Special Processing Requirements
When your requisition and Independent Contractor information are received, they will be reviewed to determine whether it appears to describe a Contract for external services by an Independent Contractor, or more closely resembles a request for employee-type payroll services.
The IRS, in order to ensure the collection of all employer required taxes (i.e. employer matching social security and medicare; unemployment taxes; worker’s compensation; and general withholdings) and to ensure that individuals are not taken advantage of by being hired as independent contractors without benefits, as opposed to as employees with benefits, has developed several factors to determine whether an individual may be hired as an Independent Contractor or should be hired as an employee. Substantial fines and criminal penalties exist to penalize hiring entities who classify individuals as Independent Contractors when they are actually de facto employees. It is, therefore, important to be sure that the correct classification is made.
In order for an individual to be compensated as an independent contractor, the following four criteria must all be met:
CLASSIFICATION CRITERIA (Not Applicable for a Business with an Assigned Federal Employer I.D. #)
- WHOI does not control or direct the performance of the task; i.e., the individual is and will continue to be free to use whatever means he or she deems appropriate to accomplish the task.
- The task or service being performed is outside the regular expertise, duties, and/or consulting independence of existing WHOI employees.
- The task is of short duration and is not indicative of an ongoing relationship (contractual relationships that are longer than 30 days, with very few exceptions, indicate that an employee/employer relationship rather than an independent contractor relationship exists)and
- A written agreement exists with WHOI that spells out the task or service(s) to be performed.
In accordance with the IRS guidelines implemented by WHOI, in order to qualify as a bona-fide Independent Contractor Contract, the services to be obtained must meet the following criteria:
- The person must have a history of offering and performing similar services for the general public (other organizations), and being paid for such work as an Independent Contractor (not as an employee).
- The person must not have an appointment, be a student at WHOI and must NOT be a current employee of WHOI in any capacity.
- Undergraduate and graduate students should not be paid as independent contractors for part time employment.
- If the person is a former employee or student, the person must meet the general requirements for classification as an Independent Contractor and may not return to perform the same work performed while associated with WHOI.
- The person should possess knowledge and special abilities not generally available within WHOI and the services to be provided should not be comparable to those performed by other employees of WHOI.
- The person should not supervise or be directly supervised by WHOI employees. (i.e. controlling how or when the work is done; collaborating is not supervising)
- The person should generally not be assigned office space or require administrative services provided by WHOI.
The services to be provided should be project-driven, generally provided on an intermittent basis as required or over a short term. With few exceptions, individuals providing services on a steady, full time or near full time basis for an extended period are considered employees by the IRS notwithstanding any consulting contract which may be in effect.
With the exception of #1 and #2 above, failure to satisfy one or more of the criteria does not necessarily mandate a negative determination. The final decision is based upon an overall weighing of these and other pertinent factors.
1. The vendors included on the following list will not typically be required to fill out Independent Contractor paperwork because of the minimal risk to the Institute that individuals engaging in activities in these fields on a LIMITED basis would be determined by the IRS to be employees:
referees, umpires, musicians, singers, dancers, D.J.’s, painters, sculptors, comedians, clowns, and other similar entertainers doing work on a limited basis.
2. Foreign citizens doing work entirely in a foreign country will not be required to sub WHOI Independent Contractor paperwork because there are no United States tax implications.
3. As indicated above, the Independent Contractor laws are not applicable to companies with assigned Employer Identification Numbers, therefore, no Independent Contractor paperwork is required in these instances.
Independent Contractors must be reapproved every year to ensure that they are still truly functioning as an independent contractor and not as an employee. Therefore, completed and updated Independent Contractor paperwork must be submitted every two years.
PROCEDURE (All of the following should be completed PRIOR to the start of the Contractor’s work)
1. Obtain a Proposal (letter) from the Independent Contractor which provides a complete description of the services to be provided, description of deliverables, the period of performance, the agreed-upon Costs /Pay Rate, and an estimate of the Total Cost of services.
2. Obtain: the following
A) a letter from the Independent Contractor which provides evidence that he/she regularly offers the requested services to the general public (i.e., a listing of other clients and dates worked) and a statement that he/she was “paid for such work as an ‘Independent Contractor’ [not as an employee]” *; and
B) a copy of the Independent Contractor’s current résumé.
* If the Independent Contractor has not previously offered his/her services to the general public, obtain a letter from the Independent Contractor stating that it is his/her intention to offer these services to the general public.
* Note: Every year the Independent Contractor must be re-evaluated for Independent Contractor status.
3. Provide a “Classification Checklist A”, must be completed by the requisitioner or the department contact (not the Independent Contractor). This form is available on the Procurement website.
4. Provide a “Justification for Single/Sole and Urgent Purchaces” form if the work is for over $10,000. This form is also available on the Procurement website.
5. If the Independent Contractor’s proposal does not clearly and thoroughly explain the statement of work and deliverables please provide a “Contractor Exhibit A (S.O.W.) form. This form is also available on the Procurement website.
Independent Contractor Defined. (n.d.). Retrieved January 14, 2015 from http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Defined
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Last updated: February 11, 2020