Slide 1
FastFacts
Feature Presentation
January 16, 2014
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© 2012 The Johns Hopkins University. All rights reserved.
Slide 2
Today’s Topic
We’ll be taking a look at…
Policies and Procedures for Classifying,
Engaging, and Paying Independent
Contractors
Slide 3
Today’s Presenter
Julia J. Buick
Assistant Tax Director, JHU
Place picture of Presenter
Name here
Slide 4
Session Segments
Presentation
Julia Buick will address policies and procedures for engaging
independent contractors.
During Julia Buick’s presentation, your phone will be muted.
Q&A
After the presentation, we’ll hold a Q&A session.
We’ll open up the phone lines, and you’ll be able to ask
questions.
Julia Buick, David Thompson (JHU Tax Office), Jennifer Hipp
(Purchasing), Mark Meyerer (Accounts Payable Shared Services),
and Steve Scholz (Office of International Business Support) will
answer as many of your questions as time allows.
Slide 5
Contact Us
If you would like to submit a question during the presentation or if
you’re having technical difficulties, you can email us at:
fastfacts@jhu.edu
Slide 6
Survey
Survey
At the end of this FastFacts session, we’ll ask you to complete a
short survey.
Your honest comments will help us to enhance and improve
future FastFacts sessions.
Slide 7
How To View Full Screen
Slide 8
Policies and Procedures for
Classifying, Engaging, and Paying
Independent Contractors
Slide 9
Agenda
Independent contractor news
Classification: Independent contractor vs. employee
Domestic vs. foreign independent contractor
JHU policies for engaging independent contractors
JHU procedures for engaging independent contractors
Engaging current & former JHU employees as independent
contractors
Key forms and documents needed to process independent
contractors
Key contact information for questions relating to independent
contractor processing
Slide 10
Independent Contractor News
Policy and Procedure News
The Independent Contractor Policies and Procedures have been updated by the
Controller’s Office and will be posted on the Finance website by the end of January
2014. Please note that there have been no substantive changes to either the policies
or the procedures. The policies and procedures document was refreshed and
reorganized to make it more user-friendly to the departments. Please be sure to
familiarize yourself with this updated document.
Independent Contractor Certification (ICC) Form News
In addition, the Independent Contractor Certification (ICC) form was also updated to
streamline the determination process. The current ICC form does not ask all of the
questions necessary to make an accurate and complete determination, making it
necessary for the Tax Office to gather additional information from the departments via
email and phone calls.
Please note that the updated ICC Form requires DBO signature before
submission. This was added to streamline the DBO approval process.
If you have any question, please email: IndependentContracts@jhu.edu
Slide 11
Classification: Independent Contractor vs. Employee
Definition of Independent Contractor
No bright line test; facts and circumstances based on the “totality of the
relationship.”
In general, an individual with complete “control” and direction over how
work is completed.
Control refers to the result to be accomplished by the work and also the
means and details by which the result is accomplished.
Work outside usual course of business of the university.
Expert or specialty work not performed by current university employees.
Independent contractors responsible for their own taxes (no withholding or
employer payroll tax responsibility).
Independent contractors not covered by Maryland Workers Compensation
law or Affordable Care Act.
Independent contractors not eligible for university benefits.
Students are never eligible for independent contractor status.
Paid through Accounts Payable.
Slide 12
Classification: Independent Contractor vs. Employee
Definition of an Employee
An individual performing services for the university where the university has
the right to control the individual’s results as well as the details and means
by which that result is accomplished.
Employees are required to be paid through JHU payroll.
Employees are subject to withholding and JHU is responsible for
employment taxes on their wages.
Individuals engaged/hired as employees must be processed through
Divisional Human Resources to ensure that they are appropriately set up as
employees.
Individuals engaged/hired as employees are likely covered by Maryland
Workers Compensation law, the Affordable Care Act, and university benefits
depending on their hours and other factors.
Certain worker types are always hired as employees, such as faculty.
Slide 13
Classification: Independent Contractor vs. Employee
Determination: Independent Contractor or Employee?
IRS Revenue Ruling provides the primary guidance (Twenty Factors) for
determining whether a worker is an independent contractor or an
employee.
Twenty factors; the degree of importance/weight of each factor depends on
