PURPOSE AND SCOPE
The purpose of this Administrative Guideline is to describe the university's policies and procedures relating to the use of independent contractors for personal or professional services.
It is critical that the university comply with State/Federal laws governing reportable/taxable income and CSU policy regarding the proper classification of employees and independent contractors. Misclassification of a worker as an independent contractor can result in serious financial penalties in an audit and/or may result in the university being unable to legally procure services and pay the independent contractor.
Pursuant to Federal/State laws and CSU policy, independent contractors may not be used in lieu of hiring individuals as employees. An individual may only be retained for personal or professional services as an independent contractor if a determination has been made, in accordance with these guidelines. The responsibility for determining if the individual providing the service should be classified as an independent contractor or an employee rests with the department seeking services. Verification of independent contractor status must be obtained from the Director, Human Resources Services Group prior to contracting for services.
Departments must follow the steps contained in the Department Independent Contractor Procedures in order to retain the services of an independent contractor.
As a general rule, individuals should be classified as independent contractors on an exception basis only. Departments must follow the appropriate hiring procedures established by Staff Human Resources (Staff HR) or Faculty Affairs if it is determined the necessary services must be performed by a university employee.
Definition of Independent Contractor
Independent contractors are individuals who are subject to the control or direction from the university only as it relates to the results of the work performed. Independent contractors are engaged in a distinct profession and are in the business of providing services related to the job being contracted. They have total control over the work being performed, set their own hours, pay for their own business expenses, and provide their own equipment, liability insurance, and office space. It is typically of such a specialized or technical nature that the knowledge, experience, or abilities are not available through the normal hiring process. Independent contractors may not be a CSU employee (with exceptions). Services to be performed as an independent contractor must not displace the work of any bargaining unit employee or fall into one of the CSU Classification and Qualification standards. Payment for services is based upon completion of specific work, rather than time worked.
Determination Factors - Contractor or Employee?
The U.S. Internal Revenue Code requires the presence of specific characteristics between the employer and the contractual provider of personal services before an independent contractor relationship can exist. Before services are performed, departments desiring to contract for personal services must assess the relationship with the individual provider and the university to ensure that the individual is properly classified.
The Internal Revenue Service (IRS) has established 20 Determination Factors to help employers determine whether a worker should be treated as an employee or an independent contractor for tax purposes.
Limitations and Restrictions
Foreign National Residency Status – for Employment and Tax Purposes
If the independent contractor (individual or company) is a non-resident alien (NRA), or if the department is unsure of the residency status of the independent contractor, departments must contact the university’s Tax Specialist PRIOR to retaining the individual. The Tax Specialist MUST verify residency status and/or Visa status prior to a department making a commitment to retain the independent contractor. Failure to do so may result in the university being unable to legally procure services and pay the independent contractor.
State/CSU Contract Restrictions – for CSU Current and Former Employees
It is the university’s practice not to contract with university employees (with exceptions). This is supported by Technical Letter HR 2003-21 (Senate Bill 41).
Misclassification of Workers
It is important to determine the correct classification of workers as employees or independent contractors. This distinction is significant because an incorrect determination could result in the following:
- Loss of reimbursement under Federal contract and grant funds;
- Penalties for violation of State and Federal tax withholding laws;
- Penalties for violation of Federal laws pertaining to the employment of nonresident aliens (Form I-9).
In addition, the following employment-related requirements may be violated:
- State Oath of Allegiance, as required by the California Constitution;
- State Political Reform Act financial conflict of interest rules;
- Workers' compensation and unemployment insurance coverage requirements.
FORMS AND INSTRUCTIONS
- Independent Contractor Pre-Hire Worksheet Authorization
- Independent Contractor Agreement plus Exhibits (must include Scope of Work)
- Pre-Approved Independent Contractor Engagement Letter
- Preapproved Independent Contractor Payment Request Form
- Vendor Data Record Form (STD 204)
- Foreign National Information Form (for NRA IC’s only)
- CSULB Certification of Academic Activity (for NRA IC’s only)
- W-8BEN (for NRA IC's only)
|Interim Director Procurement & Contractual Services||Andrew Calderon||(562) email@example.com|
|Human Resources Service Group Director||Marita Swanson||(562) firstname.lastname@example.org|
|Class/Comp/Employment Associate Director||Karen Kerr||(562) email@example.com|
|Accounts Payable Manager||Carol Monson||(562) firstname.lastname@example.org|
|Risk Manager||Felissa Waynick||(562) email@example.com|
APPENDICES AND RELATED INFORMATION
Appendices (if any):
Related Chancellor’s Office Policies:
- HR 2003-21 New Public Contract Code Restrictions for CSU Employees
Last Review Date:
Amended Date: November 2014