Every year, ASU engages independent contractors for a variety of purposes. When that contractor is an individual or operating as a single-member LLC, Tax Services provides guidance on the IRS rules and considerations to take into account when determining if independent contractor treatment is appropriate. To comply with U.S. tax and labor laws, the ASU community must follow certain procedures. For this reason, Tax Services should be approving independent contractor treatment before an individual begins their work. If you have questions, contact your Human Resources Partner or Tax Services.
The extent that ASU controls both the work and the economic aspects play a significant part in determining if someone will be approved as an independent contractor or if the department should hire them as an employee. While each case is different, below are several factors that Tax Services will use to review the relationship. This list is not comprehensive:
- Expense reimbursements.
- Providing expense reimbursements is more indicative of an employee-employer relationship; however, we realize it is customary for guest lecturers to receive travel-related costs. If ASU reimburses an individual of certain costs, this will not invalidate his or her treatment as an independent contractor. Still, we caution agreeing to reimburse an individual if he or she is paid on an hourly basis. If so, it would be extremely difficult to support an independent contractor determination.
- Hourly, weekly or monthly fees may indicate an employee-employer relationship.
- A fixed fee is indicative of an independent contractor relationship; use when possible.
- Financial reliance on ASU.
- The more an individual relies on ASU for his or her financial solvency, the more this indicates an employee-employer relationship.
- For an independent contractor status to be supported, the individual must be able to seek out other business opportunities while providing work for ASU. This may include advertising, maintaining a location and bidding and providing services to other customers besides ASU.
- How a project is evaluated.
- Evaluating how the work is performed may indicate an employee-employer relationship.
- Evaluating the result of an individual’s work may indicate an independent contractor relationship.
- Instruction on when or where the work is performed.
- The more specific the instructions, the more it indicates an employee-employer relationship.
- The more loosely defined the instructions, the more likely this allows the individual to be an independent contractor.
- Opportunity for profit or loss.
- If an individual has an opportunity for profit or loss, it supports an independent contractor relationship. An example is an individual being paid a flat fee for a project. If the project takes less time than anticipated, the individual has made more money for less time invested, allowing him or her to reallocate time and theoretically make additional money.
- Significant investment.
- The more an individual invests in equipment and supplies, the more likely it is that this person is an independent contractor.
- Detailed training may indicate an employee-employer relationship.
- Minimal or as-needed-only training may indicate an independent contractor relationship.
- If the individual must be trained in and follow protocol approved by the Institutional Research Board, this may indicate an employee-employer relationship.
- What tools or equipment to use.
- Insisting someone use ASU equipment or labs may indicate an employee-employer relationship.
- Freedom to choose which piece of equipment to use and where it is located may indicate an independent contractor relationship.
- Where to purchase supplies or services.
- If ASU insists that an individual uses a specific vendor or hire a specific person to assist, this is indicative of an employee-employer relationship.
- Independent contractors have freedom of choice in vendor relationships and sub-contractors.
With few exceptions, the following types of services will not be approved for independent contractor treatment:
- Instructors of Record, or those teaching accredited courses for all or the majority of the term.
- Long-term or full-time research assistance.
- Services by any individual or company that is owned by an ASU employee. This would constitute a conflict of interest and would have to follow the rules outlined in ACD 204-08. Some services by a company may be able to be provided; however disclosure and review would be required by either ASU’s Office of Research Integrity and Assurance or ASU’s Office of General Counsel.
- Transitional positions for incoming or leaving employees, including those positions that were ended due to graduation. See FIN 421-01.
Once a department believes that their situation should be reviewed for approval as an independent contractor relationship, they would complete the Independent contractor determination checklist. This should occur prior to any work being completed.
ASU also recognizes that there are some situations that this approval should be automatic. Exceptions to the determination checklist requirement include:
- Athletic officials.
- Board members.
- Corporations, partnerships or other business entities not operating as a single-member LLC.
- Expense reimbursement only — no service or honorarium payment is included.
- Guest lecturers and speakers visiting for fewer than two weeks.
- Individuals performing external peer review consulting services as part of departmental or program accreditation or performance monitoring.
- Payments to a service provider that will not exceed $600 across the university in a single calendar year.
- Performers giving a limited number of performances, including DJs and artists.
- Photographers and short-term, project-based videographers.
- Service providers for construction or tenant improvement.
- Service providers for tangible goods or equipment rentals.
- Standardized patients.
- Writers — if the payment is for an article published in an ASU publication or website.
Once the determination that the ICC is required, the department would initiate the form. This form will automatically route based on the email addresses provided. Each identified person on the ICC will be responsible for reviewing and completing a different component of the form, and additional attachments can be added to further support or explain the facts and circumstances. If approved, the approved checklist will be emailed to all recipients that were identified on the form. This approved checklist should be attached to any requisitions related to the approved services prior to submission.
If the form is denied or additional information is needed, the department will hear from Tax Services on the next steps. Denial will require the department to work with their HR representative to determine how to hire this person as an employee.
- A.R.S. 38-503 Conflict of interest; exemptions; employment prohibition.
- ASU Office of General Counsell: Conflict of Interest.
- ASU Office of Research Integrity and Assurance: Conflict of Interest.
- FIN 421–01.
- Internal Revenue Service: Independent Contractor (Self-Employed) or Employee?