the occupation and factual context in which the services are performed.
Twenty factors fall into one of three general categories of facts:
Behavioral Facts (i.e., does university control the worker or provide
instruction?)
Financial Facts (i.e., reimbursement of expenses, structure of payment,
whether university provides supplies or space for work)
Type of Relationship (i.e., is there an on-going relationship, is work
performed a key aspect of university business or related to JHU’s
mission)
Slide 14
Classification: Independent Contractor vs. Employee
The Twenty Factors
1. Worker must comply with JHU instruction
about when, where, and how to do work.
2. Worker receives training by JHU.
3. Worker provides services to JHU that are
integrated into JHU programs and operations.
4. The services must be rendered personally.
5. JHU hires, supervises, and pays those assisting
in the work.
6. There is a continuing relationship between JHU
and the worker.
7. JHU sets the hours that the worker will be
working.
8. Work for JHU will require a full-time schedule
for the worker.
9. Work is performed on JHU premises.
10.JHU determines the order and sequence of the
work.
11. JHU requires worker to submit regular oral or
written reports.
12. JHU pays worker by hour, week, or month.
13. JHU reimburses for business and travel
expenses.
14. JHU furnishes tools and materials for the job.
15. Worker not investing in own facilities.
16. Worker not subject to risk of economic loss on
the engagement.
17. Worker only working for JHU (no other clients).
18. Worker not marketing services or making
services available to the public.
19. JHU has right to discharge worker.
20. Worker has right to terminate without incurring
liability.
A “yes” response indicates the factor favors an employer-employee relationship. A “no” response indicates the
factor favors independent contractor status.
Slide 15
Classification: Independent Contractor vs. Employee
“Totality of the Relationship”
All of the facts and circumstances are reviewed and the entire
relationship between JHU and the individual is weighed.
Although JHU may, in good faith, determine that a worker is an
independent contractor, an IRS agent may reach a different
conclusion by weighing the twenty factors differently.
Additionally, the IRS will focus on the intent and the substance of
the work arrangement.
Slide 16
Classification: Independent Contractor vs. Employee
Importance of Proper Classification
Proper classification of JHU workers is incredibly important to
ensure university compliance with federal, state, and international
income tax and employment laws.
Classification is also important to ensure university compliance with
Department of Labor/ERISA laws (employee benefits) and the
Affordable Care Act.
Penalties to the university if worker is misclassified as independent
contractor.
Worker classification is a key area during IRS exams.
IRS regularly launching payroll targeted audits to ensure proper
classification.
Worker classification is key issue among our peers.
Slide 17
Domestic vs. Foreign Independent Contractor
TIP! Different forms and processes are applicable for foreign
independent contractors. So before you begin processing, know
whether your potential contractor is domestic or foreign.
“Domestic” independent contractors are individuals providing
services to the university within the United States.
“Domestic” independent contractors MUST be U.S. citizens or legal
permanent residents (i.e., green card holders) who are legally
permitted to provide services within the United States.
“Foreign” independent contractors are individuals providing services
to the university in a foreign country.
“Foreign” independent contractors may include United States
citizens or foreign nationals.
Slide 18
Domestic vs. Foreign Independent Contractor
Criteria used for classifying domestic independent contractors is
useful framework for determining if a foreign worker should be an
independent contractor or employee.
However, each country has its own unique laws so the Office of
International Business Support (OIBS) will need to make a
determination on any contract over $5,000.
Individuals engaged as independent contractors in a foreign country
will likely require work authorization from the foreign country’s
immigration office.
Prior to the engagement of any foreign independent contractor, the
department should obtain proof that the individual has obtained
necessary work authorization to provide services in the proposed
country.
Slide 19
JHU Policies for Engaging Independent Contractors
Domestic Independent Contractors: Engagements $5,000 and Higher
Definition: Contracts (or group of contracts) with domestic independent
contractors that will reach $5,000 or higher in a 12-month period.
Tax Office Determination of Worker Status (determination letter) is required
to set up P.O. or make any payments.
Tax Office determination MUST be obtained by the department prior to the
commencement of any work by the proposed independent contractor.
