Mott Community College
Independent Contractor Policy and Procedures
Mott Community College
Independent Contractor Policy and Procedures
Introduction
Many Mott Community College departments regularly employ the services of individual(s) to
perform varying services. These arrangements often raise questions on the status of the
individual, such as “Should they be classified as an employee or an independent contractor?"
Purpose
These procedures are intended to:
1. To ensure compliance with Board Policy 5005 Independent Contractors;
2. Provide information about the distinction between employees and independent
contractors;
3. Provide a checklist for determination;
4. Provide examples of contracts for an independent contractor; and
5. Ensure/provide procedures for proper recordkeeping and tax reporting.
Responsibilities
Departmental:
1. Complete and submit for review an Independent Contractor Status Form,
Employee/Independent Contractor Questionnaire and Draft copy of Independent
Contractor(s) Contract to Human Resources Department.
2. After approval of status determination, finalize the Contract for approval by President,
CFO, or Vice President.
3. Submit to Purchasing Department a completed IRS W-9 form.
4. Submit to Accounting a signed copy of the finalized contract.
5. Establish BPO in Datatel for amount not to exceed the contract following established
BPO guidelines.
6. Submit amendment to contract, if necessary, following procedure for original contract.
7. Monitor compliance and performance of terms.
8. Submit for payments to independent contractor following established Accounts Payable
procedures.
9. Work with contractor to ensure proper and timely reporting, recordkeeping and tax
reporting.
10. Adjust BPO upon completion of a contract amendment.
Human Resource Department:
1. Review submitted Independent Contractor Status Form.
2. Make determination as to correct status.
3. Approve or reject form.
4. Return determination to requesting department.
Purchasing Department:
1. Establish new vendors using completed IRS W-9 Form.
Accounting Department- Accounts Payable
1. Maintain database of Independent Contractors
2. Process payment when approved request for payment has been received.
3. Issue 1099 to Independent Contractor.
2
CONTENTS
Overview
4
Risk of Misclassification of Independent Contractors
4
Definitions
4
Twenty Rule Common Law Test
5
Guidelines
7
Independent Contractor Determination
7
Contract
8
Payment of Contract
9
Independent Contractor/Employee Status
10
Employee/Independent Contractor Questionnaire
11
IRS W-9
13
Flow Chart
14
Independent Contractor Contract Requirements
15
Independent Contractor Contract Sample
Attachment A
3
Overview
The determination as to whether an individual is an employee or an independent
contractor is essential. The procurement of personal services, unlike the
procurement of goods, requires an evaluation of how the service provider will be
paid. This document provides guidance and tools to help in the correct
classification of service providers.
The classification must be based on IRS guidelines, using the Twenty Rule
Common Law Test (page 5), and not on administrative convenience or relative
costs.
Risk of Misclassification of Independent Contractors
The importance of demonstrating that payments to individuals are for
independent contractor and not employee services is the possible tax liability to
Mott Community College. If the IRS should subsequently determine that the
payment should have been made as an employee and not as an independent
contractor, Mott Community College could be liable for all taxes that should have
been withheld and were not, including federal income tax, social security tax
(both the employer’s and employee’s share) and Medicare taxes, plus interest
and penalties.
Definitions
Employee: An individual who performs services that are subject to the will and
control of an employer – both what must be done and how it must be done. The
employer can allow the employee considerable discretion and freedom of action,
so long as the employer has the legal right to control both the method and the
result of the services.
Independent Contractor: An individual or entity engaged to perform services and
commonly referred to as a consultant, freelancer, contractor, etc. The service
provider is responsible for the means and methods for completing the job based
on specification in the contract. The service provider is not supervised or
controlled by Mott Community College.
Contract: A legal agreement that establishes the rights and duties of the
contracting parties and enables each party to seek a remedy for the breach of
those duties.
IRS Form 1099 MISC: A form used to report to the IRS and the taxpayer various
types of payment including non-employee compensation to independent
contractors.
IRS W-9 Form Request for Taxpayer Identification Number and Certification: A
form required by the IRS to be maintained by Mott Community College. The
Purchasing Department uses the information provided on the form to establish an
individual or entity as a legitimate vendor of the college.
4
Twenty Rule Common Law Test
FACTORS
1
2
3
4
5
6
7
8
9
10
11
INSTRUCTIONS
EMPLOYEE
INDEPENDENT
CONTRACTOR
Must follow set and/or
mandatory rules, where,
when and how to perform
work.
Follows own individual
instructions. Performs
work based upon
independently
established procedures.
TRAINING
Received and/or is required Skilled professional
to receive training.
requiring no training to
adequately perform
services.
