Independent Contractor Classification Policy at Drexel University

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1
December 16, 2019
Donna L. Mann
Office of Tax Compliance
 
2
 
What is the classification process?
Why is it important?
Who does it apply to?
Guidelines for determining independent contractor status
Special situations
Process walk-through
 
TRAINING OBJECTIVES
 
 
The independent contractor classification process determines if a
service provider is…
 
An employee subject to tax withholding (receives a W-2 Form),
OR
An independent contractor responsible for paying their own taxes
(receives Form 1099-MISC).
 
3
 
WHAT IS THE INDEPENDENT
CONTRACTOR  CLASSIFICATION
PROCESS?
 
Independent contractor classification is a frequent area of audit
by the IRS.
Misclassification as an independent contractor could place the
University at risk of assessment of significant amounts of taxes,
interest and penalties.
The independent contractor classification process also ensures
that Drexel complies with federal and state guidelines for
consistent and fair classification of workers.
 
 
4
 
WHY IS IT IMPORTANT?
5
WHO DOES THE PROCESS
APPLY TO?
 
The following entity types will always be considered independent
contractors. The independent contractor certification process is not
required for these types of vendors:
 
C Corporations
S Corporations
Partnerships
 
6
WHO DOES THE PROCESS
APPLY TO?
 
The following entity types or persons may be classified as independent
contractors. As careful consideration of facts and circumstances is
required for appropriate classification, all vendors that fall into the
categories listed below must complete the independent contractor
classification process:
 
Single Member Limited Liability Companies (‘SMLLCs’)
Sole proprietors
Individuals
 
If you are unsure whether a service provider needs to complete the
independent contractor certification process, please contact the Office
of Tax Compliance for guidance.
 
 
 
 
The more control the University has over a service provider, the
more likely it is that the service provider will be an employee rather
than an independent contractor.  Common law factors for
determining independent contractor status fall into three categories:
 
Behavioral control
Financial control
Relationship between the parties
 
 
7
 
GUIDELINES FOR DETERMINING
STATUS
 
Relates to whether the University has a right to direct and control
how the services will be performed.
In general, anyone who performs services for the University is an
employee if the University has the right to control what will be
done and how it will be done.
 
 
8
 
GUIDELINES –
BEHAVIORAL CONTROL
 
Looks at whether a service provider has the ability to affect financial
decisions connected with the services performed, such as:
Realizing a profit or loss
Assuming the cost of unreimbursed expenses.
 
 
9
 
GUIDELINES –
FINANCIAL CONTROL
 
Looks at how the relationship is perceived, including factors such as:
Is there a written contract?
Are benefits are provided?
How does the service provider represent their relationship with
Drexel to the public?
 
 
10
 
GUIDELINES – RELATIONSHIP
BETWEEN PARTIES
 
Current and former employees:
The IRS will almost always consider current or former
employees who are engaged for work outside their normal
duties to be EMPLOYEES.
Students:
Students will most often be characterized as EMPLOYEES.
 
 
11
 
SPECIAL SITUATIONS
 
Services provided outside Pennsylvania:
Individual Service Provider must qualify for independent contractor
status as mandated by the IRS, Pennsylvania, as well as the state in
which they will perform services. 
(New addition to policy)
Services provided outside the United States:
Individual Service Provider must qualify for independent contractor
status in both the United States and host country, as an Individual
Service Provider could be reclassified by either country’s legislation.
(New addition to policy)
Foreign Individual Service Providers providing services in the United
States:
Special rules apply to foreign individual service providers.  Business
administrators should contact the Office of Tax Compliance prior to
the engagement at 
taxdept@drexel.edu
 or (215) 895-6880.
 
12
 
SPECIAL SITUATIONS
 
EXCEPTIONS
 
Payments to limited-engagement Speakers, Artists, or Performers who:
Are eligible to use and are engaged using the Speaker, Artist, or
Performer Agreement, and
Will be paid less than $600
Are not required to complete the Certification. 
(New change to policy,
similar to previous speaker exception but expands group to include
artists and performers)
 
Payments to Game Officials who:
Are eligible to use and are engaged using the Game Official
Agreement, and
Will be paid less than $600
Are not required to complete the Certification. 
(New change to policy)
 
 
13
 
SUMMARY OF CERTIFICATION
FORM CHANGES
 
Certification for Determination of Independent Contractor Status
(‘Certification form’) has been broken out into two separate
sections:
Section 1 should be completed by the requesting department.
Section 2 should be completed by individual service provider
AFTER department completes Section 1.
 
14
 
BEFORE
 engaging an outside service provider who is an individual,
sole proprietor or SMLLC:
1.
The requesting department must complete Section 1 of the
Certification form:
If all pre-determination questions in Section 1 can be answered
“No”, the Section 1 certification is signed by the employee
responsible for contracting the services, AND an individual within
the contracting department with authority to approve the purchase.
If any pre-determination questions in Section 1 are answered “Yes”,
follow the instructions on the Certification form.
 