Foreign Independent Contractors: Engagements $5,000 and Higher
Definition: Contracts (or group of contracts) with foreign independent
contractors that will reach $5,000 or higher in a 12-month period.
Tax Office coordinates with Office of International Business Support (OIBS)
for Foreign Determination of Worker Status (determination letter).
OIBS determination MUST be obtained by the department prior to the
commencement of any work by the proposed independent contractor.
Slide 20
JHU Policies for Engaging Independent Contractors
Domestic & Foreign Independent Contractors: Engagements <$5,000
Contracts/Engagement/Cost under $5,000 for a 12 month period.
Determination from Tax Office/OIBS NOT required.
“Short Form Independent Contractor Agreement” required to be provided to
Accounts Payable Shared Services before any work commences.
TIP! How do I know if my independent contractor has exceeded
$5,000 in a 12-month period?
Effective 2014, Accounts Payable Shared Services (APSS) is running quarterly
reports to monitor payments to independent contractors. If a particular
independent contractor has exceeded the $5,000 threshold, then APSS will
send an email to the department administrator and DBO informing them that
the independent contractor must go through the independent contractor
determination process before any additional payments will be made to the
vendor. The vendor number for the independent contractor will be blocked so
that no future payments can be made until the certification process is
complete.
Slide 21
JHU Policies for Engaging Independent Contractors
Services Exempt from Independent Contractor Review
Transaction Type
IC Certification
Required?
Purchase Order
(PO) Required?
Method of
Payment
Contractual
Agreement Required?
Single Payment
Engagements < $5,000
(Domestic and
Foreign)
No
No
Online Payment
Request
Yes - Short Form
Independent Contractor
Agreement
Study Participant
No
No
No
Caterer
No
No
Online Payment
Request
Vendor Invoice or
Online Payment
Request
Special Event/
Entertainment
No
No
Vendor Invoice or
Online Payment
Request
Depends on
scope of engagement
Lecturer/Honorarium
No
No
No
Athletic
Official/Referee
No
No
Online Payment
Request
Online Payment
Request
Royalty Fees
No
No
Online Payment Request
No
Gifts, Prizes, and
Awards
Non-Employee
Reimbursements**
No
No
Online Payment Request
No
No
No
Online Payment Request
No
Depends on
scope of engagement
Yes - Short Form
Independent Contractor
Agreement
Slide 22
JHU Policies for Engaging Independent Contractors
Engaging JHU Employees as Independent Contractors
Employee: If the proposed independent contractor is a current or
former university employee (including retirees) and is providing a
service that is related or similar to current or past work, the
individual will generally be classified as an employee and will be
paid through the payroll system.
Independent Contractor: If the current university employee or
former employee is providing a service that is significantly different
than current or past work, the individual will be reviewed to see if
he or she meets the qualifications for independent contractor
certification.
Slide 23
JHU Procedures for Engaging Independent Contractors
IMPORTANT! To ensure that the Tax Office is
positioned to make timely and appropriate
determinations, the requesting department must
submit an accurate and complete Independent
Contractor Certification (ICC) form PRIOR to the
commencement of ANY work under the contract.
Slide 24
JHU Procedures for Engaging Independent Contractors
Flow Chart of Procedures for Independent Contractors
START
Department complete Short Form
Independent Contractor Agreement
(ICC Short Form)
YES
Is the contract expected to exceed $5,000 in a 12 month period?
NO
Is Vendor set up in
Vendor Master File (SAP)
Foreign
Domestic
Is the proposed independent
contractor domestic or foreign?
Department obtain W-9/W-8BEN
from vendor and complete
Vendor Data Entry Sheet. Then
email all documents to
Purchasing (or APSS for
contracts under $5,000). (Allow
3 business days for set up.)
Complete
Domestic ICC
form & submit
to Tax Office
Complete
International ICC
form & submit to
Tax Office
No
Determination of Worker Status:
“Approved Independent Contractor”?
Contact Divisional Human Resources
Department to set up employment
Yes
Complete/obtain
Independent
Contractor
Agreement
Department initiate
SAP Online Payment
Request (FV 60)
(Attach ICC Short
Form)
(Over $5,000) Department submit SAP
Shopping Cart to Purchasing to initiate
PO. (Attach Determination and
Independent Contractor Agreement.)
Process Goods Received & email invoice to APSS
APSS will process payment upon receipt of invoice
APSS
review/approve
SAP Online
Payment Request
Slide 25
JHU Procedures for Engaging Independent Contractors
Procedures for Engagements $5,000 and Higher
Step 1: Determine if the proposed contractor is domestic or foreign; this will
determine the next step.
Step 2A (Domestic): Complete Domestic Independent Contractor Certification form
(ICC form).