INTEGRATION
Provides essential services, Work performed is not
which meld into overall
an “Integral part” it is a
business operation.
“unique” service.
SERVICES
Required to render services Have assistants or
RENDERED
personally.
employees while
retaining the right to hire
others to perform the
required work.
HIRING
Does not supervise or hire
Hires assistants at
ASSISTANTS
others to complete work
his/her expense to
assigned.
perform all or part of the
project.
CONTINUING
Services are part of a
Provides services and
RELATIONSHIP
continuing relationship.
contracts for separate
and distinct projects, not
on a continuing basis.
SET HOURS OF Required to work set hours. Retains the right to
WORK
complete work at any
time.
FULL-TIME
Required to devote full-time Contract specifies what
WORK
to a job on a non-project
is to be accomplished
basis.
by what date.
WORK DONE ON Required to work on-site, on Rents/leases location
PREMISES
a route, or at a designated
where work is
location
performed.
ORDER OR
Require to perform tasks in
Has full discretion over
SEQUENCE SET set manner, routine,
routine or manner in
schedule.
which to perform
services.
REPORTS
Required to submit regular
Has few or no
oral and/or written reports
obligations to file
where work is evaluated.
regular reports
5
12
PAYMENTS
13
EXPENSES
14
TOOLS AND
MATERIALS
INVESTMENT
15
16
PROFIT OR
LOSS
17
19
WORKS FOR
MORE THAN
ONE PERSON
OR FIRM
OFFERS
SERVICES TO
GENERAL
PUBLIC
RIGHT TO FIRE
20
RIGHT TO QUIT
18
Payment by the hour, week,
or month in a regular
interval.
Compensation
determined separately
by project or based on
fixed fee.
Expenses are paid or
No reimbursement for
reimbursed.
out-of-pocket expenses
unless as part of
contract.
Tool and materials are
Furnishes own tools
furnished.
and materials.
Does not invest in facilities
Possesses and invests
and/or equipment used to
in facilities and
perform services.
equipment to perform
services.
Compensated for services
Shoulders the possibility
at fixed rate regardless of
of incurring a loss and
profitability.
realizing a profit.
Performs services for only
Has numerous
one firm at a time, on a non- concurrent clients and is
project basis.
not financially
dependent on any one.
Services are not offered to
Offers services to the
the general public.
public
Can be discharged at any
time with no liquidated
damages.
May terminate the
relationship at any time.
Cannot be discharged
other than for failure to
perform the contracted
services.
May terminate his/her
relationship only upon
completion of contract
or breach of other party.
6
Guidelines
1. Obtaining the services of an independent contractor or consultant should
be based upon a selection process that attempts to secure the most
qualified individual for the assignment.
2. Compensation should be appropriate for the type of advice or service
provided and should reflect the skills and qualification of the individual
selected to perform the service.
3. Full-time, salaried employees of the College who may be asked to serve
as consultants for other College departments are not entitled to receive
additional compensation for performing such services when those extra
duties fall within their area of professional expertise. This is true even
when the work is conducted during an employee’s “own time” or outside of
normal business hours. Such assignments are considered part of the job
for which the employee is already compensated.
4. College employees who incorporate, and who in turn provide services to
the College that are related to their primary job assignment will not be
classified as independent contractors solely because they have
incorporated.
Independent Contractor Determination
Step 1: Determining Correct Classification
Determining the correct classification is not an easy task. The twenty
common law factors are intended as a guideline, not as strict rules. The
IRS states, “The degree of importance of each factor varies depending on
the occupation and the factual context in which the services are
performed.” Two basic questions should be answered to help clarify the
classification:
1. Does Mott Community College pay as employees others who
perform essentially the same duties that are to be performed by this
worker?
2. Has this worker previously been paid as an employee to perform
essentially this same task?
A yes answer to either one of these questions means that the worker in
question is considered to be an employee, and the Employee/Independent
Contractor Questionnaire form is not required.
However, if a no answer pertains to either of the questions, proceed to the
Employee/Independent Contractor Questionnaire for further clarification.
7
Step 2: Completing Necessary Forms
If it is determined that the worker may be classified as an independent
contractor from the Employee/Independent Contractor Questionnaire, complete
the Independent Contractor Status Form and a draft of a contract.
Step 3: Send the Completed Forms to the Human Resource Department
Send the Independent Contractor Questionnaire, the Independent Contractor
Status Form and the draft copy of a contract to the Human Resource
Department for determination.
Contract
An Independent Contractor Contract will vary based on the scope of the project.
A written contract states a detailed relationship and outlines the expectations of
both Mott Community College and the contractor. It documents the terms and
conditions by which independent contractors/consultants are utilized.
If the Independent Contractor is funded by a grant, awareness of any/all grant
limits must be observed. Attach any necessary grant documentation to the
contract.
1. Review the example contract(s) and make any necessary changes.
2. Use the Independent Contractor Contract Check List to prepare the
contract.
3. Attach the check list to contract for approval.
4. Once the language of the contract is complete, submit it to the President,
Vice President, or CFO for approval.
5. Forward a copy of the final contract to the Human Resource department if
materially different from the draft.
6. Once the contract language has been properly approved, obtain the
legally binding signatures of all parties. An IRS W-9 Form must be included
with the contract. Forward a copy of the signed contract to the Accounting
Department.
8
Payment of Contract
1. Submit a copy of the IRS W-9 Form to the Purchasing Department for vendor
set up.
2. Establish BPO in Datatel for amount not to exceed the contract following
established BPO guidelines.
3. Follow established Accounts Payable guidelines for invoice payment.
Requirements include entry of vendor invoice detail, manager’s approval, and
allowing 15 days for check issuance.
Note: It is the responsibility of the requesting department to ensure that any
amendments to the original contract are executed before additional payments are
made to the independent contractor.
9
Independent Contractor/Employee Status Form
The information provided below will assist Mott Community College in determining
whether the individual performing the services will be classified for Federal, State and
FICA tax purposes as an employee of Mott Community College, or as an independent
contractor. A copy of the approved form will be returned to you, as hiring manager. If
the approved form indicates an independent contractor, you must enter a purchase
requisition to initiate the procurement action. Once a purchase order number is
assigned, notify Accounts Payable to process payments.
I have attached the Independent Contractor Questionnaire, draft of contract, and any
supplemental information, such as the individual’s business card, advertising or business
letterhead, which supports the independence of the individual.
I understand that the proper status of the worker depends on the manner in which the
work is performed and on the nature of the relationship between the worker and Mott
Community College personnel responsible for the work being performed. Therefore, the
status of the individual for federal employee tax withholding and related reporting
purposes will be re-determined when the manner in which the work is performed or the
relationship between the individual and Mott Community College changes sufficiently to
alter the validity of this certification. I agree to notify the Human Resource Department if
the status of the individual changes.
I hereby declare that the information provided in this document is true and correct and
this I have sufficient knowledge of, authority and responsibility for the work to be
performed under this contract to effectively complete the attached form.
Department for whom services are to be performed_____________________________
______________________________
Signature
_____________________________
Title
______________________________
Date
_____________________________
Phone Number
Reviewed by Mott Community College Human Resource Department
I certify that I have reviewed the attached Independent Contractor Questionnaire Form and
supporting documentation completed by the department named above and based on the results
of the completed form: the individual (_____________________) to be engaged under this
contract appears, for federal employment tax withholding and related reporting purposes, to be:
________
An Independent Contractor
__________________________
Signature
_____ An Employee
________________________
Title
_________
Date
10
Employee/Independent Contractor Questionnaire
Name of Independent Contractor:_____________________________
Project Title and Description of Work:
Project Begin Date: ____________
Project End Date: ____________
The common law factor and control test is used as a primary vehicle in making
employee/independent contractor determination. Evidence of the individual’s classification must be
documented in order to support the final determination. Please answer the following questions
truthfully and to the best of your knowledge. The final determination will be based on the majority of
answers, not on one or two answers only. Submit with Independent Contractor Status Form to
Human Resource Department
Characteristics that Lead
to Independent
Common Law Factor
Contractor/Consultant
Classification
Current Relationship with Mott Community College
Y
e
s
N
o
Characteristics that
Lead to Employee
Classifications
1. Does MCC pay as employees
others who perform essentially the
same duties that are to be performed
by this individual?
2. Does this individual currently work
for MCC as an employee?
3. During the 12 months prior to the
date on which the services
commence, was the individual on the
MCC payroll (regular or temporary)?
4. Does MCC desire to hire this
individual as an employee
immediately following the termination
of his or her services as an
independent contractor?
5. Does this individual currently work
as an independent contractor or
consultant for MCC? And/or has this
individual ever worked as an
independent contractor or consultant
for MCC within the past 12 months?
6. Will the individual be trained by
Mott Community College
7. Is the individual instructed about
when, where and how work is to be
done?
8. Will the individual have control
over hiring and supervising
assistants?
9. Will the individual perform the
services personally?
Behavioral Control
Trained by Mott
Community College
Complies with
department’s work
instructions
Cannot hire assistants
to perform their work
Render services
personally
Responsible for own training
Determines when, where and
how work is performed
May hire assistants to perform
their work and pay out of
contract proceeds
May use own employees or
subcontractors
11
10. Will the individual be required to
provide regular progress reports
11. Will the individual perform the
services in a prescribed sequence?
12. Will the individual devote a set
amount of time to performing
services?
13. Will Mott Community College
supply the worker with any tools or
materials?
14. Does the individual have set
hours?
15. Will the individual perform
services on Mott Community
College’s campus?
16. Could the individual realize a
profit or loss as a result of the work
to be performed?
17. Does the individual have a
significant investment in tools or
other types of instruments?
18. Does the individual make his or
her services available to the general
public?
Regular progress
reports may be required
Must follow prescribed
sequence
Only works for Mott
Community College
Progress reports required only if
part of contract agreement
Sets own pattern or sequence
Tools and materials
supplied by Mott
Community College
Hours specified by Mott
Community College
Provides services on
campus
Provides own tools and
materials
Financial Control
Cannot realize a profit
or loss
Free to work for other
employers
Sets own hours
May choose where to perform
work
Can realize a profit or loss
No investment is work
facilities
Significant investment in work
facilities
Services are not offered
to the general public
Advertises services to the
general public (e.g., business
cards,, phone book listing, etc.)
19. Does the individual perform his
Works for only one
May work for several
or her services for more than one
business at a time
businesses at the same time
business?
20. Is the individual paid by the hour,
Paid on a consistent
Paid based on work assigned in
week, month or assignment?
and regular basis
accordance with contract
21. Will the individual be reimbursed
Reimbursed for
Pays own business expenses
for business expenses?
business expenses
Relationship of the Business and Worker
22. Will the individual’s services by
Services are fully
Services are not fully integrated
integrated into Mott Community
integrated into Mott
into Mott Community College’s
College’s educational or other
Community College’s
business
activities?
business
23. Is there a written contract that
No contract
Contract exists
set forth the terms and conditions of
the services?
24. Does the individual earn
Earns Mott Community
Does not earn Mott Community
employee benefits from Mott
College employee
College employee benefits
Community College
benefits
25. Is the individual incorporated?
Not incorporated
Incorporated
26. Does the individual have a
Ongoing relationship
Temporary relationship
continuing relationship with Mott
Community College
27. Can the individual be terminated
Generally employed at
Generally terminated only for
at Mott Community College’s
will, may be terminated
material breach of contract
discretion?
at Mott Community
College’s discretion
28. Can the individual end his or her
May quit job without
Cannot quit until job is
relationship with Mott Community
obligation
completed
College at any time?
12
IRS W-9 Form is
available on Purchasing Mott Community College web page.
http://www.irs.gov/pub/irs-pdf/fw9.pdf
13
Does Mott Community College pay as employee others who perform
essentially the same duties that are to be performed by this worker?
Has this worker previously been paid as an employee to perform essentially
this same task?
NO




YES
Complete Employee/Independent Contractor Questionnaire
Complete IndependentContractor/Employee Status Form
Complete draft of Independent Contractor Contract
Include any/all grant documentation if necessary
Submit to HR for
Determination
Employee
HR Employee
Processing
Establish
Vendor
Add to
Database
Submit W-9
to
Purchasing
Department
Submit copy
of signed
contract to
Accounting
Department
Independent Contractor
Submit Final Contract to
President, Vice President, or
CFO for approval. Resubmit
to HR if materially changed
Classified as Employee
Establish BPO for
contract amount.

Submit invoice to
Accounts Payable for
payment.
Close BPO at end of
contract term.

Monitor compliance and performance of
terms.
Ensure proper and timely reporting,
recordkeeping and tax reporting.
14
Independent Contractor(s) Contract Requirement Check List
Use this checklist to ensure that all pertinent items of the contract are present. Attach to front of
contact for approval by the President, Vice-President, or CFO.
Department Approver Item
□
□
Engagement start and end date
□
□
Legal name of Independent Contractor
□
□
Detail scope of engagement to include but not limited
to:
 Timeframe of project
 Desired outcome of project
 Right to inspect progress of work contracted
□
□
Detail payment terms
□
□
Statement of independence
□
□
Intellectual Property Rights (if applicable)
□
□
Insurance requirements (if applicable)
□
□
Confidentiality
□
□
Termination terms
□
□
Assignment terms
□
□
Indemnification clause
□
□
Use of Mott Community College’s name
Comments:
Requesting Department: _________________
Name:____________________
15