Independent Contractor Definition
Federal and state tax laws require Emory University to ensure that individuals who provide services are properly classified as EITHER an employee or independent contractor. Proper classification of an individual will determine Emory's tax withholding and reporting obligations. (4.106)
An Independent Contractor is an individual who performs services for Emory whereby Emory has the right to specify the result to be accomplished by the work, but not the means and methods by which the result is to be accomplished. The earnings of a person working as an independent contractor are subject to Self-Employment Tax.
(In contrast, an employee is anyone who performs services for Emory and Emory controls what will be done and how it will be done. Emory must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes on wages paid to the employee.)
Factors Determining if an Individual is an Independent Contractor
The factors below must be weighed by Emory when determining whether the person is an employee or an independent contractor. It is not always easy to make the determination and there is no one factor that ultimately stands alone in making the determination.
- Does the company control or have the right to control what the worker does and how the worker does his job?
- Are the business aspects of the worker's job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, and who provides the tool/supplies, etc.)
- Are there written contracts or employee type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Per the IRS, the key is to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors use in coming up with determination.
IRS Can Make the Determination for You
If, after reviewing the Behavioral, Financial and Type of Relationship factors, and it is still unclear if the person should be classified as an employee or an independent contractor, contact the IRS (PDF).