All Harvard University schools, tubs, local units, Affiliate Institutions, Allied Institutions and University-wide Initiatives.

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1 HARVARD UNIVERSITY FINANCIAL POLICY INDEPENDENT CONTRACTOR CLASSIFICATION Plicy Title: Independent Cntractr Respnsible Office: ERP and UFS Effective Date: Octber 4, 2000 Revisin Date: May 12, 2009 Plicy Number: TAX101 IMPORTANT NOTE ON EFFECTIVE DATE This plicy shuld be fllwed as written, effective immediately, with the fllwing exceptin: the Emplyee/Independent Cntractr Questinnaire (Appendix A) signature requirement will g int effect July 1, This will allw time fr units t receive training n the plicy, and allw units t change related business prcesses if necessary. POLICY STATEMENT A wrker prviding services t the University must be prperly classified as either an emplyee r an independent cntractr. If a wrker is classified as an independent cntractr, all supprting dcumentatin referenced in this plicy must be cmpleted and signed befre services are rendered. REASON FOR POLICY Federal and state law gvern when an emplyee-emplyer relatinship exists in the wrkplace. Emplyers wh fail t fllw these guidelines, and misclassify emplyees as independent cntractrs, are subject t significant penalties under the law. This plicy exists t ensure that Harvard cnsistently and fairly classifies its wrkers, and cmplies with state and federal guidelines. WHO MUST COMPLY All Harvard University schls, tubs, lcal units, Affiliate Institutins, Allied Institutins and University-wide Initiatives. RESPONSIBILITIES Tubs: Tub financial deans r equivalent tub financial fficers, and tub HR deans r directrs, are respnsible fr ensuring that lcal units abide by this plicy and the accmpanying prcedures. Tub HR deans r designees, AND authrized service cntract apprvers (per the Recmmended Minimum University Threshld fr Review f Service Cntracts dcument, at must sign the Emplyee/Independent Cntractr Questinnaire (Appendix A f this plicy) befre cntractrs can be set up as vendrs fr payment. Emplyee Relatins and Plicy (ERP): ERP, within the Harvard Human Resurces, is respnsible fr maintaining the University s Independent Cntractr plicy, in cnjunctin with University Financial Services. Specifically, ERP is respnsible fr cmmunicating this plicy t tub HR deans r directrs, and fr assisting tubs in making prper wrker-classificatin determinatins based n infrmatin prvided by the tubs. University Financial Services (UFS): UFS, within the Office f the Cntrller, is respnsible fr maintaining the University s Independent Cntractr plicy, in cnjunctin with Emplyee Relatins and Plicy. Specifically, UFS is respnsible fr cmmunicating this plicy t tub financial deans. UFS is als respnsible fr setting up and paying vendrs, and fr Frm 1099 reprting. RELATED POLICIES Stewardship Respnsibility: University-wide Business Expense Plicy: HARVARD UNIVERSITY FINANCIAL POLICY Page 1 f 5

