ROWAN UNIVERSITY POLICY  

Title: Independent Contractors
Subject: Accounts Payable
Policy No: FIN: 2016:01
Applies: University-Wide
Issuing Authority: President
Responsible Officer: Senior Vice President for Finance and CFO
Adopted: 04/01/2006
Last Revision: 10/31/2006
Last Reviewed: 10/31/2016

I.  PURPOSE

This policy defines the criteria to qualify as an Independent Contractor, and sets out how Independent Contractors must be paid in order for the University to remain compliant with the State and Federal Departments of Labor, the Internal Revenue Service (IRS) and other regulatory agencies.

II.  ACCOUNTABILITY

At the direction of the President, the Senior Vice President for Finance and CFO shall implement this policy and the Executive Vice President, Senior Vice Presidents, Vice Presidents, Deans, Directors, Department Managers and Supervisors shall ensure compliance with this policy.

III.  APPLICABILITY

This policy applies to all Rowan University departments (Academic and Administrative) who wish to engage the services of an independent contractor who is not an employee of the University; those who opt to engage the services of an independent contractor must remain within the outlined margins of this policy.

IV.  DEFINITIONS

1. Employee - a worker who is hired through Human Resources or the Office of the Provost, and paid under a W-2.

2. Independent Contractor - an individual or firm engaged in an established business, trade or profession who provides services to Rowan University and is be paid using a Form 1099. An independent contractor is not an employee of the University; it is a worker who: (a) is engaged in an independently established profession or business (b) provides a service outside of the University's usual course of business; and (c) is free from the University's control or direction when providing services. The criteria for determining whether or not a worker is an independent contractor is discussed in the policy section below.

V.  REFERENCES

1. IRS Regulations - Independent Contractor Defined
2. IRS Regulations - U.S. Tax Withholding on Payments to Foreign Persons
3. IRS Publication 15 A – 2016 Employer's Tax Guide
4. Rowan University, Human Resources Department - Recruitment and Staffing
5. State of New Jersey, Department of Labor - Employee or Independent Contractor

VI.  POLICY

1. The University recognizes that departments often request 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 distinguish the differences between an independent contractor and an employee to ensure appropriate compensation method and tax obligation.
 
2. Payments to Independent Contractors are processed through Accounts Payable, as such an independent contractor is not an employee of the University and is treated differently with respect to tax withholdings, employee benefits, and payment methods. Rowan employees are not considered Independent Contractors. Rowan employees are hired through Human Resources or the Office of the Provost, and paid through the Payroll Department. This policy strictly prohibits University employees from controlling and directing contractors about the services they are providing. The contractors are to work utilizing their own methods, and the means by which the work is accomplished is not controlled by the employer.
 
3. An Independent Contractor is an individual who meets all of the following criteria:
   • Renders a service to the University for a specified payment amount for a specified result;
   • Is engaged in an independently established profession or business (those who offer similar services to the general public on a consistent basis);
   • Provides a service outside of the University's usual course of business;
   • Is not currently paid through University's Payroll and has not been paid through Payroll within the current calendar year;
   • Provides services through a written contract (namely, the University's Independent Contractor Agreement or another University-approved form of agreement, e.g. Speaker Agreement)
   • Is free from University control or direction when providing services.
   • Have clearly delineated mutually agreed upon dates of service and/or agreed up service schedule for a set fee.
    
4. As a general rule, an individual can be hired as an independent contractor only if all three of the following requirements are met:
   • Minimal Direction: the worker is free from the employer's control or direction in the performance of their work.
   • Established Business or Trade: the worker is normally engaged in an independently established business or trade, which derives income from a number of clients including the University.
   • Expertise: the work requires professional knowledge or professional expertise that is not generally available at the University.
    
5. How to identify and engage an Independent Contractor (IC):
   1. The following procedure is a brief summary of substantial component of this policy, and includes all the steps a manager must take in order to properly identify and engage an Independent Contractor. At any time during this process, the manager should consult with the Office of Human Resources if they need help determining whether or not to hire the service provider as an Independent Contractor or as an Employee.
      1. The manager sends a Service Provider Questionnaire and W9 to the potential service provider to complete and return with supporting documentation.
      2. The manager then completes the Independent Contractor Determination Checklist using the information provided in the Service Provider Questionnaire.
      3. After completing the Independent Contractor Checklist, if the form still indicates the service provider is an Independent Contractor, the manager may enter a requisition in Banner.
      4. Forward copies of the Service Provider Questionnaire and Independent Contractor Checklist along with requisition number to the Office of Contracting and Procurement.
      5. On the other hand, if the form indicates the provider should be treated as an Employee, or if a determination could not be made, the manager should contact the Office of Human Resources for further assistance.
   2. The Service Provider Questionnaire and Profile and Independent ContractorIndependent Contractor Determination Checklist are tools that can help you make these determinations. This guidance pertains to the hiring of an individual performing a service in the United States.
   3. In special situations, a current University employee or student may provide a service outside the scope of their normal position responsibilities. In these cases, the employee should still be paid through Payroll using one of the following two forms:
      • Special Assignment Contract (Salary Voucher)
      • Adjunct Contract
    
6. The Criteria for Identifying Independent Contractors
   1. United States Federal and State law requires the University to properly classify its workers as either Employees or Independent Contractors. This policy and the accompanying checklist identify the steps, documents, and processes necessary to ensure proper classification of Independent Contractors.
    
7. Paying Foreign Nationals and International Parties as Independent Contractors
   1. To ensure compliance with IRS regulations, prior to engaging a foreign national for services, the University must analyze the foreign party's eligibility to work in the U.S. as well as their residency status for tax purposes. We encourage you to review the IRS website on "U.S. Tax Withholding on Payments to Foreign Persons" to help plan engagements.

VII.  ATTACHMENTS

1. Attachment 1 – Individual Responsibilities and Procedures for Classifying Independent Contractor Agreement
2. Attachment 2 – Hire & Pay an Independent Contractor- Step by Step Summary

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ATTACHMENT 1
INDIVIDUAL RESPONSIBILITIES ANDPROCEDURES
FOR CLASSIFYINGINDEPENDENT CONTRACTOR AGREEMENT

______________________________________________________________________________________________________________________________________________________________________
 
ATTACHMENT 2
HIRE & PAY AN INDEPENDENT CONTRACTOR
STEP BY STEP SUMMARY

1. Hiring Manager sends a Service Provider Questionnaire (SPQ) and W9 to the potential service provider to complete and return with supporting documentation.

1. Hiring Manager completes the Independent Contractor Determination (ICD) Checklist based on information received and collected from the Service Provider Questionnaire (SPQ).
     
2. If the service provider qualifies as an independent contractor, the Hiring Manager sends an Independent Contractor Agreement (ICA) or other approved form of agreement to the service provider for completion.
     
3. On the other hand, if the form indicates the provider should be treated as an employee, or if a determination could not be made, the manager should contact the Office of Human Resources for assistance.
     
4. Hiring Manager creates a requisition in Banner, and scans attachment of the SPQ, ICD Checklist, ICA, and W-9/W-8 to requisitions@rowan.edu.
     
5. Independent contractor performs service and sends invoice or ICA to Accounts Payable.
     
6. Hiring Manager receives authorization request through Banner and authorizes payment.