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Independent Contractor Policy

Prior to engaging the services of any individual or firm as an independent contractor, the hiring department must contact Human Resource Services to obtain and complete an Independent Contractor Classification Checklist to determine the proper work status of the individual, either as an employee of the University of Richmond or an independent contractor.

Definitions 

Employee: An individual in an employment situation in which the employer has the right to control and direct the individual with regard to the result to be accomplished and the process by which the result is accomplished.

Independent contractors: 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.

Consultants: Independent contractors who more specifically provide professional advice. They usually have a separate skill or expertise not available within the University, and the need for their services commonly does not extend beyond a limited period of time in which to complete a specifically defined project.

Classification Factors 

A worker is an employee, not an independent contractor, if an employer/employee relationship exists. Such a relationship exists if the University has the right to direct and control the worker, both as to the final results and the details of when, where, and how the work is to be done.

The IRS provides 20 common law factors that it takes into account in deciding whether an employer's control over an individual is sufficient to establish an employer/employee relationship. These factors are:

More indicative of employee status:

  • Instructions. A person who is required to comply with instructions as to when and where, or how he/she is to work is generally an employee.
  • Training. If the worker is required to receive training to learn how to do the work, an employment relationship is likely.
  • Integration. The more the worker is integrated into the business operations, the more likely he/she is an employee. The integration of a worker's services into the operation of a department or office, to such an extent that the success or continuation of the operation depends to an appreciable degree on the performance of the service, indicates an employer-employee relationship.
  • Services rendered personally. If the worker provides services that must be rendered personally, this indicates that the worker is an employee. If the University is interested in who does the job as well as in getting the job done, it indicates interest in the methods used as well as the results of the services. This implies an employer-employee relationship.
  • Hiring, supervising and paying assistants. If the worker is responsible for his/her assistants, this is indicative of independent contractor status. If the worker hires, supervises and pays assistants for the University, the indication is that the worker is an employee.
  • Continuing relationship. A continuing relationship together with work that is of a recurring nature suggests employment. If there is a continuing working relationship, the worker is probably an employee, even if the services are performed at irregular intervals, on a part-time basis, or over a short term.
  • Set hours of work. If hours of work are established by the University, this tends to indicate employment.
  • Full time required. An independent contractor has more freedom as to when and for whom he/she will work. If an individual works full-time for the University, the worker would probably be an employee.
  • Doing work on business premises. If this is required, it suggests control by the employer, and therefore an employment relationship.
  • Order and priority of work assignments. The more this is controlled for, instead of by, the worker, the more employment is suggested. If the individual is required to perform the work in a particular sequence, the person would generally be considered an employee.
  • Reporting. The more the worker must report, and the greater the control of those supervising the worker, the higher the probability of employment.
  • Payment by time, not job. Independent contractors are more often paid by the job. If the worker received payments of regular amounts at set intervals, it is likely there is an employer-employee relationship.
  • Payment of traveling expenses. If the University is making payments to the worker for business and/or traveling expenses, the worker would probably be considered an employee.
  • Furnishing tools. Independent contractors more often furnish their own tools and materials. An employer-employee relationship would probably exist if the worker relied on the University to furnish tools, materials and the like.
  • Right to terminate. If the worker can terminate services without liability, this indicates an employment relationship.
More indicative of independent contractor status:
  • Investment. Independent contractors more often invest in facilities that are used in performing services.
  • Realization of profit or loss. A worker who can realize a profit or loss from his/her services is generally an independent contractor. An employee is not normally in such a position.
  • Working for more than one firm at a time. An independent contractor will often perform services for more than one client at a time.
  • Making service available to public. This indicates the worker's status as an independent contractor.
  • Right to discharge. An independent contractor cannot be fired without liability so long as he/she produces a result that meets contract specifications.

Accounts Payable is primarily responsible for payments to non-employees.

Procedure

The hiring department must submit a completed classification checklist to Human Resource Services. After reviewing the information provided, Human Resource Services will notify the hiring department of the determination.

If the individual is considered to be an employee, Human Resource Services will notify the hiring supervisor to follow the regular hiring procedures to place the individual on the University's payroll. Human Resources will facilitate that action.

If the individual is considered to be an independent contractor, Human Resource Services will notify the hiring department to prepare a Check Requisition and forward it to Accounts Payable. The hiring department will include a copy of the Classification Checklist, Contract/Agreement and any other supporting documentation.  Contractors or consultants who require access to confidential or sensitive University systems/data must also sign a Confidentiality and Non-Disclosure Agreement (available from University Counsel.)

