WVU - Employee vs. Independent Contractor Determinations
Background and IRS focusThe determination of whether a worker is an employee or an independent contractor (IC) is paramount to WVU’s tax obligation.
If a worker is an employee, WVU must meet the overhead costs of withholding income and FICA/Medicare taxes and match our share of these taxes. In addition, WVU may incur obligations for employee benefits, such as vacation, sick pay, worker’s compensation insurance, health insurance and pension plan contributions.
If a worker is classified as an IC, the worker is responsible for paying the above taxes quarterly. Although not required to withhold federal income tax on IC’s, WVU must report remuneration of $600 or more per calendar year on Form 1099-MISC.
Because a significant economic incentive exists for employers to classify workers as IC’s as opposed to employees, the Internal Revenue Service (IRS) scrutinizes worker classifications for compliance with rules and imposes penalties for misclassifications.
Originally, the IRS relied heavily on the 20 factors identified in Revenue Ruling 87-41 to determine a worker’s status under common law.Recently, however, the IRS has used three categories to assess the degree of control and independence:(1)behavioral control, (2) financial control, and (3) relationship of the parties.
Behavioral ControlIncludes the type of instructions the business gives to the worker, such as when and where to do the work, and the training the business provides to the worker. The key consideration is whether the University has retained the right to control the details of the worker’s performance or has relinquished that right.
Financial controlFactors address WVU’s right to control the business aspects of the worker’s job, such as expenses related to the work.
Relationship of the PartiesMay be evidenced by:
- A written contract
- The permanency of the position and
- The extent to which the services performed is a key aspect of WVU’s business and mission
Independent Contractor (IC) Form (48 Service Agreement):
WVU Tax Services and Procurement, Contracting and Payment Services (PCPS) have designed
a questionnaire with members of the campus community to determine worker classification
status for the University. The form has been designed based on IRS and National
Association of College and Business Officer (NACUBO) guidelines.
This determination is necessary to ensure that the University complies with tax withholding
and reporting requirements outlined by the IRS and other legal provisions governing
payment for services rendered by employees and independent contractors. It also
captures the scope of work that is being proposed and certifies the worker’s Taxpayer
Identification Number for compliance with IRS Form W-9 requirements. WVU will work
with departments within the State to allow this form to meet the State requirements
for vendor registration. At this point in time, the State Vendor registration packet
is still required.
The form has been designed to limit the number of questions needed to be answered,
yet thoroughly document the decision process for determining worker status.
Please contact Tax Services for questions or assistance in completing this questionnaire.
Status of University Employees - a special note:
Faculty and staff normally cannot possess a dual status as an employee and an independent contractor. However, if an employee is providing supplemental services to the University outside his or her area of normal responsibility and meets the criteria of an independent contractor in accordance with this exhibit, exceptions may apply. Contact Tax Services for further evaluation.