Policy
Original Issuance Date: January 12, 2021
Last Revision Date: October 7, 2024
1. Policy Purpose
This policy establishes the requirements associated with UW institutions’ use of independent contractors and the processes that may be used for payments related to their services.
2. Responsible UW System Officer
Associate Vice President and Chief Human Resource Officer
3. Scope and Institutional Responsibilities
This policy applies to individuals providing services to UW System Institutions as independent contractors, the UW employees receiving services from these independent contractors, and the administrative personnel responsible for contracting and institutional support of these activities. This policy does not apply to services provided by employees of the UW System, or to services provided by full time personnel of other state, federal or local agencies.
4. Background
The University of Wisconsin System secures the services of individuals and business entities through one of two methods: an employer/employee relationship or an agreement with an independent contractor. This policy is intended to provide guidance for the utilization of independent contractors, including the different mechanisms by which independent contractors’ services may be secured by UW System Institutions.
The UW System and UW-Madison have formal delegated procurement authority from the State of Wisconsin to purchase general goods and services under Wis. Stats. § 16.70. The UW System Administrative procurement policies and procedures (Series 500 policies) provide the operational framework for purchasing services from suppliers under the Board of Regents’ authority, found in Wis. Stats. § 36.11. The UW System Administrative procurement policies and procedures are designed to comply with federal grant and contracting policies and procedures.
General contract approval authority has been delegated by the Regents to the System President, who is authorized to further delegate contract signature authority to other UW System Administration officials, as well as chancellors of the UW System Institutions under RPD 13-1, General Contract Approval, Signature Authority, and Reporting. The chancellors are authorized to further delegate signature authority to institution employees.
The UW System also has a Low Dollar Exception payment methodology in which students and non UW-System employees may be paid like independent contractors while being employees for other legal purposes.
5. Definitions
Academic Support Services: Some services provided by independent contractors represent special talents needed by the UW System on a temporary basis to fulfill its missions of instruction, research and public service. If the service is a unique, noncompetitive activity supporting instruction/research/public service, it will be considered an Academic Support Service. (See SYS 540, Non-Competitive Procurement Contracts.)
Independent Contractor: One who, in exercising an independent employment, contracts to do certain work according to their own methods, without being subject to the control of their employer, except as to the results or product of their work. See Administrative Guidance # 236-1: Determination of Employee vs. Independent Contractor Status. See also Appendix 1- Employee/Independent Contractor Determination Questionnaire.
Low Dollar Exception: Occasionally, the tests of control will be sufficiently met to conclude an employer-employee relationship does exist, but the amount of pay is determined to be sufficiently small as to not warrant the time and expenses of placing the individual on the payroll. Although such payments should be made through the payroll system, the Payment to Individuals Request (PIR) form may be used under the following circumstances:
- Service is provided by other than a current employee or a student and payment does not exceed $500 for a specific or series of predictable events.
- Service is provided by a UW System student and the student receives a one-time payment of $100 or less per calendar year. In such circumstances, students are deemed independent contractors of the institution to which the service is provided.
Note: No tolerance may be applied when such service is provided by a current UW System employee.
6. Policy Statement
The University of Wisconsin System, and all of its institutions, may utilize independent contractors for the provision of services.
A. General Provisions
- When an institution is determining whether to hire an independent contractor, consideration must first be given to more effective use of personnel within the institution, within the UW System, and within other State agencies. (See SYS 165, The Academic Calendar and SYS 237, Utilization of Borrowed Employees/Employee Interchange Agreements.)
- If an independent contractor will be working with minors, they must also abide by SYS 625, Youth Protection and Compliance.
- In accordance with the Internal Revenue Code Section 3402(e), if an individual is a current UW System employee, payments for services are deemed to be wages and must be payrolled. An institution may not pay an existing employee as an independent contractor without specific authorization from UWS Human Resources.
- Federal grant policy manuals restrict persons who hold federal appointments from contracting under federal projects unless they are on leave status from their federal agency.
- For internal control and tax reasons, payments may only be made to the individual or entity who provided the service.
