JULIE CAMP, DIRECTOR, PAYROLL

JENNIFER COLLINS, MANAGER, ACCOUNTS PAYABLE

Employee vs. Independent Contractor

What is an Independent Contractor?

An independent contractor is a person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal and physical agreement.

USG Definition: An individual who performs services for the institution where the institution has the right to specify the result to be accomplished by the work, but not the means and methods by which the result is to be accomplished.

In the United States, any company, or organization engaged in a trade or business that pays $600 or more to an independent contractor in one year is required to report this to the Internal Revenue Service using Form 1099-MISC. This form is a report of monies paid to independent contractors. Independent contractors do not have income taxes withheld from their pay as regular employees do.

What is an Employee?

USG: An individual who performs personal services for the institution where the institution has the right to control and direct the individual who performs the services, not only as the result to be accomplished, but also as to the details and means by which that result is to be accomplished. It is not necessary that the institution actually direct or control the manner in which the services are performed; it is sufficient to establish an employee-employer relationship that the institution has the right to do so.

Consequences

Misclassifying workers as independent contractors can cause substantial tax issues as well as penalties for failing to pay employment taxes and failing to file required tax forms.

Actual Cases

From Keep Up To Date on Accounts Payable: A California based company was charged with misclassifying a group of its employees as independent contractors. The end result was $11 million in penalties. This company had employees and independent contractors handling many of the same tasks. The court found that the company didn’t do enough to clearly distinguish between the two positions.

Also from Keep Up To Date On Accounts Payable: A task force in New York found 20,200 instances of workers treated as

IC’s, representing more than $282.5 million in unreported wages. In Connecticut a 12-month audit reclassified 3,487 workers and

uncovered $68.2 million in unreported wages. Massachusetts identified 5,491 misclassified workers, carrying a $46

million dollar price tag of unreported wages.

Internal Revenue Service

In September 2009, IRS announced its intention to conduct an employment tax National Research Program beginning in 2010. Employment tax audits focusing on worker classifications. Penalties can be severe. UGA could be liable for employment

taxes, interest, penalties, and retroactive benefits. Penalties may also be imposed for failure to file required tax forms.

According to the December 20, 2010 edition of The Chronicle of Higher Education, the IRS stated that it is increasing its scrutiny of colleges. Included in this increased attention is the issue of employment taxes and whether or not these taxes are being deducted from all eligible employees.

The IRS has brought this up for numerous years and called it a point of emphasis.

IRS Characteristics

Three characteristics viewed by IRS: Behavioral Control-Whether or not UGA has a right to

direct or control how the work is done through instructions, training, or other means.

Financial Control- Whether or not UGA has a right to direct or control the financial and business aspect of the worker’s job.

Type of Relationship-How the workers and business owner perceive their relationship.

UGA Interpretation

UGA is conservative in approach to the issue. The final cost and potential negative publicity can be significant. The IRS has emphasized this topic for years.

If the individual has been on payroll before (not a specific time period) and is doing any type of work that exhibits characteristics of the previous employee/employer relationship, he/she should be paid through payroll.

Teaching is an employee function (we will discuss the difference between a guest lecturer and teaching in an upcoming slide.)

If the individual was on payroll immediately before or after the event that you wish to pay him/her as an independent contractor, he/she will need to be paid as an employee.

Transactions must comply with the State’s Conflict of Interest law and the University’s policy.

Conflict of Interest

Policy: http://www.policies.uga.edu/FA/nodes/view/1018

With some exceptions, it is unlawful for any employee of UGA to transact business with UGA. The term “transact business” includes the sale or lease of any personal property, real property or services, or the purchase of any surplus real or personal property.

Single transaction limits of $250 or less where the aggregate of all payments during the calendar year does not exceed $9000.

An employee that violates the conflict of interest statue is subject to being removed from employment, fined an amount not to exceed $10,000, and required to reimburse the state for funds received because of the violation.

If Making Payment to a Current UGA employee (part or full-time)

If the payment is $250 or under and is not related to their current employee/employer relationship with UGA, the payment can be processed through Accounts Payable.

If the payment is over $250, regardless of whether or not the services being performed are related to the current employee/employer relationship with UGA, the payment must be processed through Payroll.

Teaching vs. Guest Lecturer

If the individual is presenting information covered in a UGA course syllabus, it is teaching.

If the individual is the primary instructor in a department course being offered for academic credit towards a university degree, it is teaching and should be paid through Payroll.

If the individual is the primary instructor in a non-credit adult continuing education course offered by UGA, it is teaching.

If the individual presents multiple times at a specified time, then the individual should be treated as an employee.

Typically, guest lecturers are individuals who possess an advanced knowledge of a particular subject area, and who speak about that subject area to a group or organization with which he/she is normally not involved. The purpose of the arrangement is generally to enrich a course through the inclusion of relevant, specialized knowledge which that course’s normal lecturer does not possess.

True guest lecturers can be paid through Accounts Payable as an independent contractor.

