Independent Contractor or Employee BYU Idaho Controllers Meeting May 14, 2009

Independent Contractor Policy Significant legal consequences and penalty assessments may result if an individual who meets the legal definition of an employee is erroneously hired as an independent contractor. Generally most individuals hired by the University are employees. However those that meet certain requirements might be classified as independent contractors.

Independent Contractor Policy Normally the reasons for contracting work out are to achieve something ordinarily not within the usual capabilities of the University’s regular employees. Employees of the university including students are not eligible to be independent contractors of the University.

Independent Contractor Classification Three elements the IRS uses to determine worker classification: Three elements the IRS uses to determine worker classification: 1. Behavioral control 2. Financial control 3. Type of relationship

Behavioral Control Behavioral control Behavioral control Anyone who performs services for you is your employee if you can control what will be done and how it will be done. What matters is that the employer has the right to control the details: Anyone who performs services for you is your employee if you can control what will be done and how it will be done. What matters is that the employer has the right to control the details: When and where to do the work When and where to do the work What tools or equipment to use What tools or equipment to use Where to purchase supplies and services Where to purchase supplies and services If BYU Idaho trains individuals If BYU Idaho trains individuals

Financial Control Financial control Financial control Does the worker have a significant investment in assets or tools? Does the worker have a significant investment in assets or tools? Are there unreimbursed expenses that the worker has to bear themselves? Are there unreimbursed expenses that the worker has to bear themselves? Are the worker’s services available to the public? Are the worker’s services available to the public? Do they get paid only if they finish the job? Do they get paid only if they finish the job? Independent contractors can realize a profit or loss on a job. Independent contractors can realize a profit or loss on a job.

Type of Relationship Relationship of the parties Relationship of the parties Whether the worker gets any type of benefits – vacation and sick pay, pension plan, and health or life insurance. Whether the worker gets any type of benefits – vacation and sick pay, pension plan, and health or life insurance. The permanency of the relationship such as continuing indefinitely or only for a specific project or period. The permanency of the relationship such as continuing indefinitely or only for a specific project or period. Does the worker have his own business, which he markets to others? Does the worker have his own business, which he markets to others?

Test Proctors (Expertise needed) Test Proctors (Expertise needed) Consultants Consultants Sports Officials Sports Officials Dance Judges Dance Judges Trimming Horses (Must have business and use own tools) Trimming Horses (Must have business and use own tools) Guest Speakers and Presenters (non credit) Guest Speakers and Presenters (non credit) Entertainment (short term engagement) Entertainment (short term engagement) Artist Artist Professional Photography (short term engagement) Professional Photography (short term engagement) Student Teacher Supervisors Student Teacher Supervisors Student Teacher Coordinators (other than University employees) Student Teacher Coordinators (other than University employees) Independent Contractors

Employee or Contractor Website to help determine: Website to help determine: The IRS has developed a twenty question test for Independent Contractors to help determine classification as an employee or contractor. The IRS has developed a twenty question test for Independent Contractors to help determine classification as an employee or contractor. If an employee relationship is determined contact Human Resources to proceed. If an employee relationship is determined contact Human Resources to proceed.

Taxable Compensation All payments for services by individuals and business entities represent taxable compensation to the recipient. All payments for services by individuals and business entities represent taxable compensation to the recipient. If an employer-employee relationship exists, the compensation is considered wages and is subject to withholding tax and applicable FICA contributions. Wages are reported on a W-2 If an employer-employee relationship exists, the compensation is considered wages and is subject to withholding tax and applicable FICA contributions. Wages are reported on a W-2 If an independent contractor relationship exists then cumulative annual payments over $ will be reportable to the IRS on a 1099 MISC. If an independent contractor relationship exists then cumulative annual payments over $ will be reportable to the IRS on a 1099 MISC. Reimbursed travel expenses will be included in taxable amount of the 1099 Misc. Reimbursed travel expenses will be included in taxable amount of the 1099 Misc.

Independent Contractor Relationship If the recipient is considered an independent contractor they receive payment by means of an Independent Contractor Payment Request. If the recipient is considered an independent contractor they receive payment by means of an Independent Contractor Payment Request. Independent Contractor Payment Request Independent Contractor Payment Request This needs to be done before the contractor performs the service to allow time for Accounts Payable to review the request. This needs to be done before the contractor performs the service to allow time for Accounts Payable to review the request. All requests for payment to a foreign individual must be reviewed by the Accounts Payable Office for tax treaty issues and withholding requirements. All requests for payment to a foreign individual must be reviewed by the Accounts Payable Office for tax treaty issues and withholding requirements.

Payment Checks will be mailed to the Independent Contractor Checks will be mailed to the Independent Contractor On rare occasions, some vendors may require payment upon completion (day of show) for their services. On rare occasions, some vendors may require payment upon completion (day of show) for their services. When this is the case, the requisitioning department must clearly indicate in the “Description Field” of the request that a payment upon completion is requested and the reason for the request for pick up and who will pickup the check. The department should request the check to be picked up the afternoon before the service or performance. When this is the case, the requisitioning department must clearly indicate in the “Description Field” of the request that a payment upon completion is requested and the reason for the request for pick up and who will pickup the check. The department should request the check to be picked up the afternoon before the service or performance.

Website for Independent Contractor BYU I Home Page Employees Frequent Links Accounting Office BYU I Home Page Employees Frequent Links Accounting Office Under Features select Independent Contractor Under Features select Independent Contractor Under Features select Independent Contractor Under Features select Independent ContractorQuestions