- If the individual providing the services is a non-resident alien, SYS 238, Payments to Foreign Nationals must be followed.
- An active supplier record should be established in the UW System financial record system before work starts, unless an emergency exists. In case of emergency, the supplier record should be completed as soon as practical.
- If the cost of the services is $600.00 or more and the provider is not a corporation (or an LLC treated as a corporation), then an IRS Form 1099 must be filed by the institution.
B. Contracting Considerations
- System personnel must consult with their institutional purchasing departments before engaging prospective independent contractors to determine if institutional, system-wide or statewide contracts can provide for the required services.
C. Academic Support Services
- Contract Requirements for Academic Support Services
- An Academic Support Services Agreement (“ASSA”) must be executed and approved by a contracting officer of the institution prior to the commencement of the service to certify that a competitive purchasing process need not be used. This requirement exists regardless of the payment method utilized. (See SYS 540, Non-Competitive Procurement Contracts.)
D. Low Dollar Exception
- Payment and Tax Withholding for a Low Dollar Exception
- A 1099 form need not be completed by the institution if the total compensation is less than $600.00.
- Special Considerations
- Use of one payment alternative over another does not eliminate liabilities such as worker’s compensation arising from the employer/employee relationship.
E. Contractor Access to University of Wisconsin System Property and Digital Resources
- Any time a contracted service requires access to UW System property or UW System digital resources, the institution must designate an employee who will be responsible for granting the appropriate physical and/or digital access, and who shall be responsible for terminating the access when the contracted work is complete or when the access is no longer required in order for the contractor to provide the contracted service, whichever is sooner.
- When access is granted to a contractor working on a project or providing a service that is expected to be less than one year in duration, a presumptive termination date for the access should be established at the time the access is initially granted. This date may be changed if the work is finished sooner or later than expected, to correspond with the actual end date of the project.
- Access granted to contractors working on projects or providing services expected to be more than one year in duration must be reviewed at least annually to ensure that only access currently required for the provision of the contracted services has been granted to the contractor. Any access in excess of that needed to complete the project or provide the currently contracted services should be terminated.
- Prior to being granted access to UW System digital resources, all contractors, or employees of contractors, must either:
- Complete the UW System Information Security Awareness course designated by the UW System Associate Vice President for Information Security, or
- Attest that they have completed information security awareness training meeting the standards designated by the UW System Associate Vice President for Information Security.
7. Related Documents
Wis. Stats. § 71.80(15), govern the withholding of taxes from entertainers.
Wis. Admin. Code § ADM 10 (2012) governs procurement by Contract for Services. This is the implementation of parts of Wis. Stats. § 16.75 and is rephrased in more detail in the State Procurement Manual.
RPD 13-1, General Contract Approval, Signature Authority, and Reporting
SYS 165, The Academic Calendar
SYS 237, Utilization of Borrowed Employees/Employee Interchange Agreements
SYS 238, Payments to Foreign Nationals
SYS 521, Authority to Sign Procurement Contracts in the UW System
SYS 521.A, Procurement: Simplified and Sealed Bidding
SYS 522, Exclusions from a Competitive Procurement Process
SYS 540, Non-Competitive Procurement Contracts
SYS 625, Youth Protection and Compliance
Internal Revenue Service Revenue Ruling 87-41 sets forth guidelines to determine the employment status of individuals. (See JCX-26-07.)
Internal Revenue Code Section 3401 provides the definition of wages.
Internal Revenue Code Section 6041 governs Form 1099 reporting.
