The Difference Between Independent Contractors and Employees

It is important that the university identifies and pays both employees and independent contractors correctly, and the tax law covering independent contractors is very complicated.  Before the determination is made of how to treat payments for services, it is necessary to know the business relationship that exists between the university and the person performing the service.  In determining whether the person providing the service is an employee or independent contractor, all information that provides evidence of the degree of control and independence must be considered.

It is critical that the university correctly determines whether individuals providing services are employees or independent contractors.  Generally, the university must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee.  The university does not withhold or pay any taxes on payments to independent contractors.  If employees are incorrectly classified as independent contractors, the university can be held liable for employment taxes for that worker, plus possible penalties.

If you are unsure whether an individual should be paid as an employee or as an independent contractor, please visit the Procurement website for an evaluation form to help determine whether an individual may be paid as an independent contractor.