When it becomes necessary to contract for professional services from a source other than an enterprise registered as a corporation, the Institution must comply with Federal and State regulations and guidelines concerning the classification as an individual, employee or independent contractor.

The IRS defines an independent contractor as follows…

People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

If you are an independent contractor, you are self-employed. To find out what your tax obligations are, visit the Self-Employed Tax Center.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Self-Employment Tax.

However, your earnings as an employee may be subject to FICA (Social Security tax and Medicare) and income tax withholding.

For more information on determining whether you are an independent contractor or an employee, refer to the section on Independent Contractors or Employees.

Whether someone providing a service is an employee or an independent contractor is critical. It becomes important for determining benefits and pension eligibility, the worker's compensation coverage, wages and hour laws, unemployment compensation and personal tax liability. Each situation must be analyzed independently as the determination of the status may change with each circumstance.

The Institution Policy, "Contracting for Professional Services" governs the use of an independent contractor at the Institution. Please refer to this Policy and its procedures before processing a requisition for services using an independent contractor. No Purchase Order using an independent contractor will be processed without the appropriate documentation and determination.

Independent Contractor Defined. (n.d.). Retrieved January 14, 2015 from

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Last updated: November 9, 2015