Independent Contractor and the Press
BILL ACKERMANN, ILLINOIS
A consultant, or independent contractor, is someone who offers professional or expert advice or services for a fixed fee or based on a schedule of charges. An independent contractor is subject to the control of the hiring institution only regarding the results of the work, not how the work is accomplished. Generally the independent contractor is not subject to discipline or discharge under the institution's personnel policies.
That having been said, Pam Wimberly, Director of Administrative Services at the University of California Press, called hiring an independent contractor "walking across a mine field to reach a pot of gold. If you have a map--it’s no problem. Without one--watch out!"
The rules we have to deal with concerning this issue are as varied as the institutions we work for, as the position description the employing agent has in mind, and as the setting in which the work is being done.
The services of independent contractors may be secured to accomplish the objectives of the press when such services are specialized, highly technical, and cannot be economically or satisfactorily performed by a press employee as part of his/her normal duties.
Characteristics of an Independent Contractor. A contractor is someone who offers professional or expert advice or services for a fixed fee or based on a schedule of charges. The contractor is subject to the control of the university/press only regarding the results of the work, not how the work is accomplished. The contractor is not subject to discipline or discharge under university personnel policies.
Classification of Independent Contractor Vs. Employee. The U.S. Internal Revenue Code requires the presence of specific characteristics in the relationship between the employer and the contractor/provider before a contractor relationship can exist. The Internal Revenue Service will penalize an employer in those instances where the employer misclassifies an individual and thereby fails to make the required payroll deductions.
Withholding Requirements. Employers are legally required to pay Federal Insurance Contribution Act (FICA), Federal Unemployment Tax Act (FUTA), and federal/state withholding taxes on the wages of workers classified as employees. If the individual is classified as an independent contractor, the employer is not responsible for employment-related taxes. However, the employer is responsible for reporting non-employee compensation over $600 on form 1099 to the IRS.
Penalties for Misclassification. There are penalties for misclassifying an individual provider. If an individual provider is determined by the IRS to be an employee instead of an independent contractor, the employer is responsible for paying any taxes that should have been withheld but were not, including federal income tax, social security tax (both parties shares), and Medicare taxes, plus interest penalties.
IRS 20 Common Law Factors. The IRS has provided a list of 20 common law factors to assist in determining whether the individual is an employee or an independent contractor. These factors are intended as guidelines, not as strict rules. In fact, the IRS states, "The degree of importance of each factor varies depending on the occupation and the factual context in which the services are performed." The 20 common law factors are printed for reference purposes at the end of this article.
Listed below are four questions that capture the essence of the 20 common law factors and should help clarify the issue:
1. Yes___No___ Does this individual provide essentially the same service as an employee of the university/press?
2. Yes___No___ Has the individual previously been paid as a university employee to perform essentially these same tasks?
3. Yes___No___Does the university/press have a legal right to control how the individual will perform or accomplish the service?
4. Yes___No___ Will the individual supervise or direct press employees as part of the service provided?
If the answer to any of these four questions is YES, then the individual provider in question is considered to be an employee of the university and the press.
Sole Proprietorship. Presses should encourage or require their independent contractors to set up their business as a sole proprietorship with its own tax ID number.
Internal Revenue Service: Twenty Common Law Factors for Determining Employment Status
Independent Contractor vs. Employee
1. Will you instruct the individual (or have the right to instruct) on when, where, and how the work will be done?
An employee must comply with instructions about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to give instructions.
2. Will you train or provide training to the individual on performing services in a particular manner?
An employee is trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchaser of their services.
3. Are the services this individual will be providing a part of the business operations?
An employee’s services are integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.
4. Will the individual be personally performing the services?
An employee renders services personally. This shows that the employer is interested in the methods as well as the results.
5. Will you be hiring, supervising, and paying others to assist the individual?
An employee works for an employer who hires, supervises, and pays assistants. An independent contractor hires, supervises, and pays assistants under a contract that requires him/her to provide materials and labor and to be responsible only for the result.
6. Will this be an ongoing relationship?
An employee has a continuing relationship with an employer. A continuing relationship may exist where work is performed at frequently recurring, although irregular, intervals.
7. Will you be setting the individual’s hours of work?
An employee has set hours of work established by an employer. An independent contractor is the master of his/her own time.
8. Will the individual be working only for you?
An employee normally works full time for an employer. An independent contractor can work when and for whom he/she chooses.
9. Will the individual work on the premises or at a location you designate?
An employee works on the premises of an employer or works on a route or at a location designated by an employer.
10. Will you define the order or sequencing of the work?
An employee must perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.
11. Will the individual be asked or required to submit a report to you describing his/her actions?
An employee submits reports to an employer. This shows that the employee must account to the employer for his/her actions.
12. Will you be paying the individual by the hour, week, or month?
An employee is paid by the hour, week, or month. An independent contractor is paid by the job or on a straight commission.
13. Will you be paying any expenses for the individual?
An employee’s business and travel expenses are paid by an employer. This shows the employee is subject to regulation and control.
14. Will you be furnishing the individual with tools, materials, equipment, etc.?
An employee is furnished with significant tools, materials, and other equipment by an employer.
15. Will the individual have any investment in the facilities he/she will be using?
An independent contractor has a significant investment in the facilities he/she uses in performing services for someone else.
16. Will the individual be able to realize a profit or loss from the work performed?
An independent contractor can make a profit or suffer a loss.
17. Will the individual be working for two or more unrelated persons or firms?
An independent contractor can provide his/her services to two or more unrelated persons or firms at the same time.
18. Does the individual offer his/her services to the general public?
An independent contractor makes his/her services available to the general public.
19. Have you given up your right to fire the individual?
An employee can be fired by an employer. An independent contractor cannot be fired so long as he/she produces a result that meets the specifications of the contract.
20. If the individual quits, will he/she incur a liability for work not completed? An employee can quit his/her job at any time without incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion or is legally obligated to make good for failure to complete it.