UW Responsibilities as a Withholding Agent
8. Policy History
Revision 2: October 7, 2024
Revision 1: September 2, 2022
First approved: January 12, 2021
9. Scheduled Review
September 2029
Guidance
Determination of Employee vs. Independent Contractor Status
1. Purpose of Guidelines
The purpose of these guidelines is to assist UW System staff in determining whether services being rendered by an individual to a UW System Institution are appropriately characterized as an employer-employee relationship or an independent contractor relationship.2. Publishing Office(s)
This guideline is published by UW System Human Resources.3. Affected Stakeholders on Campus
This employee vs independent contractor determination will normally be made by the CHRO of the institution, however procurement services may also be involved in making this determination. Stakeholders include any system personnel responsible for hiring temporary help or specialized services.4. Primary Responsibility
This guidance is maintained by the University of Wisconsin System Human Resources Office. At the institution level, compliance with these guidelines is the responsibility of the institution’s Chief Human Resource Officer.5. Guidelines
This guideline provides the criteria to be applied in the determination of whether an employer/employee relationship or an independent contractor relationship exists with respect to an individual or entity providing services to the UWS. The legal analysis of the relationship is called the “Economic Realities Test”. It has been established through case law and incorporated by the IRS into several guidance documents. In conducting the analysis the decision maker should consider the following factors:- Instructions. A worker who is required to comply with other persons’ instructions about when, where, and how (s)he is to work is ordinarily an employee.
- Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person(s) for whom the services are performed wants the services performed in a particular method or manner.
- Integration. Integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control.
- Services Rendered Personally. if the services must be rendered personally, presumably the person(s) for whom the services are performed is interested in the methods used to accomplish the work as well as in the results.
- Hiring, Supervising, and Paying Assistants. If the person(s) for whom the services are performed hires, supervises, and pays assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
- Continuing Relationship. A continuing relationship between the worker and the person(s) for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.
- Set Hours of Work. The establishment of set hours of work by the person(s) for whom the services are performed is a factor indicating control.
- Full-time Required. If the worker must devote substantially full-time to the business of the person(s) for whom the services are performed, such person(s) has control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom (s)he chooses.
- Doing Work on Employer’s Premises. If the work is performed on the premises of the person(s) for whom the services are performed, that factor suggests control over the worker.
- Order or Sequence Set. If a worker must perform services in the order or sequence set by the person(s) for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person(s) for whom the services are performed. Often, because of the nature of an occupation, the person(s) for whom the services are performed does not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person(s) retains the right to do so.
- Oral or Written Reports. A requirement that the worker submit regular or written reports to the person(s) for whom the services are performed indicates a degree of control.
- Payment by Hour, Week, Month. Payment by the hour, week or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.
- Payment of Business and/or Traveling Expenses. If the person(s) for whom the services are performed ordinarily pays the worker’s business and/or traveling expenses, the worker is ordinarily an employee.
- Furnishing of Tools and Materials. The fact that the person(s) for whom the services are performed furnishes significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
- Significant Investment. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person(s) for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.
- Realization of Profit Or Loss. A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee.
- Working for More Than One Firm at a Time. If a worker performs more than deminimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor.
- Making Service Available to General Public. The fact that a worker makes his/her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.
- Right to Discharge. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.
- Right to Terminate. If the worker has the right to end his/her relationship with the person for whom the services are performed at any time (s)he wishes without incurring liability, that factor indicates an employer-employee relationship.
- The following factors indicate an employment relationship may exist:
- Instructors of college credit courses when the university contracts with the instructor.
- Primary instructor of a course, be it for college credit, continuing education credit, or noncredit.
- University of Wisconsin faculty members who provide services for the extension programs.
- A rate of pay which is not unusually high or low for the services performed.
- The fee or rate of pay is set by the UW System.
- Performance of services is done in regularly scheduled classes over a period of time.
- A continuing relationship between the UW System and the provider of the services exists.
- The location and facilities are provided by the UW System.
- The UW System has the right to discharge the provider of the services.
- The Provider of services has the right to terminate the relationship with the UW and the UW would have the obligation to replace the individual, cancel classes, etc.
- The following factors indicate that an independent contractor relationship may exist:
- Guest lecturers and consultants who are not the course instructors.
- An unusually large (indicating expert) or small (indicating token appreciation) amount of pay for the service provided.
- The UW System competes for the services of the provider, and pays his/her rate of pay.
- Contracting with a provider of services whose business is conducting workshops at many different universities and campuses.
- The facilities are arranged and paid for by the provider of the services.
- The provider incurs significant unreimbursed expenses.
- The provider’s work is performed not primarily at the UW.