Policy
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: , 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
- 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)
- Simplified bidding is available if the cost of the service is $149,999 or less.
- Service contract must be in writing and signed by an individual with signature authority.
- 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)
- Special Considerations
- 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
- 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)
- If the cost of the service will be less than $5,000, an Academic Support Services Agreement may be used, if desired.
- Authority to sign ASSAs may be delegated in writing by the Chancellor.
- ASSAs valued at $5,000.00 or greater must be reported to the University of Wisconsin System Vice President for Finance.
- If the contract involves federal funds, a cost analysis must be documented to the contract file.
- Special Considerations
- 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
- 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
- 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
- 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
- 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 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. 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
, Employee/Independent Contractor Status Questionnaire
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 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
8. Policy History
First approved: January 12, 2021
9. Scheduled Review
January 2026
Guidance
Determination of Employee vs. Independent Contractor Status
Original Issuance Date: January 28, 2021 Last Revision Date: January 28, 20211. Purpose of Guidelines
The purpose of these guidelines is to assist UW System staff in determining whether services being rendered by an individual to a UW System Institution are appropriately characterized as an employer-employee relationship or an independent contractor relationship.2. Publishing Office(s)
This guideline is published by UW System Human Resources.3. Affected Stakeholders on Campus
This employee vs independent contractor determination will normally be made by the CHRO of the institution, however procurement services may also be involved in making this determination. Stakeholders include any system personnel responsible for hiring temporary help or specialized services.4. Primary Responsibility
This guidance is maintained by the University of Wisconsin System Human Resources Office. At the institution level, compliance with these guidelines is the responsibility of the institution’s Chief Human Resource Officer.5. Guidelines
This guideline provides the criteria to be applied in the determination of whether an employer/employee relationship or an independent contractor relationship exists with respect to an individual or entity providing services to the UWS. The legal analysis of the relationship is called the “Economic Realities Test”. It has been established through case law and incorporated by the IRS into several guidance documents. In conducting the analysis the decision maker should consider the following factors:- Instructions. A worker who is required to comply with other persons’ instructions about when, where, and how (s)he is to work is ordinarily an employee.
- Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person(s) for whom the services are performed wants the services performed in a particular method or manner.
- Integration. Integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control.
- Services Rendered Personally. if the services must be rendered personally, presumably the person(s) for whom the services are performed is interested in the methods used to accomplish the work as well as in the results.
- Hiring, Supervising, and Paying Assistants. If the person(s) for whom the services are performed hires, supervises, and pays assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.
- Continuing Relationship. A continuing relationship between the worker and the person(s) for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.
- Set Hours of Work. The establishment of set hours of work by the person(s) for whom the services are performed is a factor indicating control.
- Full-time Required. If the worker must devote substantially full-time to the business of the person(s) for whom the services are performed, such person(s) has control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom (s)he chooses.
- Doing Work on Employer’s Premises. If the work is performed on the premises of the person(s) for whom the services are performed, that factor suggests control over the worker.
- Order or Sequence Set. If a worker must perform services in the order or sequence set by the person(s) for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person(s) for whom the services are performed. Often, because of the nature of an occupation, the person(s) for whom the services are performed does not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person(s) retains the right to do so.
- Oral or Written Reports. A requirement that the worker submit regular or written reports to the person(s) for whom the services are performed indicates a degree of control.
- Payment by Hour, Week, Month. Payment by the hour, week or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor.
- Payment of Business and/or Traveling Expenses. If the person(s) for whom the services are performed ordinarily pays the worker’s business and/or traveling expenses, the worker is ordinarily an employee.
- Furnishing of Tools and Materials. The fact that the person(s) for whom the services are performed furnishes significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.
- Significant Investment. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person(s) for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.
- Realization of Profit Or Loss. A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee.
- Working for More Than One Firm at a Time. If a worker performs more than deminimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor.
- Making Service Available to General Public. The fact that a worker makes his/her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.
- Right to Discharge. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.
- Right to Terminate. If the worker has the right to end his/her relationship with the person for whom the services are performed at any time (s)he wishes without incurring liability, that factor indicates an employer-employee relationship.
- The following factors indicate an employment relationship may exist:
- Instructors of college credit courses when the university contracts with the instructor.
- Primary instructor of a course, be it for college credit, continuing education credit, or noncredit.
- University of Wisconsin faculty members who provide services for the extension programs.
- A rate of pay which is not unusually high or low for the services performed.
- The fee or rate of pay is set by the UW System.
- Performance of services is done in regularly scheduled classes over a period of time.
- A continuing relationship between the UW System and the provider of the services exists.
- The location and facilities are provided by the UW System.
- The UW System has the right to discharge the provider of the services.
- The Provider of services has the right to terminate the relationship with the UW and the UW would have the obligation to replace the individual, cancel classes, etc.
- The following factors indicate that an independent contractor relationship may exist:
- Guest lecturers and consultants who are not the course instructors.
- An unusually large (indicating expert) or small (indicating token appreciation) amount of pay for the service provided.
- The UW System competes for the services of the provider, and pays his/her rate of pay.
- Contracting with a provider of services whose business is conducting workshops at many different universities and campuses.
- The facilities are arranged and paid for by the provider of the services.
- The provider incurs significant unreimbursed expenses.
- The provider’s work is performed not primarily at the UW.