|Policy Title||Independent Contractor/Employee Classification Policy|
|Policy Category||Operational Policies|
|Original Policy Approval Date||May 2, 2018|
|Responsible Office||Finance and Administration|
|Related Policies||Contract Review and Approval Policy; Contract Signing Authority Policy|
|Frequency of Review||Three (3) Years|
|Date of Next Review||March 11, 2025|
|Date of Last Review||March 11, 2022|
This Independent Contractor Policy (“Policy”) applies to domestic staff and faculty of the University. The College of Global Studies will comply with local jurisdiction as it relates to independent contractor relationships within the respective country. All international independent contractor requests will be reviewed and finalized through The College of Global Studies. In situations involving current student employees, requests will be evaluated on a case-by-case basis in consultation with the Office of Student Accounts.
II. Policy Statement
Departments often engage the services of individuals who are not Employees of the University, including Independent Contractors, guest lecturers, entertainers, suppliers, and others. It is important to correctly classify Independent Contractors and Employees to ensure that proper compensation methods and tax obligations are satisfied. Improper classification may result in significant penalties to the University. For this reason, the University must approve the Independent Contractor status before services are provided. This Policy sets forth the criteria that define Independent Contractors and the required procedures to correctly classify and pay them.
The purpose of this Policy is to define the criteria to qualify as an Independent Contractor and set forth how Independent Contractors must be paid in order for the University to remain compliant with the state and federal Departments of Labor and the Internal Revenue Service (IRS) and other regulatory agencies.
Employees are not considered Independent Contractors. Employees are hired through Human Resources and are paid through the Payroll function. In special situations, a current University Employee or student may provide a service outside the scope of their normal position responsibilities. In these cases, even though the work is considered independent, the Employee should still be paid through Payroll with a stipend and not be issued a 1099. If an employer-employee relationship exists (regardless of what the relationship is called) the worker must be classified as an Employee and not an Independent Contractor and must be paid through the University’s payroll system.
IV. Independent Contractor Classification
Independent Contractors are responsible for reporting all income earned and for paying applicable federal, state, city, and self-employment taxes. The University may withhold federal, state, or local income taxes if applicable, in compliance with published regulations. In Pennsylvania, a worker is considered to be an Employee unless proven otherwise.
Independent Contractors are individuals, partnerships, and limited liability companies who render a service and meet certain behavioral, financial, and relationship factors as established by IRS criteria. People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, speakers, performers, photographers, or auctioneers who are in an independent trade, business, or profession in which they offer 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. A party is not an Independent Contractor if that party performs services that can be controlled by an employer (what will be done and how it will be done). This applies even if the party is given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
An Independent Contractor is a party who meets most of the following criteria:
- The party has been and will continue to be free from control or direction over the performance of the services involved both under the contract of service and in fact;
- As to such services, the individual is customarily engaged in an independently established trade, occupation, profession, or business (offers similar services to the general public);
- Renders a service to the University for a specified payment amount for a specified result;
- Provides a service outside of the University’s usual course of business;
- Is not currently paid through University Payroll and has not been paid through Payroll within the current calendar year; and
- Provides services through a written contract (such as, the University’s Independent Contractor Agreement (and corresponding Addendum) or another University-approved form of agreement, e.g. Guest Lecturer Agreement).
V. Independent Contractor Classification Questionnaire
A. The Independent Contractor Classification Questionnaire is a tool that can assist when considering whether a service provider should be classified as an Employee or Independent Contractor. The information provided will assist the University in determining whether an individual performing services will be classified as an Employee of the University or as an Independent Contractor for state and federal tax purposes. Prior to engaging the services of a provider, the hiring party must truthfully complete the Independent Contractor Classification Questionnaire and return it to the Office of Human Resources for a proper determination of the work status of the provider two (2) weeks prior to entering into a contract. The Office of General Counsel will not review contracts with independent contractors unless the Independent Contractor Classification Questionnaire is attached to the contract and is approved by Human Resources.
- If the Independent Contractor Classification Questionnaire indicates that the service provider is an Independent Contractor, the Independent Contractor Agreement and Addendum should be used, however, the Office of General Counsel will entertain the use of the service providers contract form, if necessary and appropriate.
- If the Independent Contractor Classification Questionnaire indicates that the service provider is an Independent Contractor but the service provided is a one-time service or offered one-time per year, the condensed Guest Lecturer Agreement may be used instead of the Independent Contractor Agreement. Any department that has obtained prior approval for use of the Guest Lecturer Agreement from either the Office of the General Counsel or Human Resources, to cover a larger group of individuals hired to perform the same or similar responsibilities (i.e. – the College of Health Sciences hiring of independent contractors in bulk to perform lectures), does not have to fill out the Independent Contractor Classification Form. However, the supervisor of the department together with Human Resources must review the classification annually to ensure that the work duties or responsibilities of the independent contractors remains the same.* Note: For Guest Lecturer Agreements only – approval of the Office of General Counsel is not needed if there are no changes made to the Guest Lecturer Agreement form but the Office must be copied when the contract is sent to Accounts Payable. If changes are requested or if the service provider’s contract form is to be used instead, the document must be sent to the Office of General Counsel for review and will follow the timing procedures set forth in the Contract Review and Approval Policy and related Procedures.
- Below is a list of common examples of Independent Contractor services that qualify as Limited Engagements:
A. Academic guest speaker, artist, or special lecturer
B. Non-recurring seminar and workshop leaders
- If the Independent Contractor Classification Questionnaire indicates the service provider should be treated as an Employee, the Human Resources Department shall follow the regular hiring procedures to place the individual on the University’s Payroll. If a determination could not be made, please contact the Office of Human Resources for assistance.
- Once completed, the Independent Contractor Questionnaire and resulting classification for a particular party shall remain in effect indefinitely unless or until the work duties or responsibilities of that party change whereupon another Independent Contractor Questionnaire will need to be submitted for review.
B. An Honorarium is a gratuitous or nominal payment of money or other thing of value to a person for the person’s participation in a “usual academic activity” for which no fee is legally required, and the person expects no payment. An Honorarium is provided as a token of appreciation for participation in an activity or event, and not as a contractual obligation to pay for services rendered. An Honorarium is usually a one-time payment made to an individual (not a corporation, business, or partnership) who is an Independent Contractor and not an Employee of the University, for a special and non-recurring activity or event. A “usual academic activity” means activity conducted for the benefit of the institution and includes lecturing, teaching, consulting, conducting research, attending meetings, symposia or seminars, or otherwise sharing knowledge.
Prior to engaging the services of any individual and/or prior to paying an individual with an Honorarium, the Arcadia University Independent Contractor Classification Questionnaire must be completed and returned to the Office of Human Resources for a determination.
VI. Violation of this Policy
Violation of this Policy or failure to timely cooperate in complying with its provisions by any individuals who contract for services on behalf of the University may result in disciplinary action up to and including dismissal.
VII. Effective Date
This Policy is effective on the date that it is signed by the President
VIII. Date of Approval
May 2, 2018