50.12 - Processing Non-Employee Compensation
Last updated: August 22, 2005
A. General. This section describes the procedures for processing payments to persons who are not employees for services rendered or expenses incurred. [See APM 50.11 for instructions in processing additional compensation for employees.]
B. Process. If payment is for services and the individual to be paid is not an employee, no withholdings are deducted for taxes or social security. Payments to non-employees for services, and payments for expenses to employees and non-employees, are subject to different IRS regulations and are reported differently by UI to the IRS. To ensure compliance with federal law it is, therefore, necessary for timekeepers to confirm the status of the person being paid (by applying criteria based on IRS requirements) and--if the individual qualifies as an employee--to enter the individual in Banner HRIS as an employee. It is also necessary for the timekeeper to confirm the type of payment (e.g. for services or as an expense).
C. Criteria. The following 20 factors, identified by the IRS, are guides to assist departmental administrators and timekeepers in the determination of employee or independent contractor status. No single factor conclusively identifies a worker as an employee or as an independent contractor. Contact Accounts Payable at (208) 885-3641 for additional assistance.
C-1. Instructions. A person who is required to comply with instructions about when, where and how the work is to be done is ordinarily an employee. Although some employees may work unsupervised, the control factor is present if the employer has the right to instruct.
C-2. Training. Training of one worker by another worker, or by correspondence, or by requiring attendance at meetings indicates that the employer wants the services performed in a particular manner. Independent contractors normally use their own resources and do not receive training from their clients.
C-3. Integration. When the success or continuation of a business depends significantly upon the performance of certain services, the person who performs those services is subject to a certain amount of control by the owner of the business, and therefore is classified as an employee.
C-4. Services Rendered Personally. Requiring that the services be rendered personally indicates that the employer is interested not only in getting a desired result, but also in who does the job. If an individual does not have the right to hire his own substitute without the employer's knowledge, control by the employer is indicated and employee status is probable.
C-5. Hiring, Supervision and Payment. Hiring, supervision and payment of workers by an employer generally shows control over a job.
C-6. Continuing Relationship. A continuing relationship between an individual and the person for whom the services are performed usually indicates an employer-employee relationship. Continuing services may include work performed at frequent intervals, either on demand of the employer or when work is available.
C-7. Set Hours of Work. Employer-established hours of work indicates control. Independent contractors have the right to schedule their own time.
C-8. Full-time Work Required. If the workers must devote all of their time to the business of the employer, they are restricted from doing other work. Independent contractors are free to work when and for whom they choose.
C-9. Performing Work on Employer's Premises. Working on the employer's premises implies that the employer has control, especially if the work could be done elsewhere. Even if work is performed off the premises, this does not guarantee that the worker is not an employee. There is control when the employer has the right to direct a person to travel a designated route, to canvas a territory, to service individuals in a specified area or to work at specified places at certain times.
C-10. Work Order or Sequence Set. Employees are not free to follow their own pattern of work. They must perform the services in the order set by the employer. Often the employer either does not set the order of the services or sets it infrequently, however, it is sufficient to show control if the employer retains the right to do so.
C-11. Oral or Written Reports. Requiring oral or written reports indicates control in that workers are compelled to account for their actions. However, this criterion is not definitive because the writing of a report may be one of the elements of contracted services.
C-12. Payment by Hour, Week or Month. Workers receiving payment by the hour, week or month is indicative of an employer-employee relationship. Independent contractors are paid by the job or a straight commission.
C-13. Significant Investment. If the worker relies on the employer to provide facilities that are not generally maintained by employees, an employer-employee relationship exists. Independent contractors generally invest their own money in maintaining their own facilities.
C-14. Payment of Business/Travel Expenses. Paying or reimbursing a worker for business or travel expenses is indicative of the existence of an employer-employee relationship.
C-15. Furnishing Tools/Materials. If the employer furnished tools, materials and other equipment to perform a job, an employer-employee relationship usually exists.
C-16. Right to Discharge. An employer exercises control over employees through the rights to discharge. Independent contractors cannot be fired as long as they meet their contractual obligations.
C-17. Right to Terminate. An employee has the right to end a relationship with an employer at any time without incurring liability for personal services. An independent contractor agrees to complete a specific job and is responsible for its satisfactory completion or is legally obligated to make good for failure to complete the job.
C-18. Realization of Profit or Loss. Workers who can realize a profit or suffer a loss as a result of their services are generally independent contractors. Workers who cannot are employees. Profit or loss implies the use of capital by a person in an independent business.
C-19. Working for More Than One Firm at a Time. Workers who perform services for a number of individuals or firms at the same time are usually independent contractors.
C-20. Making Services Available to General Public. Workers who make their services available to the general public (i.e., by advertising) are generally independent contractors.
D. Procedure. First determine the status of the person to be paid (e.g. whether or not the individual to be paid is an independent contractor or an employee). Then determine whether the payment is for services or for expenses.
D-1. Status of Person to be Paid. An independent contractor is an individual over whom the University has the right to control or direct only the result of the work, and not the means and methods of accomplishing the result. Review the Guidelines for Determining Employment Relationships [See 50.12 (C)], and/or contact Accounts Payable at (208) 885-3641 for guidance in determining whether the individual to be paid qualifies as an independent contractor.
i) Individual Qualifies as an Independent Contractor. If the individual qualifies as an independent contractor, the timekeeper initiates a claim voucher [See APM 75.31] and submits it to Accounts Payable. At the end of the calendar year, independent contractors will be issued IRS 1099 forms by the University of Idaho and a copy of the 1099 will be provided by the University to the Internal Revenue Service, documenting that the payment was made. [ed. 7-07]
ii) Individual Does Not Qualify as an Independent Contractor. If the individual does not qualify as an independent contractor, he or she must be paid as an employee.
a) If the individual does not appear in Banner as an employee, the timekeeper (or departmental administrator who authorized the individual to perform the services) should instruct the individual to visit Employment Services in Human Resources to present I-9 documentation.
b) HR will enter information in Banner for the individual, allowing an Electronic Personnel Action (EPAF) form to be initiated by the department for whom the individual is working.
c) To initiate payment, the departmental timekeeper initiates an EPAF. Consult your HRIS EPAF documentation for the appropriate category and numbers to use.
d) Complete Form PHAHOUR. The timekeeper completes the form PHAHOUR to record time worked. Refer to your HRIS time and leave documentation for the appropriate codes.
D-2. Reimbursement for Expenses Incurred on Behalf of the University or Other Non-Wage Expenses. If the individual is entitled to reimbursement for expenses incurred on behalf of the University or other non-wage expenses such as royalties, proceed as follows.
i) Initiate a Claim Voucher. Initiate a claim voucher and submit to Accounts Payable.
ii) Payment. Accounts payable will issue the expense check to the individual. Because the timekeeper has verified status as an employee or contractor, information on employee status exists in Banner HRIS. Routine processing will differentiate whether the payment is being made to an employee or a contractor, enabling information on recipients of reimbursement for expenses to be correctly reported to the IRS at year end.
E. Information. Contact Employment Services at (208) 885-3613 or 885-3728 for questions regarding processing of payments for services to employees. Contact Accounts Payable at (208) 885-3641 for questions regarding processing of Claim Vouchers or for assistance in determining whether an individual is an employee or an independent contractor.