The crucial question is whether the proposed vendor is truly an “independent contractor." If he/she is not an independent contractor, payment for services through Payroll Services may be more appropriate.
Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties imposed by the Internal Revenue Service (IRS) for failing to pay employment taxes and failing to file required tax forms. Therefore, it is important to be sure that the correct classification is made before you make a promise to pay on behalf of the University of Iowa.
Please complete the Independent Contractor Information Form (pdf) before any service is provided. Your payment request and independent contractor information will be reviewed by Payroll to determine if the situation describes services by an independent contractor or more closely resembles a request for employee-type services.
Three characteristics are used by the IRS to determine the relationship between businesses and workers: behavioral control, financial control, and the type of relationship. IRS Publication 1779 (pdf) explains these three categories. Guided by these three characteristics and by University of Iowa policies and procedures, in order to qualify as an independent contractor, the service provider must meet the following criteria:
- The person should possess knowledge and special abilities not generally available within the UI, and the services to be provided should not be comparable to those performed by other employees of the university. (The person’s services should not be a key aspect of the regular business of the UI or a specific department.)
- The person should not supervise or be directly supervised by UI employees (i.e. controlling how or when the work is done—collaborating is not supervising). This also includes training. The person should not receive training from the UI regarding how the work should be done.
- The person must have a history of offering and performing similar services for the general public (other organizations) and being paid for such work as an independent contractor (not as an employee).
- The person should generally not be assigned office space or require administrative services provided by the UI.
- The person must not be a UI student and must not be a current UI employee in any capacity. (There may be extremely rare exceptions. In these cases, prior approval is required by Payroll.)
- If the person is a former employee or student, the person must meet the general requirements for classification as an independent contractor and may not return to perform the same work performed while associated with the UI.
- The services to be provided should be project-driven, generally provided on an intermittent basis as required or over a short term. With few exceptions, individuals providing services on a steady, full-time or near-full-time basis for an extended period are considered employees by the IRS notwithstanding any consulting contract which may be in effect.
In making a determination, all information that provides evidence of the degree of control and independence must be considered. It is important to consider all the factors—no single fact provides the answer.
Some common independent contractor services include:
- Guest speaker or guest presenter
- Guest artist or guest performer
- Writing
- Editing
- Consulting
- Commissioned artwork
- Peer review
Persons providing these services on a limited basis would not need to complete an Independent Contractor Information Form.
Payment requests must be made out to the name that belongs to the Social Security number (SSN), Individual Taxpayer Identification Number (ITIN) or Federal Tax ID number.
Independent contractor services are not paid through UI Payroll Services; payment is made by the Accounts Payable department.
U.S. citizens and resident aliens do not have federal, state, and FICA taxes withheld and a W-2 statement of wages and taxes withheld is not issued. If payment for such services exceeds $600 in a calendar year, a 1099-MISC income form is issued for tax purposes. Nonresident aliens will have the required federal tax withheld and a 1042S tax statement will be issued.
Please contact Stacey Halverson, 335-2170, at UI Payroll Services for assistance.
Which form?
If the person is an independent contractor, use the Services Voucher in the e-Pro System on the Employee Self Service website. In certain circumstances, the paper Payroll Voucher will continue to be accepted. For these three types of payment requests-see details below**.
If the person is doing work similar to what employees are doing on campus, or doing work that is integral in nature to the business of the university—for example, teaching and instruction—they should be treated as an employee. Use an Appointment Form in the HR Transaction System on the Employee Self Service site. An I-9 Employment Eligibility form should be obtained and appropriate taxes withheld from payments to the employee.
If the person is primarily a UI student or is a recent employee of the university, they should be treated as an employee. Use an Appointment Form in the HR Transaction System on the Employee Self Service site. An I-9 Employment Eligibility form should be obtained and appropriate taxes withheld from payments to the employee.
If the person is a current employee, use either the Special Compensation Form or an Appointment Form in the HR Transaction System on the Employee Self Service site.
Payments to Non-U.S. Citizens or Nonresidents of U.S. territories
If the payee is not a U.S. citizen, a resident of U.S. territories, or a resident alien for tax purposes, federal tax will be withheld. Requirements affecting nonresident aliens coming to the U.S. in order to participate in academic activities when an honorarium may be awarded can vary. Please refer to the Independent Contractor Information Form. Contact Xuefen Zhen 353-2460 or payroll-nra@uiowa.edu with questions about these rules.
