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Employee vs. Contractor
Employee vs. Contractor
Determining whether a department should hire an employee or an independent contractor can be challenging. A department might be facing budget constraints that would make hiring someone as an independent contractor easier than hiring that same person as an employee. However, these decisions should not be based on budgetary, or other constraints. There are important tax and non-tax consequences to both the University and the individual for misclassification of a worker. If a worker has been misclassified, the Internal Revenue Service can reclassify the individual and the reclassfication could result in the department being liable for taxes, and any associated penalties and interest. To prevent this, the Internal Revenue Service (IRS) has provided clear guidance in determining how to classify an individual.
The University expects that departments will adhere to the Guidelines on determining whether an individual should be hired as an employee or as an independent contractor. An individual must be properly characterized before a contract is signed and before payment is made.
Responsibility for Initial Determination of the Classification
Departments are responsible for the initial classification of an individual as an employee or an independent contractor. There are three degrees of control that must be considered in making the determination.
Does the BU control or have the right to control what the individual does and how the individual does his or her job?
Are the business aspects of the individual's job controlled by the BU? (These include things like how the individual is paid, whether expenses are reimbursed, who provides tools/supplies, etc.).
Type of Relationship:
Is there a written contract? Is the individual being provided employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? For example, the BU is an institution of higher education whose core mission is education. An individual who is teaching a course would more likely be considered an employee because the work is a key aspect of the BU's mission.
Departments should weigh all of these factors when determining whether an individual should be classified as an employee or independent contractor. Some factors may indicate that the individual is an employee, while other factors indicate that the individual is an independent contractor. The determination does not fall on a single nor a set number of factors. Rather, the key is to look at the entire relationship, consider all factors, and make the determination based on the degree of overall control.
To assist to making the determination, complete the Employee Versus Independent Contractor Form. If it is determined that the individual should be classified as an employee, the individual should be placed on and paid through the University Payroll system.