ADMIN 160 - Independent Contractors Policy
Number: ADMIN 160
Effective: April 28, 2017
Last Reviewed: August 1, 2024
Department: Finance and Administration
Last Revision: January 6, 2022

Purpose

This policy provides guidelines for properly engaging independent contractors pursuant to the classification requirements provided by the Internal Revenue Service and the U.S. Department of Labor.

Scope

This policy applies to all employees of CWI that participate in the contract process.

Definition

Employee:  An individual whom CWI has the right to control and direct with regard to the work to be accomplished and the process by which the work is accomplished.

Independent Contractor:  An individual who provides a highly technical or unique service, or has a particular set of skills not available elsewhere at CWI. Independent contractors typically are in business for themselves, are not economically dependent on CWI, provide similar services or skills to other organizations or third parties, are not supervised by CWI, and are needed only for a short duration to complete a specific project.

Policy

Certain services required by CWI are provided by independent contractors who are not employees of CWI. Whereas, an employer must generally withhold federal income taxes, social security, and Medicare taxes, and pay unemployment tax on wages paid to an employee, payments to independent contractors are not subject to such withholding. Significant tax and legal consequences including penalties may result if an individual who meets the IRS's or Department of Labor's definition of an employee is erroneously treats as an independent contractor. Thus, CWI must ensure that employees and independent contractors are appropriately classified.

Guidelines

For audit purposes, purchases made prior to the latest revision of this policy are subject to that version of this policy in effect at the time the purchase process was initiated. Purchases made after the latest revision date of this policy are subject to this policy as amended.

Preliminary Authorization

When determining whether an individual is an employee or independent contractor, the relationship between the individual and CWI must be examined. In making the determination, any information that provides evidence of the degree of behavioral and financial control and independence in work must be considered. If a Department is unsure as to the individual’s status type, it  must complete a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding which can be found at the IRS’s website located at https://www.irs.gov/forms-pubs/about-form-ss-8 and obtain from the individual a completed and fully signed Form W-9. Both documents are to be submitted to the Contracts Group. Status as an independent contractor will be determined by the Contracts Group and Office of General Counsel. Once a determination has been made, the Contracts Group will prepare the appropriate Contract.

FACTORS FOR DETERMINING INDEPENDENT CONTRACTOR STATUS

When determining whether an individual is an employee or independent contractor, the degree of behavioral control should be considered. Behavioral control refers to facts that show whether CWI has a right to direct and control how an individual completes a task for which the individual is retained including:

  1. The instructions CWI gives the individual about how, when and where to work, what tools or equipment to use, what workers to hire or use to assist in the work;
  2. Where to purchase supplies and services to complete the work; and
  3. What order or sequence to follow to complete the work. A key consideration is whether CWI has retained the right to control the details of the individual’s performance or has given up that right and defers to the contractor’s expertise.

When determining whether an individual is an employee or independent contractor, the degree of financial control should be considered. Financial control refers to facts that show whether CWI has the right to control financial aspects of the individual’s work including:

  1. The extent to which the individual has unreimbursed business expenses (independent contractors typically cover their own expenses);
  2. The extent to which the individual exercises managerial skills which affect his/her opportunity for both profit or loss;
  3. The extent of the individual’s investment in his/her business, including facilities and equipment;
  4. The extent to which the individual makes his or her services available on the open market (an independent contractor often advertises and seeks business opportunities in the market on an ongoing basis); and
  5. The manner in which CWI pays the individual (an independent contractor usually earns a flat fee for the job).

When determining whether an individual is an employee or independent contractor, the type of relationship between the individual and CWI should be considered. Facts that show the parties’ relationship include:

The written contract or agreement describing the relationship the parties intend to create;

Whether CWI will provide the individual with benefits including insurance, retirement plan contributions, vacation or sick pay (typically provided only to employees);

The permanency of the relationship (independent contractors are usually retained for a defined term); and

The extent to which services performed by the worker are a key aspect of CWI’s regular business activity. Independent contractors are usually retained to handle irregular or specialized tasks or projects; in contrast, if the work is integral to CWI’s business, it is more likely that the individual should be classified as an employee.

FORMS

Forms are located on the Internal Revenue Service website located https://www.irs.gov/forms-pubs/about-form-ss-8