It is the policy of the university to properly classify workers as employees or independent contractors by applying IRS guidelines. The IRS has expressed concern that many colleges and universities have failed to properly classify workers. The tendency has been for employers to consider a worker as an independent contractor. The IRS has given a high priority to the proper classifications of worker relationships and the tax implications of the decisions made by institutions. The penalties for misclassifying workers as independent contractors are significant. If a worker is reclassified by the IRS as an employee, the institution will be liable for the amount of the Federal income taxes that should have been withheld during the period of misclassification as well as FICA taxes (both employer's and employee's), interest and penalties. In addition, employee benefits would have to be extended to the misclassified worker.
The university has devised a procedure to be followed whenever New School engages an individual to perform services. This procedure provides guidelines to properly classify an individual as an Independent Contractor or Employee. The procedures are consistent with Internal Revenue Service (IRS) rules.
Procedures and Required Documentation to Pay Independent Personal Services
All workers performing services other than those predefined above are considered employees unless there is sufficient evidence that the worker can be treated as an independent contractor. If a New School representative and an independent worker believe the worker is an independent contractor, the New School representative must send an e-mail to the TaxAgent mailbox on the university network before the start of service or execution of a contract. The following information should be supplied:
- Name of worker and business name used
- Description of services to be provided, and for which projects
- Expected length of project or service relationship with New School
- Total amount to be paid to worker
- Names of New School employees and outside independent workers who will assist worker in providing services. Define nature of worker's relationship with each name shown.
Turn Around Time
The Accounts Payable Office will review and respond to your initial e-mail request for independent contractor status consideration within five business days of receipt. If it is determined that independent contractor status may be justified, you will be advised to supply the worker with the more detailed Worker Status Questionnaire. The worker must complete and sign this document. The original signed document and its attachments must be submitted to and retained in the Accounts Payable Office. An original signature is required in case of an Internal Revenue Service audit. A final determination will be made by the Accounts Payable Office within five business days of receipt of the completed Worker Status Questionnaire. You will be advised via e-mail of the final determination.
Federal and state laws require that workers meet specific criteria with regard to the way they regularly conduct business in order to be treated as independent contractors. Individuals who do not meet the specified criteria must be paid as employees of The New School, with appropriate taxes withheld.
As a general matter, the one word that defines the IRS' classification line-drawing between employee and independent contractor is "control." If the university has the right to control the work and provides the means to do the work, the more likely the worker will be deemed an employee.
An employee is an individual who renders a service at the will and control of an employer, both in terms of 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.
An independent contractor is an individual or business over whom the university has the right to control or direct only the result of the work and not the means by which the results are accomplished. Independent contractors are sole proprietorships, partnerships, corporations, etc., which render services to the general public and meet additional criteria within IRS guidelines. They usually have a separate workplace and are not supervised when they are working within the organization. They often provide a one-time or periodic service which fulfills a special need of the university and cannot be provided within the organization. Independent contractors are frequently individuals or businesses who provide professional advice.
Worker Status Appeals Process
The Accounts Payable Department will review all Worker Status Questionnaires and make determinations as top workers' employment status. If a worker determined to be an employee believes that an inappropriate determination was made, the worker may request to obtain a ruling from the IRS. This request is to be made directly with the IRS. The worker should submit to IRS a Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. This determination typically takes 6-12 months. During that time, the worker will be paid as an employee. If IRS determines that the correct classification should have been as an independent contractor, the taxes withheld will be refunded to the worker.