The IRS has begun a major audit initiative at colleges and universities. It is likely Iowa State will be reviewed at some point in the near future. Appropriate classification of workers as independent contractors or employees has been a major focus of these audits and the subject, in general, has received considerable press coverage in relation to the payment of social security for domestic help.
To be prepared for such a review, Iowa State has clarified its policies relating to the classification of workers.
- The critical factor to consider when classifying a worker is the level of control exerted by ISU. In essence, are we directing the worker how to accomplish a task (an employee relationship) as opposed to what needs to be accomplished (indicative of an independent contractor)?
- The IRS has developed 20 questions to assist in classification (See page 8.16). Not only do these questions help focus on the nature of the relationship, they can be used to structure agreements that better delineate the intended relationship between ISU and the worker.
- The 20 questions must be completed by departmental personnel who are familiar with the activities of the worker. This should be done prior to the initiation of the work to avoid any misunderstandings with the contractor. The questionnaire will be reviewed by the college. Accounting personnel are available for assistance in structuring these arrangements; call (515) 294-2556. Penalties assessed by the IRS for incorrect classification may be the responsibility of the department or college.
- If a current ISU employee is acting as an independent contractor, he/she must be on the Board of Regents approved vendor list. Please inform employees in your area of this requirement and have them contact Purchasing if they are likely to be in this category.
- If a current ISU employee is acting as an employee performing additional or irregular duties, a portion of the employee's salary should be "bought" by the hiring department. If this is not possible, additional compensation may be appropriate. The procedures for requesting additional compensation are included as Attachment #3 located on page 8.17 of this handbook. Questions on additional compensation should be directed to the assistant to the vice provost for finance.
This guide is located in the ISU Office Procedure Guide as it further clarifies existing procedure.
For more information about independent contractors contact (515) 294-2556.