California. The Assistant works independently editing
articles sent to her electronically. She sets her own hours, works
from home, and provides similar services for other clients.
This person should be paid through Accounts Payable as an
independent contractor.
EXAMPLE 7
 A current UGA employee who has a training business of his own,
with a Federal ID number wants to teach a continuing education
course for UGA. He is currently on payroll as a faculty member.
Since the payment is for teaching a course, the payment should be
paid through Payroll. Also, for this par ticular example, the
employee should be made aware of the Conflict of Interest Policy
since he is planning on providing ser vices to UGA through his
company.
 CIP: Single transaction does not exceed $250.00 and the aggregate of
all transactions does not exceed $9000.00 per calendar year.
 CIP Policy: http://www.policies.uga.edu/FA/nodes/view/1018
“REAL-LIFE” EXERCISES
 The School of Music has an Education Program Specialist that
is going to serve as a performer in the School of Music’s opera
production of Magic Flute. The individual will be paid $300.00
for services.
This individual should be paid through Payroll. He/she is currently
active on Payroll and the services being performing are related to
the employee/employer relationship.
“REAL-LIFE” EXERCISES
 An individual will be paid $500 for services rendered during
research sample collection. The individual is also currently
active on Payroll as a Student Assistant in the Oglethorpe
Dining Hall.
This payment should be made through Accounts Payable. The duties
being performed are not related to the current employee/employer
relationship.
“REAL LIFE EXERCISES”
 Genetics sends through a check request for $200 to pay an
individual for collecting 3 kudzu samples while in China. The
individual is on payroll as a student worker for the library.
This payment should be processed through Accounts Payable as there
is no relationship between the services being paid for on the check
request and the services that the individual provides as an employee
for UGA.
MAKING PAYMENTS VIA PAYROLL
 HR requirements
o Contact HR liaison to determine if position needs to be posted.
o If posting is not required, a hiring proposal and background check for
non-posted positions must be submitted.
o HR will contact Budgets if the posting has been waived.
 Submit personnel with non -benefit status
o If a set fee has been negotiated, the payment should be made on the
monthly payroll.
o If the employee is being paid an hourly rate, he should be set up in
the Kronos MyTime system and paid on the hourly payroll .
o Employee must be paid in accordance with the Fair Labor Standards
Act.
o If posting has been waived, enter note in remarks section of
personnel.
MAKING PAYMENTS VIA ACCOUNTS
PAYABLE
 Complete Honoraria form found at
http://www.busfin.uga.edu/forms/f210.pdf
 Log into the Electronic Check Reques t System at
https://webapps.ais.uga.edu/PCFA/index.jsp
 Complete the check request information, upload Honoraria
form as a digital attachment.
 Submit the request for approval.
RETIRED INDIVIDUALS
 UGA policy at
http://www.policies.uga.edu/FA/nodes/view/1182/Employme
nt-Beyond-Retirement
 UGA retirees and their hiring units are responsible for
understanding BOR Policy 8.2.8.3 -Employment Beyond
Retirement.
http://www.usg.edu/hr/manual/employment_beyond_retirem
ent/m%26
 Requests must be approved by the President prior to
employment of the retiree.
 TRS Retirees: UGA cannot enter into an agreement with any
employee prior to his/her last day of employment.
 http://www.busfin.uga.edu/forms/uga_usg_retirees.pdf
QUESTIONS TO CONSIDER:
 D o e s t h i s i n d i v i d ua l c u r r e n t l y w o r k f o r U G A a s a n e m p l oye e ?
 W i l l U G A h i r e t h i s i n d i v i d ua l i m m e d i a te l y f o l l ow in g t h e te r m i n a t i o n o f h i s / h e r
s e r v i c e s a s a n i n d e pe n de n t c o n t r ac to r ?
 D u r i n g t h e 24 m o n t h s p r i o r to t h e d a te o n w h i c h t h e s e r v i c e s c o m m e nc e d , w a s t h e
i n d i v i d ua l o n U G A p ay r o ll ?
 W i l l t h e i n d i v i d ua l p e r fo r m w o r k u s i n g U n i v e r s i t y f a c i l it i e s ?
 W i l l t h e i n d i v i d ua l p e r fo r m r e s e a r c h f o r a U n i v e r s i t y f a c ul t y m e m b e r u n d e r a n
a r r a n g e m e n t w h e r e by t h e U G A f a c ul t y m e m b e r s e r v e s i n a s u p e r v i s o r y c a p a c i t y?
 W i l l t h e i n d i v i d ua l s e r v e i n a n a d v i s o r y o r c o n s ul t in g c a p a c i t y u n d e r a U G A f a c ul t y
m e m b e r o r d i r e c to r i n a “ c o l la b o r a t i o n b et w e e n e q u a l s ” t y p e a r r a n g e m e n t ?
 D o e s t h e i n d i v i d ua l r o u t i n e l y p r o v i d e t h e s a m e o r s i m i l a r s e r v i c e s o u t s i d e o f U G A to
t h e g e n e r a l p u b l ic a s p a r t o f a c o n t i n uin g t r a d e o r b u s i n e s s ?
 W i l l t h e d e p a r t m e n t p r o v i d e t h e i n d i v i d ua l w i t h s p e c i fi c i n s t r uc t i on s r e g a r d in g t h e
p e r fo r m a n c e o f t h e r e q u i r e d w o r k r a t h e r t h a n r e l y o n t h e i n d i v i d ua l s ex p e r t is e
a n d / o r p r o v i d e s i g n i fi c a n t s u p p l ie s a n d e q u i p m e n t f o r t h e w o r ke r ?
 D o e s t h e i n d i v i d ua l e n g a g e i n e n t r e p r e n e ur i al a c t i v i t ie s i n a n e s t a b l is h e d b u s i n e s s
at risk for loss?
 D o e s t h e i n d i v i d ua l h av e h i s / h e r o w n i n s u r a nc e f o r w o r k r e l a te d i n j ur i e s ?
CONCLUSION
 If you are not sure how the individual should be classified,
contact Accounts Payable or Payroll! It is easier for us to
discuss these situations with you up front than to notify you
after you’ve submitted a check request that can’t be paid.
 Julie Camp ([email protected])
 Jennifer Collins ([email protected])