15
 
INDENDEPENT CONTRACTOR
CLASSIFICATION PROCESS
WALK-THROUGH
 
2.
Department provides Section 2 of the Certification form to
Individual Service Provider for completion and signature.
Section 1 should not be provided to Individual Service Provider.
3.
Department emails the following materials to the Office of Tax
Compliance at 
taxdept@drexel.edu
 for review:
Completed and signed Certification Form (Sections 1 and 2);
Scope of Work (must be descriptive; one-word answers will not be
accepted); and
Individual Service Provider supporting documentation. Generally,
at least one of the following support items will be required to make
an Independent Contractor determination:
i.
Business website
ii.
Client list or performance list
iii.
Professional certification
iv.
Curriculum Vitae
 
16
 
INDENDEPENT CONTRACTOR
CLASSIFICATION PROCESS
WALK-THROUGH
 
INDENDEPENT CONTRACTOR
CLASSIFICATION PROCESS
WALK-THROUGH
 
4.
The Office of Tax Compliance, in consultation with other
University units, as deemed necessary, makes an Independent
Contractor or Employee status determination and then notifies
the requesting department of this determination.
Approvals for Independent Contractor Status are valid for one year
from start date.
 
 
17
 
INDENDEPENT CONTRACTOR
CLASSIFICATION PROCESS
WALK-THROUGH
 
If the Individual Service provider is determined to be an
Independent Contractor:
The requesting department works with Procurement and the Office of
the General Counsel (OGC) to ensure that a signed, written agreement
for services is obtained before the Independent Contractor is engaged
and before services are provided. Please refer to the 
Contract Protocol
Policy (OGC-2)
 
and contact Procurement at 
sourcing@drexel.edu
and/or OGC at 215.895.1433 to determine next steps.
If the Individual Service provider is determined to be an Employee:
The requesting department works with their 
Drexel Human Resources
Business Partner
 
to discuss the most appropriate employment category
based on the Scope of Work.
 
18
 
 
Consult: 
https://drexel.edu/tax/independent-contractors/guidelines/
for the complete Independent Contractor Classification Policy and
additional guidance on completing the Certification form.
 
 
Office of Tax Compliance:
Email: 
taxdept@drexel.edu
Certification: 215-895-6221
Foreign Individual Service Providers: 215-895-6880
 
19
 
RESOURCES
 
20
 
QUESTIONS & ANSWERS
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This policy outlines the classification process for determining if a service provider is an employee subject to tax withholding or an independent contractor responsible for their own taxes at Drexel University. Understanding this process is crucial to avoid misclassification risks and ensure compliance with federal guidelines. The policy specifies the entity types requiring certification and emphasizes careful consideration for appropriate classification. For more guidance, vendors are encouraged to contact the Office of Tax Compliance.


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  1. OVERVIEW OF INDEPENDENT CONTRACTOR CLASSIFICATION POLICY Drexel University and Affiliates December 16, 2019 Donna L. Mann Office of Tax Compliance 1

  2. TRAINING OBJECTIVES What is the classification process? Why is it important? Who does it apply to? Guidelines for determining independent contractor status Special situations Process walk-through 2

  3. WHAT IS THE INDEPENDENT CONTRACTOR CLASSIFICATION PROCESS? The independent contractor classification process determines if a service provider is An employee subject to tax withholding (receives a W-2 Form), OR An independent contractor responsible for paying their own taxes (receives Form 1099-MISC). 3

  4. WHY IS IT IMPORTANT? Independent contractor classification is a frequent area of audit by the IRS. Misclassification as an independent contractor could place the University at risk of assessment of significant amounts of taxes, interest and penalties. The independent contractor classification process also ensures that Drexel complies with federal and state guidelines for consistent and fair classification of workers. 4

  5. WHO DOES THE PROCESS APPLY TO? The following entity types will always be considered independent contractors. The independent contractor certification process is not required for these types of vendors: C Corporations S Corporations Partnerships 5

  6. WHO DOES THE PROCESS APPLY TO? The following entity types or persons may be classified as independent contractors. As careful consideration of facts and circumstances is required for appropriate classification, all vendors that fall into the categories listed below must complete the independent contractor classification process: Single Member Limited Liability Companies ( SMLLCs ) Sole proprietors Individuals If you are unsure whether a service provider needs to complete the independent contractor certification process, please contact the Office of Tax Compliance for guidance. 6

  7. GUIDELINES FOR DETERMINING STATUS The more control the University has over a service provider, the more likely it is that the service provider will be an employee rather than an independent contractor. Common law factors for determining independent contractor status fall into three categories: Behavioral control Financial control Relationship between the parties 7

