Payroll Information
Payment for Personal Services to
Employees and Independent Contractors/Consultants
General Information
(updated 6/09/2005)

• Introduction

  A department can pay an individual who performs personal services for Pittsburg State University through either the payroll process or the department purchase request (DPR) process. The correct process to use depends on whether the individual to be paid is an employee or an independent contractor/consultant. An employee must be paid through the payroll process. An independent contractor/consultant may be paid through the DPR process.

  The purpose of this information is to provide departments with guidelines to use to first determine whether an individual who provides personal services for PSU is an employee or an independent contractor/consultant. Depending on the results of this initial determination, payment procedures for the following situations are outlined:

  1. Payment to a PSU Employee - Generally
  2. Payment to a PSU Employee for Extra Duty
  3. Payment to a PSU Employee for Services Provided to Another Regents Institution
  4. Payment to an Employee from Another Regents Institution for Services Provided to PSU
  5. Payment to an Independent Contractor/Consultant - Generally
  6. Payment to an Independent Contractor/Consultant (Nonresident Alien)
     
     
  Employee or Independent Contractor/Consultant
  Departments must first determine whether an individual who provides personal services to PSU is an employee or an independent contractor/consultant. The Internal Revenue Service (IRS) has identified 20 factors that are used as guidelines to determine the individual's correct status. These factors have been incorporated in the "Employee or Independent Contractor/Consultant Worksheet" that is found on the back of the PSU Consultant Agreement. If the completed worksheet indicates that the individual is an employee, the department should follow the appropriate payment procedure for employees. If the completed worksheet indicates that the individual is an independent contractor/consultant, the payment procedure to follow depends on whether the individual is a U.S. citizen, resident alien or nonresident alien.

  The difference between an employee and an independent contractor/consultant is primarily the degree of control that PSU has over the services performed by the individual. Generally, an individual who performs services subject to the will and control of PSU, as to both what must be done and how it must be done, is an employee. It does not matter that PSU allows the employee discretion and freedom of action, as long as the university has the legal right to control both the method and the result of the service. When an individual is subject to the control of PSU, an employer-employee relationship is created and the individual must be paid through the payroll process.

  On the other hand, an individual is an independent contractor/consultant if PSU has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Examples of independent contractors include lawyers, contractors, subcontractors, auctioneers, etc. who follow an independent trade, business, or profession in which they offer their services to the general public.An employer-employee relationship is not created if the individual is an independent contractor/consultant. Independent contractors/consultants may be paid through the DPR process.

  The following factors may indicate an individual is an employee:

  • The individual is the primary instructor of record for a course offered by PSU (credit or non-credit).
  • The pay rate is not unusually high or low for the services performed.
  • The pay rate is set by the university.
  • A continuing relationship exists between PSU and the individual.
  • The services are performed in regularly scheduled classes over a period of time.

  The following factors may indicate an individual is an independent contractor/consultant:

  • The individual is a guest lecturer who is not the instructor of record.
  • The pay for the service is unusually high (indicating an expert) or unusually low (indicating a token appreciation).
  • PSU competes for the services of the provider and pays his or her rate of pay.
  • The individual's business is conducting workshops at many different universities and campuses.

  Departments should contact HRS for assistance in determining the correct status of an individual who provides personal services for PSU, if needed.

  If In Doubt . . .

  If it is questionable whether an individual is an independent contractor/consultant, the department should pay the individual as an employee through the payroll process. The IRS will not impose penalties if an independent contractor/consultant is paid through payroll. On the other hand, the IRS can impose severe penalties if the employer-employee relationship exists but the individual has not been paid as an employee.

  If an employee is classified as an independent contractor/consultant without a reasonable basis for doing so, the employer can be held liable for employment taxes for the worker. If the employer does not withhold income, social security, and Medicare taxes from his or her wages, the employer may be liable for a penalty equal to taxes that should have been paid.

  Sources

  IRS Publication 515 - Withholding of Tax on Nonresident Aliens and Foreign Corporations
  IRS Publication 519 - U.S. Tax Guide for Aliens
  IRS Publication 901 - U.S. Tax Treaties
  Revenue Procedures 2002-52
  Form W-7 Obtaining an ITIN
  Instructions for form 1042-S
  

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  Who to Contact

  Lauren Werner x. 4096