Independent Contractor vs. KU Employee

No person under 18 may be hired as an independent contractor. If you are seeking the services of someone in high school or under 18 years of age, please seek guidance from Financial Services first.

A contractual services form payment may be appropriate for a guest lecturer who lectures at only a few class sessions, a performer at a university event, and others who follow an independent trade, business, or profession in which they offer their services to the public. Below is more detailed guidance to help you make this determination.

Please contact Central Accounting if you need assistance making this determination. Questions about the tax laws by which independent contractor status is determined should be addressed to Office of the General Counsel, 785-864-3276.

The business relationship between the University and the person performing the services must be evaluated to determine whether or not the person performing the service is a University employee. Anyone who performs services for KU is an employee, IF the University has the right to control what will be done and how it will be done. KU generally has to withhold and pay income taxes, social security, Medicare and unemployment taxes on wages that we pay to an employee.

If the University has control only to direct the result of the work and not the means and methods of accomplishing the result, then a person ordinarily is not an employee. If a person is not an employee because the University does not exercise control over the person, but the person but still performs services for the University, then the relationship usually is one of an independent contractor and should be paid through central accounting services as contractual services.

To determine whether or not an employee/employer relationship exists, KU must examine the degree of control and independence. A shorthand method of analysis is to examine three categories:

· Behavioral control

· Financial control

· Type of relationship of the parties

Because of the complexity of the law in this area, and because it is an area of heightened IRS scrutiny, it is important to contact the appropriate individuals in the event of any uncertainty, particularly if there is doubt that a person is an independent contractor.

Behavioral Control
Facts that show the department has a right to direct and control how the worker does the task indicate an employment relationship. These include instructions that the worker is given, such as when and where to work, what tools or equipment to use, what work to perform, and what order or sequence to follow.

Financial Control
Facts that show the department has the right to control the business aspects of the worker’s job indicate an employment relationship. These include how the worker is paid. An employee is usually guaranteed a regular wage amount for an hourly, weekly or other period of time. An independent contractor, on the other hand, may have a financial risk in the event of failure to perform, and an independent contractor can be expected to make services available to the relevant market, and not just to the University.

Type of Relationship
Facts that indicate independent contractor status include an incorporated status for the individual in question, the existence of a written contract with the University, and the ability to hire and fire associates. Facts that tend to demonstrate an employment relationship include: employee-type benefits, permanency of the relationship, and performance of services that are a key aspect of the regular University business.

If an employee/employer relationship exists, then payments must be made through the University’s payroll system. This ensures that appropriate tax withholding and remitting shall occur as well as the issuance of correct tax documents at the end of the year. Likewise, if an independent contractor relationship exists, payment through central accounting services will ensure appropriate tax reporting and compliance. Contracts with independent contractors for professional services are subject to additional scrutiny under the Professional Services Sunshine Law.

In addition - University employees (administrators) should not personally (with their private funds) pay for services provided by a third party to the University and then seek reimbursement through University or other affiliated funds. Such payment arrangements create a de facto agent relationship between the University administrator and the service provider and they impinge on the proper service classification (payroll/independent contractor determination) and required IRS reporting and withholding. Non-compliance with this policy when making payments to international service providers can result in additional and severe immigration and tax consequences. Under these circumstances, personal payments will not be reimbursed. Questions about the tax laws by which independent contractor status is determined should be addressed to Office of the General Counsel, 785-864-3276.

Key Factors

An independent contractor typically does the same type of work for other companies, etc. Their resume shows where they have provided this same service. The individual has a direct interest in the profitability of the work accomplished. Depending on the project, the individual has the potential of suffering a financial loss.

An independent contractor, such as a guest lecturer, is typically considered an expert on a specific topic. The individual is available to come to campus to lead a discussion on his specific area of expertise. Their knowledge provides additional information to faculty, staff, students, public, etc.

An employee is told what needs to be done, how work needs to be done and where it needs to be done. There is someone available to answer questions, provide guidance, direction and supervision for the individual. Employees are assigned a certain work schedule. If the employee is exempt under FLSA, they may not receive a great deal of oversight, may exercise independent judgment and discretion within parameters and may have a fairly flexible work schedule.

An employee can be an expert in the subject, but has been hired to teach a specific class based on the employee's area of expertise. The individual is an employee since the individual will test and grade the class participants on the information provided.

An employee is typically provided the tools and materials needed to complete the job, whereas independent contractors typically provide their own tools and materials.

A current employee, including faculty, staff, GTAs, GRAs, student workers, etc. must be paid via payroll, no matter what type of job they are performing. A current employee cannot be considered an independent contractor. An employee from another state agency is also considered an employee, and must be paid via payroll.

It does not matter if the person is being paid one time or multiple times, the decision is based on the work being performed.

Examples

· A person is paid $2,000 to design a stage. The University provides a deadline for the final product, but they do not stipulate how many hours the individual works on the project. The individual will be paid only $2,000 regardless of the number of hours it takes to complete the design. The individual cannot be supervising any KU employees.

Pay as independent contractor.

· An individual is hired to paint scenery for a play. They are being provided the materials to paint, they are told what needs to be painted, but they don’t always have to work the same hours.

Pay as temporary employee.

· An individual is hired to talk about the research he has done on enzymes.

Pay as independent contractor.

· A former Senator is hired to teach a class on how the Senate operates as part of the US Government. He will grade each class participant.

Pay as temporary employee

· An individual oversees the work of a KU employee, student hourly, etc.

Pay as employee.

· An individual is hired to provide instruction on playing jazz music for Music Camp.

Pay as independent contractor.

· An individual is hired to supervise and monitor camp participants who are staying in the resident halls.

Pay as temporary employee.

· An individual is hired to play in the orchestra for a play, or accompany a student for a recital/performance. The individual is told what music to play, dates and times that they will be required to play and rehearsals could be required. The individual may be expected to practice and prepare for the performance on the individual's own time.

Pay as temporary employee.

Summary

These are only a few examples. If you have a specific situation, please contact Central Accounting with the details. Central Accounting will review the situation and work with Human Resources and Equal Opportunity (HR/EO) to determine how best to pay the individual. Since the federal Fair Labor Standards Act also dictates what is considered “work” for an employee, consultation may be required between Central Accounting and HR/EO before a final determination is made.

Pursuant to K.S.A. 70-3228, any person knowingly and intentionally misclassifying an employee as an independent contractor for the sole or primary purpose of avoiding either state income tax withholding and reporting requirements or state unemployment insurance contributions reporting requirement may be dismissed, subject to fines, and/or imprisonment.