  8. GUIDELINES BEHAVIORAL CONTROL Relates to whether the University has a right to direct and control how the services will be performed. In general, anyone who performs services for the University is an employee if the University has the right to control what will be done and how it will be done. 8

  9. GUIDELINES FINANCIAL CONTROL Looks at whether a service provider has the ability to affect financial decisions connected with the services performed, such as: Realizing a profit or loss Assuming the cost of unreimbursed expenses. 9

  10. GUIDELINES RELATIONSHIP BETWEEN PARTIES Looks at how the relationship is perceived, including factors such as: Is there a written contract? Are benefits are provided? How does the service provider represent their relationship with Drexel to the public? 10

  11. SPECIAL SITUATIONS Current and former employees: The IRS will almost always consider current or former employees who are engaged for work outside their normal duties to be EMPLOYEES. Students: Students will most often be characterized as EMPLOYEES. 11

  12. SPECIAL SITUATIONS Services provided outside Pennsylvania: Individual Service Provider must qualify for independent contractor status as mandated by the IRS, Pennsylvania, as well as the state in which they will perform services. (New addition to policy) Services provided outside the United States: Individual Service Provider must qualify for independent contractor status in both the United States and host country, as an Individual Service Provider could be reclassified by either country s legislation. (New addition to policy) Foreign Individual Service Providers providing services in the United States: Special rules apply to foreign individual service providers. Business administrators should contact the Office of Tax Compliance prior to the engagement at taxdept@drexel.edu or (215) 895-6880. 12

  13. EXCEPTIONS Payments to limited-engagement Speakers, Artists, or Performers who: Are eligible to use and are engaged using the Speaker, Artist, or Performer Agreement, and Will be paid less than $600 Are not required to complete the Certification. (New change to policy, similar to previous speaker exception but expands group to include artists and performers) Payments to Game Officials who: Are eligible to use and are engaged using the Game Official Agreement, and Will be paid less than $600 Are not required to complete the Certification. (New change to policy) 13

  14. SUMMARY OF CERTIFICATION FORM CHANGES Certification for Determination of Independent Contractor Status ( Certification form ) has been broken out into two separate sections: Section 1 should be completed by the requesting department. Section 2 should be completed by individual service provider AFTER department completes Section 1. 14

  15. INDENDEPENT CONTRACTOR CLASSIFICATION PROCESS WALK-THROUGH BEFORE engaging an outside service provider who is an individual, sole proprietor or SMLLC: 1. The requesting department must complete Section 1 of the Certification form: If all pre-determination questions in Section 1 can be answered No , the Section 1 certification is signed by the employee responsible for contracting the services, AND an individual within the contracting department with authority to approve the purchase. If any pre-determination questions in Section 1 are answered Yes , follow the instructions on the Certification form. 15

  16. INDENDEPENT CONTRACTOR CLASSIFICATION PROCESS WALK-THROUGH 2. Department provides Section 2 of the Certification form to Individual Service Provider for completion and signature. Section 1 should not be provided to Individual Service Provider. 3. Department emails the following materials to the Office of Tax Compliance at taxdept@drexel.edu for review: Completed and signed Certification Form (Sections 1 and 2); Scope of Work (must be descriptive; one-word answers will not be accepted); and Individual Service Provider supporting documentation. Generally, at least one of the following support items will be required to make an Independent Contractor determination: i. Business website ii. Client list or performance list iii. Professional certification iv. Curriculum Vitae 16

  17. INDENDEPENT CONTRACTOR CLASSIFICATION PROCESS WALK-THROUGH 4. The Office of Tax Compliance, in consultation with other University units, as deemed necessary, makes an Independent Contractor or Employee status determination and then notifies the requesting department of this determination. Approvals for Independent Contractor Status are valid for one year from start date. 17

  18. INDENDEPENT CONTRACTOR CLASSIFICATION PROCESS WALK-THROUGH If the Individual Service provider is determined to be an Independent Contractor: The requesting department works with Procurement and the Office of the General Counsel (OGC) to ensure that a signed, written agreement for services is obtained before the Independent Contractor is engaged and before services are provided. Please refer to the Contract Protocol Policy (OGC-2) and contact Procurement at sourcing@drexel.edu and/or OGC at 215.895.1433 to determine next steps. If the Individual Service provider is determined to be an Employee: The requesting department works with their Drexel Human Resources Business Partner to discuss the most appropriate employment category based on the Scope of Work. 18

  19. RESOURCES Consult: https://drexel.edu/tax/independent-contractors/guidelines/ for the complete Independent Contractor Classification Policy and additional guidance on completing the Certification form. Office of Tax Compliance: Email: taxdept@drexel.edu Certification: 215-895-6221 Foreign Individual Service Providers: 215-895-6880 19

  20. QUESTIONS & ANSWERS 20

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