Transcript Employee vs. Independent Contractor JULIE CAMP, DIRECTOR, PAYROLL JENNIFER COLLINS, MANAGER, ACCOUNTS PAYABLE What is an Independent Contractor?  An independent contractor is a person,

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 sufficient 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:
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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.
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.
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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.
IRS Characteristics
 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.
UGA Interpretation
 UGA is conservative in approach to the issue. The final cost and
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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 difference
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.
Transactions must comply with the State’s Conflict of Interest law
and the University’s policy.
Conflict of Interest
 Policy: http://www.policies.uga.edu/FA/nodes/view/1018
With some exceptions, it is unlawful for any employee of UGA to
transact business with UGA. The term “transact business” includes
the sale or lease of any personal property, real property or services,
or the purchase of any surplus real or personal property.
 Single transaction limits of $250 or less where the aggregate of all
payments during the calendar year does not exceed $9000.
 An employee that violates the conflict of interest statue is subject to
being removed from employment, fined an amount not to exceed
$10,000, and required to reimburse the state for funds received
because of the violation.
If Making Payment to a Current UGA employee
(part or full-time)
 If the payment is $250 or under and is not related to
their current employee/employer relationship with
UGA, the payment can be processed through
Accounts Payable.
 If the payment is over $250, regardless of whether or
not the services being performed are related to the
current employee/employer relationship with UGA,
the payment must be processed through Payroll.
Teaching vs. Guest Lecturer
 If the individual is presenting information covered in a UGA course
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syllabus, it is teaching.
If the individual is the primary instructor in a department course being
offered for academic credit towards a university degree, it is teaching and
should be paid through Payroll.
If the individual is the primary instructor in a non-credit adult continuing
education course offered 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 particular 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. The graduate assistant is to
receive a fee for services rendered in the amount of $325.
This individual should be paid through Payroll for this event since
the payment amount is greater than the $250 Conflict of Interest
policy limitation.
 Example 2: A graduate assistant in the School of Music plays the
violin at a Terry College reception.
This individual should be paid via Payroll regardless of the dollar
amount. 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
services.
 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.
Exercises
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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. In addition, the fee for services rendered
exceeds the $250 Conflict of Interest threshold.
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 Payroll. Even though
the services being performed aren’t related to the
employee/employer relationship, the fee amount exceeds the
$250 Conflict of Interest policy limitation.
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. The amount is also less than
the State’s Conflict of Interest individual transaction amount of
$250.
Making payments via Payroll
 HR requirements
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Contact HR liaison to determine if position needs to be posted.
If posting is not required, a hiring proposal and background check
for non-posted positions must be submitted.
HR will contact Budgets if the posting has been waived.
 Submit personnel with non-benefit status
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If a set fee has been negotiated, the payment should be made on the
monthly payroll.
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.
Employee must be paid in accordance with the Fair Labor Standards
Act.
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 Request 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
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http://www.policies.uga.edu/FA/nodes/view/1182/Emp
loyment-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_r
etirement/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:
 Does this individual currently work for UGA as an employee?
 Will UGA hire this individual immediately following the termination of his/her
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services as an independent contractor?
During the 12 months prior to the date on which the services commenced, was the
individual on UGA payroll?
Will the individual perform work using University facilities?
Will the individual perform research for a University faculty member under an
arrangement whereby the UGA faculty member serves in a supervisory capacity?
Will the individual serve in an advisory or consulting capacity under a UGA faculty
member or director in a “collaboration between equals” type arrangement?
Does the individual routinely provide the same or similar services outside of UGA to
the general public as part of a continuing trade or business?
Will the department provide the individual with specific instructions regarding the
performance of the required work rather than rely on the individuals expertise
and/or provide significant supplies and equipment for the worker?
Does the individual engage in entrepreneurial activities in an established business at
risk for loss?
Does the individual have his/her own insurance for work related injuries?
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])