Original Issuance Date: January 12, 2021
Last Revision Date: September 2, 2022
1. Policy Purpose
This policy establishes the requirements associated with UW institutions’ use of independent contractors and the processes that may be used for payments related to their services.
2. Responsible UW System Officer
Associate Vice President and Chief Human Resources Officer
3. Scope and Institutional Responsibilities
This policy applies to individuals providing services to UW System institutions as independent contractors, the UW employees receiving services from these independent contractors, and the administrative personnel responsible for contracting and institutional support of these activities. This policy does not apply to services provided by employees of the UW System, or to services provided by full time personnel of other federal, state, or local agencies.
The University of Wisconsin System secures the services of individuals and business entities through one of two methods: an employer/employee relationship or an agreement with an independent contractor. This policy is intended to provide guidance for the utilization of independent contractors, including the different mechanisms by which independent contractors’ services may be secured by UW System Institutions.
The UW System and UW-Madison have formal delegated procurement authority from the State of Wisconsin to purchase general goods and services under Wis. Stat. § 16.70. The UW System Administrative procurement policies and procedures (SYS 500 policies) provide the operational framework for purchasing services from suppliers under the Board of Regents’ authority, found in Wis. Stat. § 36.11. The UW System Administrative procurement policies and procedures are designed to comply with federal grant and contracting policies and procedures.
General contract approval authority has been delegated by the Regents to the System President, who is authorized to further delegate contract signature authority to other UW System Administration officials, as well as chancellors of the UW System Institutions under Regent Policy Document (RPD) 13-1, General Contract Approval, Signature Authority, and Reporting. The chancellors are authorized to further delegate signature authority to institution employees.
The UW System also has a Low Dollar Exception payment methodology in which students and non-UW System employees may be paid like independent contractors while being employees for other legal purposes.
Academic Support Services: 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. (See SYS 540, Non-Competitive Procurement Contracts.)
Independent Contractor: One who, in exercising an independent employment, contracts to do certain work according to their own methods, without being subject to the control of their employer, except as to the results or product of their work. See Administrative Guidance # 236-1: Determination of Employee vs. Independent Contractor Status. See also Appendix 1- Employee/Independent Contractor Determination Questionnaire.
Low Dollar Exception: 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 Payment to Individuals Request (PIR) form may be used under the following circumstances:
- 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.
- 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. Policy Statement
The University of Wisconsin System, and all of its institutions, may utilize independent contractors for the provision of services.
A. General Provisions
- When an institution is determining whether to hire an independent contractor, consideration must first be given to more effective use of personnel within the institution, within the UW System, and within other State agencies. (See SYS 165, The Academic Calendar and SYS 237, Utilization of Borrowed Employees/Employee Interchange Agreements.)
- If an independent contractor will be working with minors, they must also abide by SYS 625, Youth Protection and Compliance.
- In accordance with the Internal Revenue Code Section 3402(e), if an individual is a current UW System employee, payments for services are deemed to be wages and must be payrolled. An institution may not pay an existing employee as an independent contractor without specific authorization from UWS Human Resources.
- Federal grant policy manuals restrict persons who hold federal appointments from contracting under federal projects unless they are on leave status from their federal agency.
- For internal control and tax reasons, payments may only be made to the individual or entity who provided the service.
- If the individual providing the services is a non-resident alien, SYS 238, Payments to Foreign Nationals must be followed.
- An active supplier record should be established in the UW System financial record system before work starts, unless an emergency exists. In case of emergency, the supplier record should be completed as soon as practical.
- If the cost of the services is $600.00 or more and the provider is not a corporation (or an LLC treated as a corporation), then an IRS Form 1099 must be filed by the institution.
B. Contracting Considerations
- Employees must consult with their institutional purchasing departments before engaging prospective independent contractors to determine if institutional, system-wide or statewide contracts can provide for the required services.
C. Academic Support Services
- Contract Requirements for Academic Support Services
- An Academic Support Services Agreement (“ASSA”) must be executed and approved by a contracting officer of the institution prior to the commencement of the service to certify that a competitive purchasing process need not be used. This requirement exists regardless of the payment method utilized. (See SYS 540, Non-Competitive Procurement Contracts.)
D. Low Dollar Exception
- Payment and Tax Withholding for a Low Dollar Exemption
- A 1099 form need not be completed by the institution if the total compensation is less than $600.00.
- Special Considerations
- Use of one payment alternative over another does not eliminate liabilities such as worker’s compensation arising from the employer/employee relationship.
7. Related Documents
Wis. Stat. § 16.70
Wis. Stat. § 36.11
Wis. Stat. § 71.80(15), govern the withholding of taxes from entertainers.
Wis. Admin. Code § ADM 10 (2012) governs procurement by Contract for Services. This is the implementation of parts of Wis. Stat. § 16.75 and is rephrased in more detail in the State Procurement Manual.
RPD 13-1, General Contract Approval, Signature Authority, and Reporting
SYS 165, The Academic Calendar
SYS 237, Utilization of Borrowed Employees/Employee Interchange Agreements
SYS 238, Payments to Foreign Nationals
SYS 521, Authority to Sign Procurement Contracts in the UW System
SYS 521.A, Procurement: Simplified and Sealed Bidding
SYS 522, Exclusions from a Competitive Procurement Process
SYS 540, Non-Competitive Procurement Contracts
SYS 625, Youth Protection and Compliance
Internal Revenue Service Revenue Ruling 87-41 sets forth guidelines to determine the employment status of individuals. (See JCX-26-07.)
Internal Revenue Code Section 3401 provides the definition of wages.
Internal Revenue Code Section 6041 governs Form 1099 reporting.
UW Responsibilities as a Withholding Agent
8. Policy History
Revision 1: September 2, 2022
First approved: January 12, 2021
9. Scheduled Review