Independent Contractors Employee/Worker or True Independent Contractor??? Proper Classification Duck Theory Looks like a Duck, Walks like a Duck, It must be a Duck Document Procedures
Independent Contractor????? Scenarios: #1 Department wants to hire individual(s) to serve as model(s) for art/design classes. Wanting to be paid hourly on an as needed basis. No specialized training is required and this is not the individual(s) full-time job. #2 Department wants to hire instructors for a summer academy. The instructors are not currently UCO employees, but may teach for another school district or have specialized training in their particular area of expertise.
References Internal Revenue Service (IRS) The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means or methods of accomplishing the result. Example: Hiring a Clown (Winterglow) Oklahoma Department of Labor (ODOL) Regulations require that UCO have no right to exercise direction or control over the work performed by an individual for that person to be considered an independent contractor. Fair Labor Standards Act The courts have established that an independent contractor is anyone who passes the economic reality test. This test states that the focal point in deciding whether an individual is economically dependent on the business to which he/she renders service or is, as a matter of economic fact, in business for him/herself.
Misclassification Liabilities / Penalties IRS ignores contract labels, but instead provides: Penalties for misclassification of individual providing services to UCO. If an individual is determined by the IRS to be an employee instead of an independent contractor, UCO may be held liable for the individual s employment taxes, penalties and interest assessed for not withholding income and employment tax. In addition, the IRS may assess a separate misclassification penalty. Liabilities for failure to pay appropriate wages and overtime may be assessed under the Fair Labor Standards Act. Liabilities under the State s Workers Compensation System.
Independent Contractor Characteristics Self-Employed in independently established trade, occupation, profession or business Free from employer s control Can be paid more than employees Can take increased business deductions Not protected by employment, labor, or tax withholding laws No employer-provided benefits Must pay self-employment taxes
Independent Contractor Classification How to Determine Classification A careful evaluation must be made when classifying an individual as an independent contractor rather than a temporary/seasonal employee or temporary worker. Independent contractor - an individual who is responsible to the University for the results of certain work but is not subject to the University s controls to the means and methods of accomplishing those results. Traditionally some examples of independent contractors are: entertainment performers, guest speakers, officials for athletic events and consultants. An erroneous classification of an individual as an independent contractor when in fact the person is a temporary employee or temporary worker could result in legal action being initiated by the Internal Revenue Service for failure to withhold taxes, and the Department of Labor for possible violation of wage and hour laws. In questionable situations, it is best to classify the individual as a temporary employee.
Independent Contractor Classification If you determine the individual to be an independent contractor, a completed Service Agreement contract form must be completed in entirety to include the contractor s signature. This contract must be submitted with the department s requisition, to purchasing department. Attach any supporting information that helps classify individual as an independent contractor. Documents will be reviewed by the purchasing department. If deemed necessary documents will be sent to the *compliance review committee for further review. If it is determined that the worker is not an independent contractor the requesting department will be contacted by a member of the compliance review committee to discuss a different means of payment. *Compliance review committee made up of staff members from Legal Office, Purchasing and Employment Services Departments, and Assistant VP s from both Administration & Finance. If individual is determined not to be an independent contractor, refer to: Hiring Temporary Workers procedures, located on Employment Services website. Contracted Temporary Staffing Agencies located on Purchasing website. Advantage Staffing Labor Ready
Document: Service Agreement Procedures: Service Agreement The noted contracts require five business days to process UCO execution of authority. These days are in addition to the four day processing for purchase orders. 1. Contract Agreement: Department acquiring services from individual classified as an independent contractor must complete the UCO service agreement for individuals and ask independent contractor to sign, ensuring individual s acknowledgement of UCO s Standard Terms & Conditions by initialing No.4a of service agreement. 2. Encumbrance of Funds: Submit contract service agreement with requisition (see check request form for exceptions to using check request in lieu of a requisition) to the Purchasing Department through front desk with date/timeclock stamp with a minimum of 9 business days prior to the independent contractor services being performed. (Fiscal year-end exceptions to processing requisition due to budget year-end do not lend an exception to processing contract service agreement). 3. Payment: Contractor must submit to department acquiring services a formal business invoice or complete and sign a UCO OSF Form 3. Department must sign off on payment document (invoice or UCO OSF Form 3) and verify services have been completed according to contract agreement. Department is to submit authorized payment document to Payment Services department for processing. Check will be mailed via US Postal Service within 14 business days of date/time-clock stamp on payment document. Additional information Independent contractor services exceeding $10,000 We consider the complexity more intense and for this reason will require legal review
Specialized Contract Agreements for Entertainment Performers and Guest Speakers The noted contracts require five business days to process UCO execution of authority. These days are in addition to the four day processing for purchase orders. Documents: Standard Form Entertainment Contract Contract for Guest Speaker Procedures: 1. Contract Agreement: If the independent contractor does not have their own contract, the department acquiring services must complete the UCO contract form and ask contractor to read and sign contract. 2. Encumbrance of Funds: Submit contact agreement with requisition (see check request form for exceptions to using check request in lieu of a requisition) to the Purchasing Department through front desk with date/time-clock stamp with a minimum of 9 business days prior to the independent contractor service being performed. (Fiscal year-end exceptions to processing requisition due to budget year do not lend an exception to processing contract agreement.) 3. Contract will serve as the payment document and will be processed according to payment terms of contract for a one-time payment.
Independent Contractors Quick Reference Guide Anyone hired to perform services at UCO on a short term basis, one (1) month or less should be considered a temporary worker, utilizing Advantage Staffing or Labor Ready. Anyone hired to perform services at UCO on a long term basis, more than one (1) month, should be considered a part-time temporary employee and go on UCO payroll. True Independent contractors are the exception, not the rule. Independent contractors will have other customers outside of UCO.
Independent Contractor Documents: Speaker Contract Entertainment Contract Services Agreement Procedures: Hiring Temporary Workers Processing Contracts and Payment
Independent Contractor Documents and Procedures
Scenarios: Independent Contractor #1 Department wants to hire individual(s) to serve as model(s) for art/design classes. Wanting to be paid hourly on an as needed basis. No specialized training is required and this is not the individual(s) full-time job. Identified as a temporary worker, utilizing Advantage Staffing, as they do not have other clients and are paid on an hourly basis only as needed throughout the semester. #2 Department wants to hire instructors for a summer academy. The instructors are not currently UCO employees, but may teach for another school district or have specialized training in their particular area of expertise. Identified as part-time temporary employee, sending through UCO Payroll department, as instructors are essentially performing the same function as current UCO employees.