It is the University's policy that individuals will be considered independent contractors only if they meet the following conditions:

The individual/business to perform services: Contractor Employee

  1. is engaged in an independently established trade, occupation, profession or business that makes the same services available to other clients and businesses on a regular or consistent basis. YES NO
  2. is not a current employee of the University of Richmond; and was not an employee in the last six months providing a related service. YES NO
  3. is providing services which are not similar to those currently being provided or which can be provided by any University of Richmond employee(s). YES NO
  4. is providing services, which are not performed on a full time, regularly, occurring or continuing basis at the University of Richmond. YES NO
  5. is free from the University of Richmond's control or direction in the performance of the service. The University has the right to control only the outcome, while the individual will be responsible for determining means and methods used to perform services. YES NO
  6. is paid on the basis of a completed project or on a basis consistent with other independent contractors in the same trade, occupation, profession or business. YES NO
  7. will set priorities on the amount of effort and hours of work, to accomplish the required services within a stated time frame. YES NO
  8. is responsible for furnishing the knowledge, space, supplies, equipment and/or tools necessary to perform the service, responsible for covering the expenses associated with the service, and entitled to the resulting profit or loss. YES NO
  9. will receive no training, supervision, or instruction from the University, other than conveying the scope of service desired. YES NO

Although most workers can be properly classified based on the above prerequisites, there are some situations in which all of these conditions are not met, or the correct classification is not readily apparent. In these cases it will be necessary to further review the nature of the arrangement. This review involves evaluating many different aspects of both the worker and the work to be performed, which when taken as a whole, will determine the correct classification of the worker.

The penalties for incorrectly classifying employees as independent contractors are significant. If a worker paid as independent contractor is reclassified by the IRS as an employee, the University will be liable for the amount of the federal income taxes it failed to withhold, together with both the employer's and employee's share of FICA taxes associated with that employee's compensation.

Departments are responsible for making an initial assessment of the employment status of individuals they hire; departments are encouraged to contact Human Resource Services with specific questions prior to finalizing arrangements with the individual. If an employer/employee relationship is found to exist between the worker and the University, the worker must be considered an employee, and payments for services are handled through the payroll system with applicable taxes withheld. If the individual is an independent contractor, payments for services are handled through Accounts Payable on a check requisition form.

Guidelines to Use When Hiring an Independent Contractor

  • Do not establish a work schedule.
  • Do not provide office space or training.
  • Do not furnish tools and materials.
  • Do not require the independent contractor to provide regular verbal or written reports.
  • Payment for the assignment should be based generally on one fee for performing the service rather than by the hours spent on that assignment.
  • The independent contractor may need to provide proof of liability coverage.
  • Incidentals such as travel, meals, and materials should be included in the fee, or should be stated, for example, "as not to exceed ten percent of the fee." Any other arrangements for reimbursement of travel or other expenses must be reviewed in advance with the Purchasing Department and should be specified in the agreement as well; otherwise the University will not be liable for travel expenses.
  • Do not include an independent contractor's name in the University's telephone directory or request the issuance of a regular parking permit.
  • 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 Internal Revenue Service.

The hiring of an independent contractor or consultant should be based upon a selection process that attempts to secure the most qualified individual for the assignment. Compensation should be appropriate for the type of advice or service provided and should reflect the skills and qualifications of the individual selected to perform the service.

In cases where workers do not meet the independent contractor conditions established by the IRS, an employee/employer relationship is presumed to exist, and these individuals must be paid for their services through the University's payroll system. If it is determined that an individual is correctly classified as a non-employee, then the person may be paid through Accounts Payable, provided all of the other documentation requirements are met.

Full-time, salaried employees of the University who may be asked to serve as consultants for other University departments are not entitled to receive additional compensation for performing such services when those extra duties fall within their area of professional expertise. This is true even when the work is conducted during an employee's "own time" or outside of normal business hours. Such assignments are considered part of the job for which the employee is already compensated.

University employees who incorporate, and who in turn provide services to the University that are related to their primary job assignment will not be classified as independent contractors solely because they have incorporated. 

In the case of contractors who perform services funded from a sponsored project account, departments must also comply with any limitations imposed by the sponsoring agency on either the rate that may be paid to consultants or the amount of travel and related expense reimbursement. It is advisable to discuss each situation with the Grants and Contracts Office and to carefully review the sponsor's program literature when preparing a grant proposal or hiring a contractor or consultant.

More Information

More information regarding the classification of independent contractor versus employee can be found at the following IRS websites:

Questions regarding the University's policy should be directed to Human Resource Services.

Contact Payroll

Maryland Hall, Room G-12
Monday-Friday, 8:30 a.m.–5:00 p.m.

payroll@richmond.edu

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