Step 2B (Foreign): Complete the International Independent Contractor Certification
form (International ICC form).
Step 3: Submit the ICC form/International ICC form to the Tax Office via email:
independentcontracts@jhu.edu or fax: (443) 997-8688.
DON’T FORGET! to submit the resume and/or CV with the ICC/IICC!
Step 4: Tax Office/OIBS (via the Tax Office) will issue (via email) a “Determination of
Worker Status” (“determination” letter) back to the department.
Step 5A: If the Determination of Worker Status is an Approval of Independent
Contractor Status, the department is ready to proceed to purchasing. (See next
slide.)
Step 5B: If the Determination of Worker Status is a Denial of Independent Contractor
Status, the department should contact the Divisional Human Resources Department
to set up employment.
Slide 26
JHU Procedures for Engaging Independent Contractors
Procedures for Engagements $5,000 and Higher – Continued
Step 6: Check SAP to determine if the vendor is set up in the Vendor Master File.
Step 7A: If the vendor is domestic and does not exist in SAP, the department will first
need to obtain a W-9 from the vendor and complete the Vendor Data Entry Sheet.
Both of these documents plus the determination letter should be emailed to
purchasing@jhu.edu. Please allow 3 business days for set up.
Step 7B: If the vendor is foreign and does not exist in SAP, the department will first
need to obtain a W-8BEN and International Banking Wire form from the vendor and
complete the Vendor Data Entry Sheet. All three of these documents plus the
determination letter should be emailed to purchasing@jhu.edu. Please allow 3
business days for set up.
Step 8: Once the vendor is set up in SAP, Purchasing Services will email the requester
the vendor number.
Step 9: The department should complete/obtain the appropriate Independent
Contractor Agreement (see later slide).
Slide 27
JHU Procedures for Engaging Independent Contractors
Procedures for Engagements $5,000 and Higher – Continued
Step 10: Once the vendor is set up in SAP, the department should submit an SAP
shopping cart to Purchasing to initiate a Purchase Order.
DON’T FORGET! to attach the Determination Letter, Independent Contractor
Agreement, and appropriate documentation summarizing the basis for vendor
selection and cost reasonableness.
Step 11: After review, Purchasing Services will sign the Independent Contractor
Agreement and issue a Purchase Order.
Step 12: The department should then confirm goods and services in SAP.
Step 13: The department or independent contractor should email Accounts Payable
Shared Services (APSS) the invoice (apssc@jhmi.edu) for payment.
TIP! Do not confirm goods through ECC.
TIP! The Independent Contractor Agreement is different from the Independent
Contractor Certification form.
Slide 28
JHU Procedures for Engaging Independent Contractors
Procedures for Engagements under $5,000
Step 1: Department completes Short Form Independent Contractor Agreement (ICC
Short Form).
Step 2: Department checks SAP to determine if the vendor is set up in the Vendor
Master File.
Step 3A: If the vendor is domestic and does not exist in SAP, the department will first
need to obtain a W-9 from the vendor and complete the Vendor Data Entry Sheet.
Both of these documents should be emailed/faxed to Accounts Payable Shared
Services (APSS). Please allow 3 business days for set up.
Step 3B: If the vendor is foreign and does not exist in SAP, the department will first
need to obtain a W-8BEN and International Wire form from the vendor and complete
the Vendor Data Entry Sheet. All three of these documents should be emailed/faxed
to Accounts Payable Shared Services (APSS). Please allow 3 business days for set
up.
Slide 29
JHU Procedures for Engaging Independent Contractors
Procedures for Engagements under $5,000 – Continued
Step 4: Once set up in SAP, department can initiate an Online Payment
Request (FV 60).
DON’T FORGET! to attach the Short Form Independent Contractor
Agreement and corresponding invoice to the Online Payment Request.
Please note that the Short Form Independent Contractor Agreement is
the appropriate agreement for both domestic and foreign independent
contractors when the total cost of the engagement does not exceed
$5,000 in a 12-month period.
Slide 30
JHU Procedures for Engaging Independent Contractors
Services Generally Classified as Employee
Instructors and Lecturers
Academic Services (advisors, tutors, athletic coaches, and trainers)
Accounting and Financial Services (budget analysts and internal auditors)
Administrative/Management Services (directors, managers, supervisors, and
coordinators)
Clinical/Research Services (physicians, scientists, therapists, and lab
technicians)
Information Technology Services (computer operators and systems
administrators)
Library Services (librarians and curators)
Support Services (ground maintenance and security)
Rehires (anyone who was previously employed)
Slide 31
JHU Policies for Engaging Independent Contractors
Services Generally Classified as Independent Contractor
Specialty services