Examples

Examples 1 & 2

Example 1: A graduate assistant on payroll in Chemistry plays the violin at a Terry College reception. The graduate assistant is to receive a fee for services rendered in the amount of $325.

This individual should be paid through Payroll for this event since the payment amount is greater than the $250 Conflict of Interest policy limitation.

Example 2: A graduate assistant in the School of Music plays the violin at a Terry College reception.

This individual should be paid via Payroll regardless of the dollar amount. Since the individual is an employee for the School of Music and the activity is related to music, the IRS would likely view this as relating to the individual’s employment with UGA.

Examples 3 & 4

Example 3: An individual gives a presentation in Genetics. He was employed by UGA previously as a research assistant in Genetics.

This individual should be paid through Payroll.

Example 4: A lecturer who was previously employed by UGA in the History department returned to briefly help with a project in History.

This individual should be paid through Payroll.

Examples 5 & 6

Example 5: An individual is engaged to perform services during Summer 2013 for Terry College. The department in Terry intends to hire this person as a faculty member in the Fall of 2013.

This person must be paid through Payroll for the Summer 2013 services.

Example 6: A faculty member here at UGA serves as the Editor for a journal and utilizes the services of an Assistant Editor who lives in California. The Assistant works independently editing articles sent to her electronically. She sets her own hours, works from home, and provides similar services for other clients.

This person should be paid through Accounts Payable as an independent contractor.

Exercises

The School of Music has an Education Program Specialist that is going to serve as a performer in the School of Music’s opera production of Magic Flute. The individual will be paid $300.00 for services.

This individual should be paid through Payroll. He/she is currently active on Payroll and the services being performing are related to the employee/employer relationship. In addition, the fee for services rendered exceeds the $250 Conflict of Interest threshold.

Exercises

An individual will be paid $500 for services rendered during research sample collection. The individual is also currently active on Payroll as a Student Assistant in the Oglethorpe Dining Hall.

This payment should be made through Payroll. Even though the services being performed aren’t related to the employee/employer relationship, the fee amount exceeds the $250 Conflict of Interest policy limitation.

Exercises

Genetics sends through a check request for $200 to pay an individual for collecting 3 kudzu samples while in China. The individual is on payroll as a student worker for the library.

This payment should be processed through Accounts Payable as there is no relationship between the services being paid for on the check request and the services that the individual provides as an employee for UGA. The amount is also less than the State’s Conflict of Interest individual transaction amount of $250.

Making payments via Payroll

HR requirementso Contact HR liaison to determine if position needs to be posted. o If posting is not required, a hiring proposal and background

check for non-posted positions must be submitted.o HR will contact Budgets if the posting has been waived.

Submit personnel with non-benefit statuso If a set fee has been negotiated, the payment should be made on

the monthly payroll.o If the employee is being paid an hourly rate, he should be set up

in the Kronos MyTime system and paid on the hourly payroll.o Employee must be paid in accordance with the Fair Labor

Standards Act.o If posting has been waived, enter note in remarks section of

personnel.

Making Payments via Accounts Payable

Complete Honoraria form found at http://www.busfin.uga.edu/forms/f210.pdf

Log into the Electronic Check Request System at https://webapps.ais.uga.edu/PCFA/index.jsp

Complete the check request information, upload Honoraria form as a digital attachment.

Submit the request for approval.

Retired Individuals

UGA policy at http://www.policies.uga.edu/FA/nodes/view/1182/Employment-Beyond-Retirement

UGA retirees and their hiring units are responsible for understanding BOR Policy 8.2.8.3-Employment Beyond Retirement. http://www.usg.edu/hr/manual/employment_beyond_retirement/m%26

Requests must be approved by the President prior to employment of the retiree.

TRS Retirees: UGA cannot enter into an agreement with any employee prior to his/her last day of employment.

http://www.busfin.uga.edu/forms/uga_usg_retirees.pdf

Questions to Consider:

Does this individual currently work for UGA as an employee? Will UGA hire this individual immediately following the termination of his/her

services as an independent contractor? During the 12 months prior to the date on which the services commenced, was

the individual on UGA payroll? Will the individual perform work using University facilities? Will the individual perform research for a University faculty member under an

arrangement whereby the UGA faculty member serves in a supervisory capacity? Will the individual serve in an advisory or consulting capacity under a UGA faculty

member or director in a “collaboration between equals” type arrangement? Does the individual routinely provide the same or similar services outside of UGA

to the general public as part of a continuing trade or business? Will the department provide the individual with specific instructions regarding the

performance of the required work rather than rely on the individuals expertise and/or provide significant supplies and equipment for the worker?

Does the individual engage in entrepreneurial activities in an established business at risk for loss?

Does the individual have his/her own insurance for work related injuries?

Conclusion

If you are not sure how the individual should be classified, contact Accounts Payable or Payroll! It is easier for us to discuss these situations with you up front than to notify you after you’ve submitted a check request that can’t be paid.

Julie Camp (jcamp@uga.edu)Jennifer Collins (jfinch@uga.edu)