2 Plicy Title: Independent Cntractr Respnsible Office: ERP and UFS Effective Date: Octber 4, 2000 Revisin Date: May 12, 2009 Plicy Number: TAX101 RELATED DOCUMENTS Recmmended Minimum University Threshld fr Review f Service Cntracts: Dcumentatin Retentin Prcedures fr Cmmn Financial Transactins: IRS Internal Training Manual: Independent Cntractr r Emplyee?: Advisry n the Massachusetts Independent Cntractr/Misclassificatin Law: PROCEDURES Clarificatin n Plicy Applicatin: This plicy des nt apply when Harvard is cntracting with a third-party cmpany t btain temprary persnnel services fr the University. This plicy des apply when Harvard is cntracting with a guest speaker receiving an hnrarium fr a ne-time speaking engagement. In that event, hwever, the cntracting Harvard department need nt cmplete the Emplyee/Independent Cntractr Questinnaire, and shuld substitute the Mdel Speaker Release Frm (Paid) (available n the OGC s Mdel Dcuments page, at fr a cntract r a mdel cnsulting agreement. Fr questins abut the classificatin f a particular guest speaker, finance ffices shuld cntact Emplyee Relatins and Plicy. This plicy des apply t individuals wh are themselves incrprated, and wh are prviding services t the University, just as it applies t nn-incrprated individuals prviding services t the University. In certain circumstances, a department may want t retain the services f a frmer emplyee, such as a retiree, due t that persn s institutinal knwledge r ther factrs. Departments retaining frmer emplyees t prvide services t the University must fllw this plicy and its prcedures, regardless f wrk lcatin r estimated number f hurs t be wrked. Dcumentatin: The fllwing dcumentatin is required: Signed Emplyee/Independent Cntractr Questinnaire (Appendix A), including the evaluatin sectin. The Questinnaire must be signed by a tub HR dean r designee, AND an authrized service cntract apprver (per the Recmmended Minimum University Threshld fr Review f Service Cntracts dcument, at Nte: The Office f the General Cunsel (OGC) and Emplyee Relatins and Plicy (ERP) are available t help interpret Questinnaire results. Signed cntract and/r Shrt Frm Mdel Cnsulting Agreement (available n the OGC s Mdel Dcuments page, at Nte: All payments must be prcessed accrding t University plicy and prcedures. See Independent Cntractr Prcessing Payments (Appendix B). Dcumentatin must be cmpleted and signed befre services are rendered. Cmpleted dcuments will be required befre cntractrs can be set up as vendrs fr payment. Lcal units are respnsible fr maintaining apprpriate dcumentatin t supprt the classificatin and nature f wrk f the independent cntractr. HARVARD UNIVERSITY FINANCIAL POLICY Page 2 f 5

3 Plicy Title: Independent Cntractr Respnsible Office: ERP and UFS Effective Date: Octber 4, 2000 Revisin Date: May 12, 2009 Plicy Number: TAX101 PROCEDURES, cntinued Recrd Retentin: The fllwing are standards fr recrd retentin f dcuments related t this plicy: Emplyee/Independent Cntractr Questinnaire: 6 years frm date f questinnaire Signed cntract: 6 years frm date f cmpletin f cntract Invice: riginal invices will be imaged and maintained centrally in AP. See Dcumentatin Retentin Prcedures fr Cmmn Financial Transactins at Cntracts: Written cntracts state the relatinship and utline the expectatins f bth Harvard and the cntractr. They dcument the terms and cnditins by which independent cntractrs are hired. Lcal units are respnsible fr ensuring cntracts with independent cntractrs are reasnable and d nt subject the University t unnecessary risk. A structure must be established lcally t ensure that nly authrized emplyees enter int cntractual agreements n behalf f the University. Cntracts must be carefully reviewed t ensure terms are reasnable, including services t be perfrmed, deliverables, term, and payments. OGC is available t help financial administratrs review cntractual terms. OGC has develped a standard cnsulting agreement, called the Shrt Frm Mdel Cnsulting Agreement (available n the OGC s Mdel Dcuments page, at Backgrund: In the past, the cmmn law standard was the primary guideline used t determine wrker status. Under the cmmn law standard, an emplyer-emplyee relatinship exists when the business has the right t direct and cntrl the wrker wh perfrms a service. Cntrl refers nt nly t the result t be accmplished by the wrk, but als the means and details by which that result is t be accmplished. The emplyer des nt have t actually direct r cntrl the manner in which the services are perfrmed; having the right t d s is sufficient. Over the years, the IRS has litigated several wrker status cases in the Tax Curts. The Tax Curts have used several factrs in reaching their decisins. The IRS cmpiled 20 f the mst cmmn factrs used and published them in Revenue Ruling This has becme knwn as the Twenty Factr Test. The Twenty Factr Test has been difficult t apply in practice because each factr varies in imprtance depending n the industry and the facts f each case. In 1996, the IRS develped a training manual fr its agents in an attempt t identify, simplify, and clarify the relevant facts that shuld be evaluated in rder t accurately determine wrker classificatin. The training manual establishes three categries f factrs: Behaviral Cntrl - facts that illustrate whether there is a right fr the business t direct and cntrl hw the wrker perfrms a specific task. Financial Cntrl - facts that illustrate whether there is a right t direct r cntrl hw the business aspects f a wrker s activities are cnducted. Relatinship f the Business and Wrker - facts that illustrate hw the parties perceive their relatinship. In additin, the IRS training manual (see IRS web site at indicates which f the 20 factrs have becme mre r less imprtant ver time in classifying wrkers, and adds three additinal factrs that shuld be cnsidered. See Appendix A fr Emplyee/Independent Cntractr Questinnaire. Mre recently, the IRS prmulgated a new Frm 8919, which invites certain categries f wrkers wh believe they shuld have been treated as emplyees, rather than independent cntractrs, t seek t reclassify the relatinship as an emplyment arrangement. The HARVARD UNIVERSITY FINANCIAL POLICY Page 3 f 5

