University of Pittsburgh
Purchasing
Standard Operating Procedure:Independent Contractor vs. Employee (Worker Classification) Determination


The purpose of this Standard Operating Procedure (SOP) is to provide departments with an understanding of University policy concerning the employment or contract status of individuals that render professional services to the University.

The University retains people through many different programs and authorities. One area of interest is the distinction between an "employee" and an "independent contractor".  It is important to correctly determine whether an individual is an employee of the University or an independent contractor prior to the beginning of the work in order to handle all subsequent personnel actions including pay, statutory deductions (State and Federal taxes, retirement contributions, and Social Security), benefits eligibility, and compliance with workers' compensation, wage-hour, and other relevant laws. This SOP provides guidance to identify the appropriate employee or independent contractor classification of such individuals.

In general, IRS guidelines provide that an employer/employee relationship exists if the University needs the services of someone and has the right to control and direct both the result of the services and the means by which the result is achieved. It is the extent of the direction and control exercised over the worker that determines whether or not he or she is an employee and that employment taxes should be withheld. Three main categories and patterns of behavior and financial control are typical. These are:

Behavioral Control: Facts which illustrate whether there is a right to direct or control how the worker performs the specific task for which he/she is hired (i.e., providing instructions or training);

Financial Control: Facts which illustrate whether there is a right to direct or control how the business aspects of the worker's activities are conducted (i.e., significant investment, unreimbursed expenses such as rent and utilities, advertising, wages of assistants, licensing, insurance, supplies, etc.);

Relationship of Parties: Facts which illustrate how the parties perceive their relationship (i.e., employee benefits, intent of the parties, written contracts, permanency, discharge/termination, integration into regular business activities).


Applicability: 

This Standard Operating Procedure applies to all employee/ contractor situations, but does not apply to guest speakers, honoraria or *corporations

The department must determine Independent Contractor vs. Employee (Worker Classification) status in advance of making an employment or contracting commitment.  The department must avoid any arrangement (such as designating a true employee as an independent contractor) which has the effect of circumventing or violating University policy, State or Federal personnel policy or law.

For sponsored accounts, documentation of the process of selection of an individual is the responsibility of the principal investigator.  For all other budgets, documentation of the process of selection of an individual is the responsibility of the department head.

Independent Contractor vs. Employee (Worker Classification) Determination Procedure:

Whenever the department requires services to be performed by an individual, the department will:

a) Justify the service as essential and that the selection of an individual is in conformance with University policies and procedures, which are designed to secure the most qualified individual(s) available at compensation that is appropriate both for the advice provided and for the qualification of the individual(s).

b) See “A Quick Guide to Classifying a Worker as an Independent Contractorfor categories of workers that have already been classified in order to expedite your contracting process.

c) Complete the 20-Factor Test to determine whether the supplier (individual) should be classified as an employee.

d) If results of the 20-Factor Test determine that the individual:

i) should be classified as an employee - process an employment contract through the All·Temps Division of Human Resources, or;

ii) should be classified as an independent contractor and the value of the service is less than $5000 - process the University’s Professional Services Agreement (PSA), including a scope of services (SOS). The Purchasing Services Department is available to help with the SOS and the PSA, if necessary. Or

iii) should be classified as an independent contractor and the value of the service is greater than $5,000 - follow University purchasing policies and procedures and contact the Purchasing Services Department at www.bc.pitt.edu/purchasing/inquiries.html.

e) If necessary, ask the Purchasing Services Department for help with questions regarding the 20-Factor Test or to determine the appropriate employee or independent contractor classification of an individual. 

f) The department and/or the Purchasing Services Department may challenge the results of the 20-Factor Test by forwarding all the pertinent information to:

      Mr. Stephen Conwell

      Tax / PCard Analyst

      Payment Processing

      116 Atwood Street

      Pittsburgh, PA 15260

      Office Phone: (412) 624 – 5337

      Email: sconwell@bc.pitt.edu


Limitation on Hiring Former University Employees:

For federal tax compliance reasons, departments may not engage an individual as an independent contractor if he or she has worked as an employee, temporary or permanent, part- or full-time for the University of Pittsburgh – Of the Commonwealth System of Higher Education within the past 12 months (365 calendar days). An exception is made if the services he or she will perform for the University as an independent contractor are substantially different from those services that he or she performed for the University or any other State agency as an employee within the past 12 months. For this purpose, substantially different shall mean that the expertise used and duties performed as an independent contractor may not be related or similar to that which the individual performed as an employee.

Payment Procedures:

When requesting a disbursement for services rendered, the following forms and documentation should be submitted directly to the Payment Processing Department.

Required documents for all individuals, including Permanent Residents and TN VISA holders are:

  • The Disbursement Request;
  • A copy of the PSA;
  • The independent contractor’s IRS Form W-9, Request for Taxpayer Identification Number (US Citizens and Permanent Resident only);
  • The independent contractor’s invoice;  and
  • A copy of 20-Factor Test Conclusion page.

Additional forms that are required for Permanent Residents and TN VISA holders are:

    a) Permanent Residents

        • Form UPP 192, Alien Determination of Residency Form
        • Copy of Permanent Resident or Resident Alien card (green card) or copy of the I-551 Stamp that is printed on the applicant's passport 

    b) TN VISA holders

        • Form UPP 192, Alien Determination of Residency Form;
        • IRS Form W-8BEN-I, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding; and
        • IRS Form 8233, Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual (TN VISA holders claiming tax treaty.

Nonconformance:

In the event that the Payment Processing Department receives a payment request with minor paperwork deficiencies:

a) The Payment Processing Department will deny payment and send a memo that instructs the requestor to submit the necessary paperwork.  The Payment Processing department will pay the invoice upon receipt of the necessary paperwork. The Payment Processing Department will, also, alert the Purchasing Services Department whenever the agreement is valued over $5,000 (or over $100,000 for Delegated Purchasing Units). The Purchasing Services Department will ensure that the requestor follows the Independent Contractor vs. Employee (Worker Classification) Determination procedure.

b) For any agreement that is valued over $5,000 (or over $100,000 for Delegated Purchasing Units) and is not signed by either the Manager of Purchasing Services or a Senior Administrator  (i.e. Chancellor, Provost, Executive Vice Chancellor, Senior Vice Chancellor, Vice

Chancellor) the Payment Processing department will deny payment and forward all paperwork to the Purchasing Services Department.  The Purchasing Services Department will work with the requestor to rectify the nonconformance.

c) For any independent contractor agreement that should have been an employment contract - the Payment Processing Department will deny payment and forward all paperwork to the Purchasing Services Department.   The Purchasing Services Department will work with the requestor to rectify the nonconformance.

* Corporations will have Tax Identification Numbers (TIN) in contrast to individuals who will have Social Security Numbers (SSN).  If necessary, this information can be confirmed by requesting a completed IRS form W-9 from the corporation or individual or by contacting Payment Processing at 412-624-0004 (for corporations or individuals already in the PRISM vendor database).

Questions:

Address all questions about this SOP to the Purchasing Services Department (www.bc.pitt.edu/purchasing/inquiries.html) in the Office of Budget and Controller.

 

Copyright© 2003 - Financial Information Systems
Updated: 07/27/2010

 

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