Personal Services Payments

Revised: September 24, 2015

I. Background

The University of Wisconsin System secures the personal services of individuals and business entities through one of two methods: an employer/employee relationship or an agreement with an independent contractor. The purposes of this paper are to provide the criteria which should be used in selecting between the methods of securing the services and to describe the corresponding procedures for compensation of such services. Neither payrolled scholarships and fellowships nor subcontracts of extramurally supported projects are addressed in this paper.

II. Constraints

The following rules, regulations and guidelines are taken into consideration in the application of this policy paper:

UW System Administrative Policy 165 (SYS 165), Academic Year Definition and Assorted Derivatives and UW System Administrative Policy 324 (SYS 324), Inter-Institutional Financial Transactions  delineate policy where institutions engage the services of their own and other UW System staff beyond their original employment contract.

University Travel Policies
UW System Administrative Policy 435 (SYS 435), Headquarter City & UW System Sponsored Events Policy
Covers policies, procedures, and rate maximums for travel and entertainment costs related to University business.

Wisconsin Statutes 230.047, Administrative Code PERS 31 and Employment Relations Chapter 47 govern interchange of employees between State agencies.

Section 16.417(2), Wisconsin Statutes, establishes the maximum earnings for State employees with more than one position within the State.

Administrative Code ADM 10 governs procurement by Contract for Services. This is the implementation of parts of s.16.75, Wisconsin Statutes, and is rephrased in more detail in the State Procurement Manual.

Internal Revenue Service Revenue Ruling 87-41 sets forth guidelines to determine the employment status of individuals.

Internal Revenue Code Section 3401 provides the definition of wages.

Internal Revenue Code Section 3402 governs which payments are included and excluded from wages paid to employees.

Internal Revenue Code Section 6041 governs Form 1099 reporting.

Internal Revenue Code Section 1461 governs reporting requirements on payments to nonresident aliens.

Internal Revenue Code Section 1441 governs nonresident alien withholding.

Internal Revenue Code Section 3406 governs backup withholding on U.S. residents.

s. 71.80(15), Wis. Statutes, govern the withholding of taxes from entertainers.

III. Policy

Individuals who provide a service to the university are generally compensated in one of two ways: via payroll as an “Employment Service” when there is an employer-employee relationship or as an “Independent Contractor Service” through the accounts payable process using a PIR form or invoice when an employer-employee relationship does not exist. The specific circumstances of each service will dictate the type of service which exists. Section A provides guidance in making employer-employee determinations and other factors that must be considered once it is determined that an employer-employee situation exists. , Attachment 2, Attachment 3 and  also provide guidance in making that determination. Section B provides guidance in the handling of independent contractor services.

A. Employment Services

1. An employer-employee relationship generally exists if the institution has the right to control and direct the individual as to what should be done and how it should be done. Some of the key factors include whether payment is made by the job or by the month/hour; whether the person has an opportunity for profit or loss; whether the person works for more than one firm at a time; whether the person makes his/her services available to the general public; and whether there exists the right to discharge.
2. Generally, an employment relationship exists if the institution directs and controls the individual in the way he/she works, both as to final results and as to the details of when, where, and how work is to be done. The employer need not actually exercise control; it simply must have the right to do so. When an institution determines an employment relationship exists, the individual must be appointed and paid on payroll unless the exceptions under section III, A. 5 are met.
3. When an institution is determining whether to obtain an additional personal service, a unique service, or a consultant service, consideration must first be given to more effective use of personnel within the institution, within the UW System, and within other State agencies. In accordance with the Internal Revenue Code Section 3402(e), if the individual is a current UW System employee, all payments for services are deemed to be wages and must be payrolled. SYS 324, Inter-Institutional Financial Transactions and SYS 165, Academic Year Definition and Assorted Derivatives offer guidance when utilizing current employees of other UW System institutions.
4. Section 230.047, Wisconsin Statutes, must be adhered to when utilizing current employees of other State agencies. An  will need to be prepared and executed by the UW System institution and the other State agency. Section 16.417(2), Wisconsin Statutes, limits such additional compensation of full-time employees to $12,000 per calendar year. If the person was employed full-time at the time the additional income was earned, the excess over $12,000 must be recovered from the individual.
5. Occasionally, the tests of control will be sufficiently met to conclude an employer-employee relationship does exist, but the amount of pay is determined to be sufficiently small as to not warrant the time and expenses of placing the individual on the payroll. Although such payments should be made through the payroll system, the PIR form may be used under the following circumstances:
   1. Service is provided by other than a current employee or a student and payment does not exceed $500 for a specific or series of predictable events.
   2. Service is provided by a UW System student and the student receives a one-time payment of $100 or less per calendar year. In such circumstances, students are deemed independent contractors of the institution to which the service is provided.

   Note: No tolerance may be applied when such service is provided by a current UW System employee.

6. Use of one payment alternative over another does not eliminate liabilities such as worker’s compensation arising from the employer/employee relationship. Refer to Attachment 6 for examples of employment-related services which, due to the small dollar amounts, may be candidates for payment by PIR form.

B. Independent Contractor Services

1. If an institution determines an employer-employee relationship does not exist, the individual or entity providing the service is an independent contractor. Independent contractors may include speakers and guest lecturers in a nonpublic setting. Officials for athletic events and contest judges may also be considered independent contractors. An independent contractor is not eligible for fringe benefits and is not subject to State liability protection or eligible for Workers and Unemployment Compensation.
2. Generally, an independent contractor situation exists if the service is provided regularly and continuously to the general public, and the service is the principal source of livelihood or profit. The institution may not control how the work must be done, only the result of the work. An independent contractor may be an individual, a group of individuals or a business entity.
3. If the service desired is available from more than one source, competitive procurement rules apply and purchasing bid and waiver regulations must be followed. Some services provided by independent contractors represent special talents needed by the UW System on a temporary basis to fulfill its missions of instruction, research and public service. If the service is a unique, noncompetitive activity supporting instruction/research/public service, it will be considered an Academic Support Service. If the cost of the service will be greater than or equal to $5,000, an  must be executed and approved by a contracting officer of the institution prior to commencement of the service to certify that the competitive purchasing process need not be used. An ASSA must be executed regardless of the payment method utilized. If desired, an ASSA may also be executed in connection with contracts for services under $5,000. Authority to sign ASSAs may be delegated in writing by the Chancellor. ASSAs $5,000 or greater must be reported to the University of Wisconsin System Vice President for Finance in accordance with Regent Resolution 7548.
4. An “honorarium” which is defined as a gift or gratuitous payment may occasionally be provided to an individual or organization as a display of gratitude or custom, for providing services for which no fee was established or agreed upon and for which there is no legal obligation or entitlement to payment. Refer to UW System Administrative Policy 330 (SYS 330), Prizes, Awards, and Gifts for guidance in this area.
5. The IRS has strict rules regarding payments to nonresident aliens. Refer to Attachment 7 for a checklist of documents which must be prepared and  for Visa Classifications; or contact your foreign student office or business office for assistance.
6. Federal grants policy manuals restrict persons who hold federal appointments from contracting under federal projects unless they are on leave status from their federal agency.
7. The Payment to Individual Report (PIR) form may be used to generate the payments to independent contractors unless the independent contractor is a business entity with a tax identification number and submits a proper invoice for payment. The UW System must comply with IRS and State of Wisconsin reporting and withholding requirements as outlined in Attachment 10.
8. If travel expenses are being reimbursed, it is to the recipient’s advantage to comply with University Travel Policies. Otherwise, the travel expenses may be subject to reporting for tax purposes.
9. Attachment 11 provides answers to frequently asked questions regarding this subject matter.