Services Voucher in the e-Pro System
Use this form when paying an individual:
- Who will be paid on their Social Security number (or ITIN)
- Who has provided a service
- Who is not employed by or associated with the University of Iowa
- Who is an independent contractor and may also be working under an agreement or a contract*
If the payment will be $10,000 or more, please refer to Payroll Voucher information below.
* If you sign a contract on behalf of the university for which you do not have signature authority you may be personally liable to the vendor and to the university. Contact your immediate superior to determine who should sign the contract on behalf of the university.
Required information:
- Name, address, and SSN or ITIN of the person providing service (payments should be made directly to the individual providing the service, not to a third party)
- Payment requests must be made out to the name that belongs to the SSN, ITIN, or Federal Tax ID number.
- Citizenship information
- Specific information about the service provided
- IACT in the 6000 series, excluding those for Travel 6025-6064
Payroll Voucher
**The paper Payroll Voucher Form (pdf) will continue to be accepted for the following types of payment requests until further programming is complete:
- Payment to an individual who does not have or will not provide either a valid Social Security number or Individual Taxpayer Identification Number.
- Payment to an individual of $20,000 or more. A payroll voucher still needs to be completed for $10k or more, but the PSA threshold is changing to $20k. A written Professional Services Agreement (PSA) should be used for individuals who are not university employees and who receive payments from the university of $10,000 or more per project year. A purchase requisition (PReq) may also be required. Information about the PSA and the PReq can be found on the Purchasing Office website.
- Payment to a non-U.S. citizen if all work was performed outside the U.S. and the individual will not come to the U.S.
In these instances, use the paper Payroll Voucher form when paying an individual:
- Who has provided a service
- Who is not employed by or associated with the University of Iowa
- Who is an independent contractor working under an agreement or a contract*
* If you sign a contract on behalf of the university for which you do not have signature authority you may be personally liable to the vendor and to the university. Contact your immediate superior to determine who should sign the contract on behalf of the university.
Required information:
- Name, address, and SSN or ITIN (if applicable) of the person providing service
(payments should be made directly to the individual providing the service, not to a third party) - Citizenship information
- Specific information about the service provided
- IACT in the 6000 series, excluding those for Travel 6025-6064
Short Term Appointment
Use this form to pay for the temporary services of an individual who is not a current full time employee and/or who is not considered an independent contractor. The form should also be used in the case of an individual who has a current relationship with the University of Iowa but who is not eligible for payment with the Special Compensation form, including a non-paying complimentary appointees, fellowship appointees, and most bi-weekly hourly employees. The short-term appointment requires effective and end dates with a maximum duration of 150 days. For services lasting longer than 150 days, a bi-weekly hourly appointment might be more appropriate. Short-term appointments may not be used for employees whose current appointments total 100 percent.
Special Compensation Form
Use this form for all "extra" payments to both full- and part-time monthly paid employees. Employees paid on the bi-weekly hourly basis are usually not eligible for special compensation. Please refer to the memo Special Compensation Form Types/ Definitions in the HR Transaction System for specifics. Please note that some form types require the completion of a prior approval form before the payment form can be initiated.
Office responsibilities
The paying department creates payment requests, verifying all required information.
Payroll Services audits these payment requests for potential employment situations and, if necessary, refers to the Office of the General Counsel for review.
The Accounts Payable Office creates the payments and issues the 1099-MISC income forms at year end for payments over $600.
The Purchasing Department approves the Professional Services Agreement (PSA) for payments of $5,000 or more and makes decisions regarding conflict of interest policy and sole-source justification.
Resources
- Employee Self Service Administration/Data Access/Reports: To check for employment status
- Employee Self Service Administration/Data Access/AP-PO PeopleSoft: To check payment status
- IRS Publication 1779
- Employee Self Service Personal/General/My HR Unit Rep
- Purchasing Department for information about the Professional Services Agreement (PSA) for payments of $10,000 or more and the conflict of interest policy and sole source justification.
- Payroll Services contacts: