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:
 To ensure compliance with Board Policy 5005
Independent Contractors;
 Provide information about the distinction between
employees and independent contractors;
 Provide a checklist for determination;
 Provide examples of contracts for an independent
contractor; and
 Ensure/provide procedures for proper recordkeeping
and tax reporting.
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 MCC.
 Contract:

A legal agreement that established the rights and duties of the
contracting parties and enables each party to seek a remedy for the
breach of those duties.
Risk of Misclassification of
Independent Contractors
 The importance of demonstrating that payments to
individuals are for independent contractors and not
employee services is the possible tax liability to MCC.
 If the IRS determines that payment should have been
made as an employee and not an independent
contractor, MCC could be liable for all taxes that
should have been withheld and were not; including
federal income tax, social security tax (both
employer’s and employee’s share) and Medicare
taxes, plus interest and penalties.
Calculation of Tax Assessment and
Penalty
Example:
 An independent contractor paid $90,000 during 2005.
Form 1099 was filed with the IRS, and the
misclassification is deemed:

Unintentional
 MCC would owe approximately $10,000

Intentional
 MCC would owe approximately $62,000

These figures do not include interest which is generally
9% compounded daily!!
Steps to Classification
Determining the correct classification is not an easy task. The
classification must be based on IRS guidelines using the Twenty
Rule Common Law Test located on page 5 of the Independent
Contractor procedures. In addition, the flowchart on page 14 will
assist in the process.
1.
Complete Employee/Independent Contractor
Questionnaire on page 11 of Independent Contractor
procedures.
2.
Complete Independent Contractor/Employee Status
Form on page 10 of Independent Contractor procedures.
3.
Complete a draft of the contract using the checklist on
page 15 and samples provided in Attachment A of the
Independent Contractor procedures.
4.
Submit above items to Human Resources for an
approved determination.
Steps After Approval of Determination
1. Finalize contract for approval by President, Vice2.
3.
4.
5.
6.
7.
President, or CFO.
Submit a completed W-9 form to Purchasing for
vendor set up.
Submit the final signed contract to Accounting.
Establish a BPO in Datatel for an amount not to
exceed the contract amount.
Monitor compliance and performance of terms,
amending the contract if necessary.
Submit invoices for contractor payment following
established Accounts Payable procedures.
Adjust BPO upon completion of contract.
Additional Guidelines

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.

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.
Example #1
An employee of the IS department is asked to consult
on a software purchase for the Health Sciences
department. The employee asks to do this during non
regular work hours and wants to be paid as an
independent contractor as he has his own business.
Is this employee an independent contractor in
this situation?
NO
This work falls within the employee’s area of
professional expertise and is part of the job for which he
is already compensated.
Example #2
A Business Division faculty member is going to
teach a Continuing Education class in
watercolor painting.
Should this employee be paid as an
independent contractor?
NO
Teaching is their area of professional expertise
and they would be paid as an employee.
Example #3
An employee from the Accounting department is going to teach a
class in accounting.
Can this employee be paid as an independent contractor?
YES
As long as all other requirements for independent contractor status
are met, teaching is not the employee’s area of professional
expertise and he may be paid as a contractor.
References
 This procedure will be in effect July 1, 2006.
 This presentation, the policy document, and
the sample contracts will all be available on
the Accounting website.
 Questions can be directed to:
Ethel Mason
Accounting Supervisor
762-5533
Kate Schamanek HRServices – Supervisor 762-0497