4 Plicy Title: Independent Cntractr Respnsible Office: ERP and UFS Effective Date: Octber 4, 2000 Revisin Date: May 12, 2009 Plicy Number: TAX101 PROCEDURES, cntinued frm (which can be fund at asks the persn filing t identify the entity fr which he r she prvided services, and t specify the reasns the persn believes he r she has been misclassified. Included amng thse reasns are cmmn situatins that shuld clearly result in an emplyee classificatin (described in Appendix A, Part I). It is therefre even mre imperative that care be taken in crrectly classifying emplyees. Finally, the Massachusetts Independent Cntractr Law creates a presumptin that a wrk arrangement is an emplyeremplyee relatinship unless the party receiving the services can vercme the legal presumptin f emplyment by establishing that three factrs are present: 1. The wrker must be free frm the presumed emplyer s cntrl and directin in perfrming the service, bth under a cntract and in fact; 2. The service prvided by the wrker must be utside the emplyer s usual curse f business; and 3. The wrker must be custmarily engaged in an independent trade, ccupatin, prfessin, r business f the same type. Criteria relating t the abve factrs will be cnsidered the mst critical in making a determinatin. In 2008 the Massachusetts Attrney General s ffice issued an Advisry n the Massachusetts Independent Cntractr Law. In rder fr an individual t be prperly classified as an independent cntractr, the Advisry indicated that the fllwing factrs must be present: There must be a written cntract specifying that the wrker is free frm the cmpany s directin and cntrl in perfrming the service, The wrker must carry ut activities and duties with minimal instructin, fr example, cmpleting the jb using his/her wn apprach with little directin and with the freedm t set the hurs when the wrk will be perfrmed and; The service is incidental, rather than necessary, t the business f the hiring cmpany. 1 Restricted fund spending: Expenses charged t restricted gift r endwment funds must be in accrdance with the restrictins stipulated by the dnrs f thse funds. FORMS Vendr Justificatin Frm: OGC Mdel Dcuments page: CONTACTS AND SUBJECT MATTER EXPERTS Lcal tub finance and human resurce ffices. Tub finance ffices may cntact the University Financial Services manager assigned t their tub, the Office f the General Cunsel (http://www.gc.harvard.edu/cntact.php), r tub Human Resurces Officers. Tub human resurce ffices may cntact Emplyee Relatins and Plicy ( , r r the Office f the General Cunsel (http://www.gc.harvard.edu/cntact.php). 1 The advisry gives the fllwing example: a cmpany in the business f cnducting mtr vehicle appraisals culd nt classify an individual appraiser as an independent cntractr because the appraiser is perfrming an essential part f the appraisal cmpany s business. HARVARD UNIVERSITY FINANCIAL POLICY Page 4 f 5

5 Plicy Title: Independent Cntractr Respnsible Office: ERP and UFS Effective Date: Octber 4, 2000 Revisin Date: May 12, 2009 Plicy Number: TAX101 CONTACTS AND SUBJECT MATTER EXPERTS, cntinued Key subject matter experts wh prvided input in the develpment f this plicy were the Financial Managers Frum and managers thrughut Financial Administratin. DEFINITIONS The terms Cntractr and Cnsultant are used interchangeably in this plicy and all its appendices. Fr clarificatin f the terms Affiliate Institutins and Allied Institutins, used in the Wh Must Cmply sectin f this plicy, please see the Harvard University Fact Bk, available frm the Office f the Prvst website, at APPENDICES Appendix A Emplyee/Independent Cntractr Questinnaire Appendix B Independent Cntractr - Prcessing Payments Appendix C Summary f Differences: Emplyee vs. Independent Cntractr HARVARD UNIVERSITY FINANCIAL POLICY Page 5 f 5

