Consultant Policy

Note: The following applies only to agreements entered into (signed) prior to February 15, 1997 and for Non-Resident aliens working outside the United States.

For those agreements dated February 15, 1997 and later, refer to Purchasing.

Policy:
The Internal Revenue Service (IRS) has specific guidelines for determining whether an individual is an employee or a consultant (independent contractor). If the IRS determines that a consultant should have been classified as an employee, penalties can be severe.

To pay a consultant, submit a check request, a Standard Service Agreement signed by the payee, an invoice and a W-9 form. This should be submitted to the Angelina Calungcagin in the Finance Office. If you have any questions, please contact the Acting Director of Administration.

Discussion:
The Internal Revenue Service (IRS) defines a consultant as one who gives professional advice or services. In general, consultants are individuals who are in business for themselves, offer their services to the public, and have an investment in facilities. For example, physicians, lawyers, construction contractors, writers, and scientists who serve as experts in their field could be consultants.

To insure the accuracy of a consultant's Tax Identification Number, a W-9 form must be completed by the payee prior to any payments.

In contrast, an individual is considered an employee when the department for which services are performed has the authority to direct the individual who performs the services, not only as to the results to be accomplished, but also as to the details and means by which they are accomplished. The employer does not have to actually direct the manner in which services are provided; having the right to do so is sufficient.

Employee status is also characterized by the furnishing of equipment or supplies, the furnishing of a place to work, and the authority to discharge. The regularity, continuity, and exclusivity of the relationship also aid in determining whether an employee or consultant relationship exists.

Anyone who teaches at the University meets the IRS definition of an employee regardless of whether the instruction is part of a degree or non-degree program.

If a University employee performs services for another unit, additional compensation cannot be paid through a check request. Support personnel can be paid overtime. Additional compensation is not permitted for most non-instructional officers.

Who is a Consultant?
A consultant (independent contractor) is an individual/company who renders a service and meets criteria established by IRS guidelines. Specific conditions are as follows:

1. Payees have a principle place of business other than the University.
2. Payees are free from control over the detail of when, where, and how the work is to be done.
3. Payees customarily offer their services to the general public.
4. Payees are not considered agents or employees of the University and are not entitled to University employee benefits while rendering their services.
5. Payees perform all work entirely at their own risk.
6. An Expert in their field.

By law, individuals/companies who are paid as consultants (independent contractors) are responsible for reporting all income earned and for paying the appropriate federal and state taxes, as well as self-employment tax. Individuals/companies who are paid $600.00 or more during the calendar year through Accounts Payable are issued a Miscellaneous Income Form (1099 Form).

The University may be liable for the payment of taxes and fines if a valid consultant or independent contractor relationship does not exist.

Alien payments are to be paid through payroll if the services are performed within the U. S. If the alien resides outside the U. S. and work is performed outside the U. S., payment should be made by Accounts Payable through a check request.

Who is an Employee?
An individual is considered an employee when the services that are performed are continuous and directly related to the mission of the University. The department for which services are performed has the authority to direct the individual who performs the services, not only as the results to be accomplished but also to the details and means by which they are accomplished. The employer does not have to actually direct the manner in which services are provided; having the right to do so is sufficient.

Employee status is also characterized by furnishing of equipment or supplies, the furnishing of a place to work, and authority to discharge. The regularity, continuity, and exclusivity of the relationship also aid in determining whether an employee or consultant relationship exists.

Anyone who teaches or performs research at the University meets the IRS definition of an employee.

For more information, go to the CU Purchasing website or contact the Manager of Purchasing.