3.1.26 Employee vs. Independent Contractor

Policy

Independent contractors are paid via commercial invoice-vouchers routed through the Business Office (Hovey 102). Independent contractors will receive a 1099 tax form for miscellaneous income from the Business Office in January following the calendar year in which income was paid.

An employee is paid through the Payroll Office (Hovey 101). An employee will receive Form W-2 from the Payroll Office in January following the calendar year in which wages and salary were paid.

If an individual is classified as an employee, please contact the following offices for payment authorizations:

Office of Human Resources

• If the individual is currently employed by Illinois State University as an administrative/professional, faculty, faculty associate, or graduate assistant
• If the service rendered is teaching a credit generating course.
• Civil Service

Career Center

• If the individual is employed by Illinois State University on the Student Payroll, the Career Center may coordinate the payment with the Office of Human Resources.

Guidelines

Tax laws regarding this topic are subject to interpretation. If an individual's relationship to the University is questionable as to whether he/she is to be paid as an independent contractor or an employee, the Internal Revenue Service will most likely rule in the direction of an employee relationship. The IRS levies costly fines and penalties if it determines that an individual should have been paid as an employee and the organization paid the individual as an independent contractor.

All the facts and circumstances of a particular situation must be taken into account in determining whether an individual worker should be processed as an employee or as an independent contractor. The IRS stresses that the degree of importance of each factor varies depending on the occupation and the factual context in which services are performed. The IRS 20-question test for determining independent contractor status is available on the Comptroller's website.

Consultants

Consultants are individuals who provide professional advice. There are two types of consultants:

1. External Consultants -- individuals who are not on payroll. Their particular skill or knowledge is not available within the University. They are paid contractually through the Business Office.
2. Internal Consultants -- individuals who are currently on the payroll and must be paid through the payroll system. For nonsalaried individuals, overtime concerns must be considered when making payments to the employee.

If there are any questions on interpretation, please call the Payroll Office (309) 438-8675.