6 Appendix A Emplyee/Independent Cntractr Questinnaire Part I 1. (a) Was this wrker previusly treated as an emplyee by Harvard? Yes (Prceed t questin 1(b) f this Part) N (Prceed t questin 2 f this Part) (b) Is this wrker perfrming services in a substantially similar capacity AND under substantially similar directin and cntrl? Yes Stp here and classify the wrker as an emplyee N (Prceed t questin 2 f this Part) 2. Are cwrkers, perfrming substantially similar services AND under substantially similar directin and cntrl, treated as emplyees? Yes Stp here and classify the wrker as an emplyee N (Prceed t Part II) Part II Cmmn Law Factrs Yes N Characteristics that Lead t Emplyee BEHAVIORAL CONTROL 1. Will the wrker be trained by Harvard? 2. Is the wrker instructed abut when, where and hw wrk is t be dne? 3. Will the wrker have cntrl ver hiring and supervising assistants? 4. Will the wrker perfrm the services persnally? 5. Will the wrker be required t prvide regular prgress reprts? 6. Will the wrker perfrm the services in a prescribed sequence? 7. Will the wrker devte a set amunt f time t perfrming services fr Harvard? Trained by Harvard Cmplies with department s wrk instructins Cannt hire assistants t perfrm their wrk Renders services persnally Regular prgress reprts may be required Must fllw prescribed sequence Required t wrk a set number f hurs Characteristics that Lead t Independent Cntractr Respnsible fr wn training Determines when, where and hw wrk is perfrmed May hire assistants t perfrm their wrk and pay ut f cntract prceeds May use wn emplyees r subcntractrs Prgress reprts required nly if part f cntract agreement Sets wn pattern r sequence Required t cmplete the cntracted services withut regard t the amunt f time

7 Cmmn Law Factrs Yes N Characteristics that Lead t Emplyee 8. Will Harvard supply the wrker with any tls r materials? 9. Des the wrker have set hurs? 10. Will the wrker perfrm services n Harvard s campus? FINANCIAL CONTROL 11. Culd the wrker realize a prfit r lss as a result f the wrk t be perfrmed? 12. Des the wrker have a significant investment in tls r ther types f instruments? 13. Des the wrker make his r her services available t the general public? 14. Des the wrker perfrm his r her services fr mre than ne business? 15. Is the wrker paid by the hur, week, mnth r assignment? 16. Will the wrker be reimbursed by Harvard fr business expenses? RELATIONSHIP OF THE BUSINESS AND WORKER 17. Will the wrker s services be integrated int Harvard s educatinal r ther activities? 18. Is there a written cntract that sets frth the terms and cnditins f the services? Tls and materials supplied by Harvard Hurs specified by Harvard Prvides services n campus Cannt realize prfit r lss N investment in wrk facilities Services are nt ffered t the general public Wrks fr nly ne business at a time Paid n a cnsistent and regular basis Reimbursed fr business expenses Services are fully integrated int Harvard s business N cntract Characteristics that Lead t Independent Cntractr Prvides wn tls and materials Sets wn hurs May chse where t perfrm wrk Can realize a prfit r lss Significant investment in wrk facilities Advertises services t the general public (e.g., business cards, phne bk listing) May wrk fr several businesses at the same time Paid based n wrk assigned in accrdance with cntract Pays wn business expenses Services are nt fully integrated int Harvard s business Cntract exists

8 Cmmn Law Factrs Yes N Characteristics that Lead t Emplyee 19. Des the wrker earn emplyee benefits frm Harvard (e.g., vacatin/sick days, health/life/disability insurance, pensin plan eligibility)? 20. Is the wrker incrprated? 21. Des the wrker have a cntinuing relatinship with Harvard? 22. Can the wrker be terminated at Harvard s discretin? 23. Can the wrker end his r her relatinship with Harvard at any time? Earns Harvard emplyee benefits Nt incrprated Onging relatinship Generally emplyed at will, may be terminated at Harvard s discretin May quit jb withut bligatin Characteristics that Lead t Independent Cntractr Des nt earn Harvard emplyee benefits Incrprated Temprary relatinship Generally terminated nly fr material breach f cntract Cannt quit until jb is cmpleted Prir t engaging the wrker, hiring administratrs shuld make a determinatin f whether the wrker is an emplyee r independent cntractr based n the answers t the preceding questins. Administratrs shuld cnsider the answers t all f the questins in making this determinatin. If the answers indicate the University has the right t direct and cntrl the wrker, the individual shuld be classified as an emplyee. OGC and Emplyee Relatins and Plicy are available t prvide assistance where the determinatin is nt clear. Evaluatin: Must be signed by tub HR dean r designee, AND authrized service cntract apprver (per the Recmmended Minimum University Threshld fr Review f Service Cntracts dcument at, HR dean r designee signature (required): Based n the abve, it is my determinatin that the individual prviding the desired service shuld be mst prperly classified as an (check ne): Emplyee Independent Cntractr Include any cmments/ratinale regarding the classificatin decisin: Signature: Schl r Department: Title: Date: Authrized service cntract apprver signature (required): I acknwledge that the University may hld my unit financially respnsible fr any additinal taxes, interest, and penalties that may be assessed due t misclassificatin. Signature: Schl r Department: Title: Date:

