Utilization of Independent Contractors

Original Issuance Date: January 12, 2021
Last Revision Date: January 12, 2021

1. Policy Purpose

This policy establishes the circumstances under which independent contractors may be used by UW System Institutions, and the criteria by which independent contractors may be selected and the mechanisms by which independent contractors may be compensated.

2. Responsible UW System Officer

Associate Vice President and Chief Human Resource Officer

3. Scope

This policy applies to individuals and business entities providing personal services to UW System Institutions as independent contractors, the UW employees responsible for contracting and supervising these entities and the administrative personnel responsible for running the business systems that support 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 state, federal or local agencies.

4. 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. 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 s. 16.70 , Wis. Stats. The UW System Administrative procurement policies and procedures provide the operational framework for purchasing services from suppliers under the Board of Regents’ authority, found in s. 36.11, Wis. Stats. 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 13-1, General Contract Approval, Signature Authority, and Reporting. The chancellors are authorized to further delegate signature authority to institution employees.

The UW System recognizes two mechanisms for the retention of independent contractors, the normal procurement process and the Academic Support Services Agreement. The System also recognizes a Low Dollar system in which students and non UW-System employees may be paid like independent contractors while being employees for other legal purposes.

5. Definitions

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. (Ex. guest lecturers, athletic event officials, consultants, contest judges. Academic support services may also be provided by individual professionals or groups of professionals, a hospital, a clinic, a school district, a business, a non-profit or other entity that may be able to provide the unique set of qualifications to accomplish the instruction, research or public service mission.)

Authorized: A person who has received delegated authority from the Board of Regents to take an action on behalf of the UW System or a UW Institution, pursuant to RPD 13-1 and SYS 521, Authority to Sign Procurement Contracts in the UW System. This authorization may also be subject to the State of Wisconsin Procurement Delegation Policy, State Procurement Manual, PRO-A-3.

Consultants: Professionals offering specialized advice or services to clients as an independent contractor.

Entertainer: A natural person who, for consideration, furnishes amusement, entertainment or public speaking services, or performs in one or more sporting events in this state. Independent contractors of this type may be selected through a non-competitive process either through an ASSA or via an Exclusion from a Competitive Procurement under SYS 522, Exclusions from a Competitive Procurement Process. (Ex. a famous writer, a famous musical band, a famous public speaker)

Fungible Services: Commercial services that are not unique or specific to the individual, group of individuals or business entity (e.g. an LLC or corporation) providing the service. Applicable when many different service providers can provide the identical, or equivalent service. These may involve the application of skill or expertise, but this skill or expertise need not be unique to the particular service provider. (Ex. an HVAC system installer, a painting crew, a snow plowing service)

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 Exceptions: 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:

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.

Signature Authority: The right to bind a UW System Institution or the Board of Regents to a contractual agreement. This authority must be conveyed in writing, pursuant to RPD 13-1.

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, Academic Year Definition and Assorted Derivatives and SYS 237, Utilization of Borrowed Employees/Temporary Interchange Agreements.)
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.
The Payment to Individual Report (PIR) form may be used to generate the payments to independent contractors unless the independent contractor is a statutory business entity with a tax identification number, and submits a proper invoice for payment.
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.
IRS W-9 form should be completed before work starts, unless an emergency exists. In case of emergency, the W-9 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. Fungible Services

Contract Requirements for Fungible Services
1. Normal procurement processes must be followed. (See 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 Contracts)
  1. Simplified bidding is available if the cost of the service is $149,999 or less.
  2. Service contract must be in writing and signed by an individual with signature authority.
Special Considerations
1. System personnel should consult with their institutional purchasing departments to determine if institutional, system-wide or statewide contracts exist for particular contracted services.

C. Academic Support Services

Contract Requirements for Academic Support Services
1. If the cost of the service will be greater than or equal to $5,000, 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 236-1, Academic Support Agreements)
2. If the cost of the service will be less than $5,000, an Academic Support Services Agreement may be used, if desired.
3. Authority to sign ASSAs may be delegated in writing by the Chancellor.
4. ASSAs valued at $5,000.00 or greater must be reported to the University of Wisconsin System Vice President for Finance.
5. If the contract involves federal funds, a cost analysis must be documented to the contract file.
Special Considerations
1. 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.

D. Public Speakers or Entertainers

Contract Requirements for a Public Speaker or Entertainer
Noncompetitive negotiation may be used to purchase a service that can only be obtained from one source. The procedures in SYS 540, Non-Competitive Contracts must be followed by the requestor and appropriate Purchasing Lead. If an ASSA is used, the regular ASSA requirements apply.
Payment and Tax Withholding
1. Special tax withholding requirements exist for entertainers and entertainment corporations. If the value of the contract exceeds $7,000.00 WI Dept of Revenue Form WT-11 is required, except under limited exceptions. See s. 71.80 (15) Wis. Stats.
Special Considerations
1. Institutions should have entertainers and public speakers sign contracts to protect the institution from liability issues and/or to spell out specific arrangements between the institution and the entertainer.

E. Consultants

Contract Requirements for Consultants
1. Noncompetitive negotiation may be used to purchase a service that can only be obtained from one source. The procedures in SYS 540, Non-Competitive Contracts must be followed by the requestor and appropriate Purchasing Lead. If an ASSA is used, the regular ASSA requirements apply.
Special Considerations
1. There are mandatory state Department of Administration Contracts for Consulting Services. Requestors should contact their institution’s purchasing department for more information.

F. Low Dollar Exception

Payment and Tax Withholding for a Low Dollar Exeption
1. A 1099 form need not be completed by the institution if the total compensation is less than $600.00.
Special Considerations
1. 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.

7. Related Documents

s. 16.70 , Wis. Stats

s. 36.11, Wis. Stats

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

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.

Regent Policy Document 13-1, General Contract Approval, Signature Authority, and Reporting

UW System Administrative Policy 165, Academic Year Definition and Assorted Derivatives

UW System Administrative Policy 237, Utilization of Borrowed Employees/Temporary Interchange Agreements

UW System Administrative Policy 238, Payments to Foreign Nationals

UW System Administrative Policy 521, Authority to Sign Procurement Contracts in the UW System

UW System Administrative Procedure 521.A, Procurement: Simplified and Sealed Bidding

UW System Administrative Policy 522, Exclusions from a Competitive Procurement Process

UW System Administrative Policy 540, Non-Competitive Contracts

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