OSU PaCS 401: Employee v. Independent Contractor

Purpose

To assist departments in determining when a person is an employee or independent contractor.

Top

Applicability

All departments.

Top

Policy

Departments should follow the guidelines below to determine when a person is an employee or an independent contractor. 

Top

Procedure

Appropriate Contracting

Guidance regarding appropriate contracting for personal services is provided by OUS through the OUS Financial Administration Standard Operating Manual (FASOM) in Section 13.06: Purchasing -- Independent Contractor.

A key concern in contracting for personal services is whether the working relationship created constitutes an employee-employer relationship, or that of an independent contractor.

Determining the Working Relationship

The factors to be considered when determining whether a worker is an employee or an independent contractor vary for purposes of state and federal taxation, workers’ compensation, unemployment, PERS membership, and tort liability.  The common element, however, is whether the worker is subject to the direction or control of the University.

The Internal Revenue Service has identified twenty factors or elements that help determine whether sufficient control is present to establish an employer-employee relationship for the purpose of federal taxation.  Many of these factors will also be relevant in determining worker status for purposes of state taxes, workers’ compensation, unemployment, PERS membership, and tort liability.  The degree of importance of each factor depends upon the occupation and the factual context in which the services are performed.  The determination will vary on a case-by-case basis.  The twenty factors are designed only as a guide; no single factor will determine the presence or absence of an employer-employee relationship. 

Twenty Factors

1. Instructions: A worker who is required to comply with the University’s instructions about when, where, and how to work will usually be considered an employee.
2. Training: An employee is more likely to be subject to training from the University than an independent contractor.
3. Integration: The greater the integration of a worker’s services into the business operations of the University, and thus the greater direction and control retained by the University over the worker, the greater the likelihood that an employer-employee relationship exists.
4. Services Rendered Personally: A requirement that the worker render services personally favors an employer-employee relationship.
5. Hiring, Supervising, and Paying Assistants: If the University hires, supervises, and pays assistants for the worker’s job, as opposed to the worker providing his or her own assistants, the worker is more likely to be an employee.
6. Continuing Relationship: Continuing relationships between the worker and the University, meaning work is performed at frequently recurring intervals, supports an employer-employee relationship.
7. Set Hours of Work: An employee is generally subject to the University’s determination of his or her work hours, whereas an independent contractor has flexibility to set his or her own work hours.
8. Full Time Required: If the worker must devote substantially full time to performing services for the University, he is more likely to be an employee.  An independent contractor, on the other hand, is free to work when and for whom he or she chooses.
9. Doing Work on Employer’s Premises: If the University requires work to be performed on its premises or at a specified location, especially when it can be performed elsewhere, the worker is more likely to be an employee.
10. Order or Sequence Set: If the University retains the right to set the order or sequence for the services to be performed, the worker is more likely to be an employee.  An independent contractor generally enjoys greater freedom to follow his or her own work schedule.
11. Oral or Written Reports: Regularly requiring the worker to submit oral or written reports reflects an employer-employee relationship.
12. Payment by Hour, Week, Month: An employee is normally paid by the hour, week, or month.  An independent contractor is generally paid by the job or on a straight commission basis.
13. Payment of Business and/or Traveling Expenses: If the University pays a worker’s business and/or travel expenses, the worker is more likely to be considered an employee.
14. Furnishing of Tools and Materials: An employee is normally furnished with tools, materials, and equipment by its employer, whereas an independent contractor generally furnishes his or her own tools, materials, and equipment.
15. Significant Investment: If a worker invests in the facilities he or she uses, the worker is more likely to be an independent contractor.  On the other hand, a worker who depends on the University to maintain the working facilities is probably an employee.  This factor requires special scrutiny, especially when dealing with certain types of facilities such as home offices.
16. Realization of Profit or Loss: A worker who can realize a profit or suffer a loss as a result of his or her services is generally an independent contractor.
17. Working for More than One Firm at a Time: An employee generally works for only one person/business at a time, or for multiple persons/businesses as part of the same service arrangement.  An independent contractor performs services for multiple persons/businesses at the same time.
18. Making Service Available to General Public: If a worker makes his or her services available to the general public on a regular and consistent basis, the worker is more likely to be an independent contractor.
19. Right to Discharge: The University generally has the right to discharge a worker who is an employee.  An independent contractor, on the other hand, cannot be fired by the University so long as he or she meets his or her obligations under the contract.
20. Right to Terminate: An employee generally has the right to end his or her relationship with the University at any time without incurring liability.  However, an independent contractor must fulfill his or her contractual obligations to the University before terminating the relationship.

The characterization of the relationship by the parties themselves will not necessarily determine the relationship. 

Examples of Employer-Employee Relationship

• Temporary classified appointment: office administrative or clerical worker
• Academic wage appointment: former employee returning after retirement to assist department; graduate returning for short-term appointment to complete research project
• Fixed-term appointment (Unclassified academic appointment): short-term appointment to teach a single course

Examples of Independent Contractors

• Seminar speaker: short duration or one-time need, usually employed elsewhere
• Entertainer: short duration or one-time need, performs same services for others
• Photographer: short duration or one-time need, generally hired for special events
• Consulting services: usually hired to consult on a particular issue and/or on an on-call basis
• Artist: works from home, provides illustrations for discrete project
• Disk jockey: provides own equipment for one-time event
• Interpreter: works from home, generally hired for discrete project
• Computer programmer or Typist: works from home, provides own equipment, hired for discrete project
• Editor: works from home, hired to create/write/edit discrete project

Top