Independent Contractor

Who is Covered by this Policy?

All University staff, faculty, and student organizations.


Scope and Purpose

This policy applies to all who seek to engage the personal services of an individual person (not a corporation or LLC) who is not an employee of the University.  These individuals must qualify to serve as independent contractors under University policy as well as state and federal labor and tax laws. Independent contractors include but are not limited to: consultants, guest lecturers, entertainers, and referees.

This policy sets forth the criteria that define independent contractors and the required procedures to engage and pay individuals.


Definitions

Employee

For purposes of this policy, an employee is a person who is hired through the Department of Human Resources or the Office of Academic Personnel Services and is paid under a W-2 (and not a 1099).

Honorarium

An honorarium is a payment made to an independent contractor for an academic activity or service for which fees are not traditionally charged such as payments granted in recognition of an academic activity conducted for the benefit of the University’s mission, such as lecturing, reviewing promotion and tenure dossiers, conducting limited research, attending meetings, symposia or seminars, or otherwise sharing knowledge. Readings and performances are included academic activities, so long as the activity is open to the public and/or students without charge. Honorariums are taxable as income to the recipient.

Independent contractor

For purposes of this policy, an independent contractor is an individual who provides services to Miami University and is not an employee:  a person who should be paid under a 1099 (and not a W-2). Specifically, it is a person who: (a) is engaged in an independently established profession or business of providing the services (b) provides a service to the University that is not normally provided by University employees (c) is free from the University’s control or direction when providing these services. The criteria for determining whether a worker is an independent contractor are discussed below.

Limited engagement

A category of service, provided by an independent contractor, that occurs only one time, or one time per year, for a fee of $10,000 or less.

Sole Provider

When the needs of the University are best served by the engagement of a specific individual to provide a unique service.


Policy

This policy defines the criteria to qualify as an independent contractor, and sets out how independent contractors must be paid in order for the University to remain compliant with the state and federal Departments of Labor and the Internal Revenue Service (IRS) and other regulatory agencies. Payments to independent contractors are processed through Accounts Payable - not through Payroll. Purchasing Cards (P-card), credit cards and gift cards may not be used to pay independent contractors. Employees will NOT be reimbursed for personal payments to independent contractors.

Employees cannot be considered independent contractors and may not receive both a W-2 and 1099 in the same calendar year. In special situations, a current University employee or student may provide significant services outside the scope of their position responsibilities. In these cases, the employee may receive supplemental/additional pay through Payroll but may not be paid as an independent contractor.

Independent Contractor Criteria

Federal and state law requires the University to properly classify its individual workers – as either employees or independent contractors. This policy and the accompanying independent contractor website identify the steps, documents, and processes necessary to ensure proper classification of and subsequent payment to independent contractors. To pay foreign nationals, please see the section below called “Paying Foreign Nationals and International Parties as Independent Contractors.”

An independent contractor is an individual who meets all of the following criteria:

  • renders a service to the University for a specified payment amount for a specified result;
  • is engaged in an independently established profession or business (e.g. offers similar services to the general public on a consistent basis);
  • provides a service outside of the University’s usual course of business;
  • is not currently paid through University Payroll and has not been paid through Payroll within the current calendar year;
  • provides services through a written contract (namely, the University's Professional Services Agreementor another University-approved form of agreement, e.g. Speaker Agreement) and
  • is free from University control or direction when providing services.
     

Please note a person who has assigned instructional duties will not qualify as an independent contractor.

Procedures: How to Engage an Indpendent Contractor

For assistance, please contact the Director of Employment in the Department of Human Resources at 513-525-4745 (non-academic units), the Director of Academic Personnel Services at 529-7268(academic units) or the Assistant Director for Business Operations in Student Life at 513-529-2598 (student organization).

 Selection and Bidding Requirements

  • Ohio’s Ethics laws and University policy prohibit any University employee from using his or her position to secure the engagement of a family member as an independent contractor.
  • Limited engagements (e.g. $10,000 or less) do not need to be bid.
  • For independent contractor services requiring payment of more than $10,000 but less than $24,999, the initiating unit must undertake due diligence by obtaining a minimum of three (3) written quotations. If the initiating unit wishes to engage a specific person due to the uniqueness of the service or source limitations related to market conditions, the initiating unit must complete the Sole Provider Justification section of the Independent Contractor process in BuyWay.
  • For personal services of $25,000 or more the purchasing unit must undertake due diligence by contacting the Office of Strategic Procurement by completing a Bid Request - Products or Services section or a Sole Provider Justification section of the Independent Contractor process in BuyWay.
  • The University conducts regular reviews of payments to independent contractors and may determine that an individual must be treated as an employee rather than an independent contractor based on the number of engagements or the cumulative amount of payments.

Exceptions to Bidding Requirements

The following persons/services typically qualify as an independent contractors and do not need to be bid regardless of the amount of payment:

  • Professional entertainers;
  • Academic guest speaker, artist, or special lecturer;
  • Distinguished guest speakers at University functions;
  • Professional publication manuscript reviewers and editors;
  • Non-recurring seminar and workshop leaders;
  • Personal services paid by external grants (OARS); and
  • Referees.

Honoraria

An honorarium is payment to an independent contractor and must follow the same process as engaging any other independent contractor. To be considered an honorarium, the payment must meet all of the following criteria. An honorarium is:

  • related to usual academic activity such as lecturing, conducting research, attending meetings, symposia or seminars or otherwise sharing knowledge; and
  • $1,500 or less; and
  • no fee is typically charged by the individual.

 Any of these criteria disqualifies a payment as an honorarium:

  • payment is designated to a third party
  • is intended as a payment to a University employee (including student employees) or an individual who was employed by the University during the current calendar year.

Honorariums are taxable to the recipient.

Paying Foreign Nationals and International Parties as Independent Contractors

For independent contractor services performed within the United States

To ensure compliance with IRS regulations, prior to engaging a foreign national for services, the University must analyze the foreign national’s eligibility to work in the U.S. and residency status for tax purposes.  If the person is a foreign national additional information and documentation will be required.

For independent contractor services performed outside the United States

It is necessary to contact the International Student and Scholar Services or the Office of General Counsel for guidance prior to engaging any person to provide services outside the U.S. Each country has unique criteria and regulations that regulate individual services. Incorrectly paying an individual for services performed outside of the U.S. may adversely impact the University, as well as the individual performing the work.

Reimbursing Travel or Other Business Expenses to Independent Contractors

As with all approved travel and other business expense reimbursements, expenses incurred by an independent contractor must be approved and documented according to University policy.

 


Related Form(s)

 


Additional Resources and Procedures

Independent Contractor website

 


FAQ

Can an Employee Be Paid as an Independent Contractor by Another Unit Within the University?

No. University policy does not allow employees to be paid as independent contractors. In certain circumstances, an employee may perform services for the University that are completely unrelated to his or her primary duties as an employee.  However, a current employee cannot be paid as an independent contractor under any circumstances.

What If the Individual Involved Is Not a U.S. Citizen or Legally Permanent Resident?

Individuals who are not U.S. citizens or legally permanent residents ("green card" holders) may be subject to a variety of restrictions on employment, and therefore, the Academic Human Resources and International Scholars Operations offices (for academic personnel) or the International Student Services office (for students) must be contacted prior to proceeding.

Help with Deciding

To better determine how to properly classify a worker, consider these three categories – Behavioral Control, Financial Control and Relationship of the Parties.

Behavioral Control:  A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. Behavioral control categories are:

  • Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services. Receiving the types of instructions in these examples may indicate a worker is an employee.
  • Degree of instruction, more detailed instructions may indicate that the worker is an employee.  Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
  • Evaluation systems to measure the details of how the work is done points to an employee. Evaluation systems measuring just the end result point to either an independent contractor or an employee.
  • Training a worker on how to do the job -- or periodic or on-going training about procedures and methods -- is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.

Financial Control: Does the business have a right to direct or control the financial and business aspects of the worker's job? Consider:

  • Significant investment in the equipment the worker uses in working for someone else.
  • Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees.
  • Opportunity for profit or loss is often an indicator of an independent contractor.
  • Services available to the market. Independent contractors are generally free to seek out business opportunities.
  • Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee.

Relationship: The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:

  • Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
  • Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
  • The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
  • Services provided which are a key activity of the business. The extent to which services performed by the worker are seen as a key aspect of the regular business of the company.

For additional information go to Understanding Employee vs. Contractor Designation- https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation 

 


Policy Administration

Next Review Date

7/1/2024

Responsible Officer

General Counsel

Legal Authority

 

Compliance Policy

No

Revision History

 New Policy July 2019

Reference ID

N/A

Reviewing Bodies

Administrative