Conservation treatment of archaeological
artifacts

Photographic services

Book designer

Copyeditor/proof reader

Website designer

Certified registered nurse anesthetist (limited
basis to fill operating room schedules)

Translator

Statistician

Video production services

Telescope repair services

Graphic design services

Message therapy services
Consultant/expert

Advisor on analyzed crime data

Specialized accounting services

Specialized legal services

Management consulting (specified
project/assignment with a finite duration)

Writer for a specified topic (expert in the field)

Executive search services

Professional Development consultants
(instructors/trainers)

Business plan development services

Evaluation services

Physician supervisors
Slide 32
Key Forms and Documents
PLEASE REVIEW the Independent Contractor Policies and Procedures. They
can be found on the JHU Finance website under the department of Accounts
Payable:
http://finance.jhu.edu/policy_procedures/dept_policy_procedures.html
Key Documents
Independent Contractor Certification (ICC) Form – Completed by department and
submitted to Tax Office for contracts over $5,000. Used by Tax Office to make
determination as to whether the worker should be an IC or EE. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/icc.pdf )
International Independent Contractor Certification (IICC) Form – Completed by
department and submitted to Tax Office/OIBS for contracts over $5,000. Used by
OIBS to make determination as to whether the worker should be an IC or EE. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/international_independent_contract
or_certification_interactive.pdf
Determination of Worker Status – a.k.a. “Determination Letter.” Issued by Tax
Office/OIBS after review of the ICC/IICC form. Required before any work commences
or payment issued for contracts over $5,000. (No link. This is issued by the Tax
Office/OIBS).
Slide 33
Key Forms and Documents – Continued
Key Documents – Continued
Short Form Independent Contractor Agreement – Completed by department and
submitted to APSS via Online Check Request before payments on contracts less than
$5,000 in a 12-month period. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/ica_short.pdf )
Independent Contractor Agreement – Should be used when a project is for a fixed
duration, a period of no more than 12 months, the services are $5,000 or greater and
less than $50,000, and when no intellectual property, computer software, or web
pages are expected to be produced. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/ica.pdf)
Master Consulting Services Agreement – Should be used when the cost of the project
exceeds $50,000 or when intellectual property (other than computer software and
web pages) is produced as a result of the hire or for projects of longer duration.
(Link: http://ssc.jhmi.edu/supplychain/forms/jhu_forms/mcsa.pdf )
Independent Computer Technology Services Agreement – Should be used when
computer software or web pages are expected to be produced. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/itcsa.pdf )
Slide 34
Key Forms and Documents – Continued
Key Documents – Continued
International Independent Contractor Agreement – Should be used when a foreign
independent contractor is engaged by the university. (Link:
http://ssc.jhmi.edu/supplychain/forms/jhu_forms/ic_international_ic_agreement.pdf)
Vendor Data Entry Sheet – Used to provide Purchasing/Accounts Payable Shared
Services with information necessary to set up a vendor in SAP. (Link:
http://ssc.jhmi.edu/accountspayable/DataFiles/VendorAddChange.pdf )
Slide 35
Key Contact Information
Questions Regarding:
Domestic Independent Contractor
Certification Forms
Questions Regarding:
Independent Contractor Agreements,
Shopping Carts, Purchase Orders, or
Vendor Set Up ($5,000 or greater)
Call/Email
Call/Email
Questions Regarding:
Foreign Independent Contractors
Email: independentcontracts@jhu.edu
Call: (443) 997-8688
Purchasing Services
Email: purchasing@jhu.edu
Call: (443) 997-1000
Call/Email
Accounts Payable Shared
Services
Call/Email
Office of International
Business Support
Questions Regarding:
Short Form Independent Contractor
Agreements, Vendor Set-up (under
$5,000), or Payment Matters
Tax Office
Email: apssc@jhmi.edu
Call: (443) 997-6688
Email: independentcontracts@jhu.edu
Call: (443) 997-8688
Slide 36
Conclusion
For contracts over $5,000, departments must first obtain a
“Determination of Worker Status” from the Tax Office/OIBS before
any work begins.
Please note that foreign independent contractors with contracts
over $5,000 in a 12-month period require the completion of the
International ICC form, not the domestic ICC form.
Please review the new and improved Independent Contractor
Policies and Procedures located on the Finance website at
http://finance.jhu.edu/policy_procedures/dept_policy_procedures.html.
Please direct questions to the appropriate departments (i.e., Tax,
Purchasing, Accounts Payable) to ensure the most timely response.
(See Key Contact slide.)
Slide 37
Q&A
We’re going to open the phone lines now!
There will be a slight pause, and then a recorded voice will provide
instructions on how to ask questions over this conference call line.
We’ll be answering questions in the order that we receive them.
We’ll also be answering the questions that were emailed to us
during the presentation.
If there’s a question that we can’t answer, we’ll do some research
after this session, and then email the answer to all participants.
Slide 38
Thank You!
Thank you for participating!
We would love to hear from you.
Are there certain topics that you would like us to cover in future
FastFacts sessions?
Would you like to be a FastFacts presenter?
Please email us at: fastfacts@jhu.edu
Slide 39
Survey
Before we close, please take the time to complete a short survey.
Your feedback will help us as we plan future FastFacts sessions.
Click this link to access the survey…
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Thanks again!