9 Appendix B Independent Cntractr - Prcessing Payments 1. Payment prcedures fr Independent Cntractrs Independent Cntractr prviding services t Harvard signs a cntract, r a Shrt Frm Mdel Cnsulting Agreement (available n the OGC s Mdel Dcuments page, at fr the Harvard department that has retained its services. Independent Cntractr prviding services t Harvard submits an itemized invice t the department that has retained its services. Invices must include prfessinal fees and billable expenses related t the services perfrmed, such as travel. Independent Cntactr retains riginal receipts fr expenses, and prvides cpies f such receipts t Harvard upn request. It is the respnsibility f the Independent Cntractr t reprt and deduct travel and ther expenses when they file their persnal tax returns. Independent Cntractrs are required t reprt t the IRS all incme frm services t Harvard, even if less than $600. Nte: Thugh Independent Cntractrs may prefer t be separately reimbursed fr expenses, it is standard industry practice t cmbine prfessinal fees and reimbursable expenses in ne invice. Cmbining fees and expenses simplifies and expedites the payment prcess. 2. Payment prcedures fr Harvard lcal units hiring Independent Cntractrs Prir t entering int an agreement, lcal unit cmpletes an Emplyee/Independent Cntractr Questinnaire (Appendix A), justifying Independent Cntractr status. The Questinnaire must be signed by an HR dean r designee AND an authrized service cntract apprver (per the Recmmended Minimum University Threshld fr Review f Service Cntracts dcument, at and retained lcally by the department (nt submitted with supprting dcumentatin t Accunts Payable). Lcal unit signs a cntract, r a Shrt Frm Mdel Cnsulting Agreement (available n the OGC s Mdel Dcuments page, at prir t engaging the services f an Independent Cntractr. This riginal cntract, r Cnsulting Agreement, must be retained lcally by the department, and nt submitted with supprting dcumentatin t Accunts Payable. Lcal unit reviews Independent Cntractr invice(s) fr apprpriateness. Lcal units are encuraged t request cpies f all receipts t ensure that expenses are cnsistent with the cntract agreement. Cpies f these receipts shuld nt be frwarded t Accunts Payable, but may be retained by the lcal unit. Lcal unit prcesses payment thrugh Web Vucher. Payment by Web Vucher is the nly acceptable methd f paying Independent Cntractrs; Harvard emplyees shuld nt pay fr such services ut f pcket, r by using a Harvard crprate card r PCard. Lcal units shuld cde Web Vucher payments t the apprpriate prfessinal services bject cde. Lcal units must submit riginal invices, regardless f amunt, t Accunts Payable, supprting the Web Vucher payment request. Lcal units shuld refer t the main Independent Cntractr plicy fr infrmatin n recrd retentin and cntract requirements.

10 Appendix C Summary f Differences: Emplyee vs. Independent Cntractr Emplyee* Independent Cntractr Relatinship With Emplyer Emplyer directs and cntrls the wrker Emplyer des nt direct and cntrl the wrker Payment Methd Payrll System Web Vucher Withhld Federal Incme Tax? Withhld FICA? Benefits Eligible? Reprting Yes Yes Yes Frm W-2 N** N** N Frm 1099 * Treatment f student emplyees may differ. Refer questins t University Financial Services. ** Independent cntractrs are respnsible fr filing estimated federal incme tax payments n a quarterly basis, including FICA taxes at the current rate.

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