Independent Contractors Overview

Independent Contractors

It is expected that Northwestern activities will be carried out to the maximum extent possible by using the services of regular and temporary employees. However, independent contractors or consultants may be used when necessary services cannot be provided adequately by regular and temporary employees within the scope of their employment or in emergency temporary circumstances.


Determining Method of Payment

Two determinations must be made before engaging a person in work for which Northwestern is to pay the person:

  1. Is the person an employee or an independent contractor?
  2. Is the person a U.S. citizen or resident, or is the person a non-resident foreign national?
U.S. Citizen or Permanent Resident Foreign National without Permanent U.S. Residence
Employee Engaged as an employee and paid through Payroll Engaged as an employee and paid through Payroll
Independent Contractor Engaged as a contractor and paid through Accounts Payable Engaged as a contractor and paid through Payroll to apply the required taxation

Employee vs. Independent Contractor

Proper classification of individuals is critical to appropriately process and make payments for services. Under the United States Internal Revenue Service (IRS) and other agency guidelines, Northwestern has certain responsibilities. Independent contractor payments must be tracked for taxable income reporting on Form 1099, and employee payments are subject to employment taxes and are reportable on Form W-2. In addition, employees may be eligible for benefits. Errors in employee/non-employee classification may lead to significant fines and penalties due to lack of appropriate income reporting, tax withholding, or provision of benefits.

Employee

An employee depends on an employer for income on a continuing basis and performs services that can be controlled and supervised by Northwestern. Additionally, any individual who has been paid on Northwestern payroll in the current calendar year is treated as an employee, even if the relationship might otherwise qualify as that of an independent contractor.

Independent Contractor

An independent contractor relationship may exist when both: Northwestern has the right to control or direct only the result of the work, and Northwestern does not direct what will be done or how the work will be performed.

To help determine which relationship is most appropriate, see the Independent Contractor Guidance page or review pages 4-8 of the Independent Contractor Questionnaire (ICQ) PDF.


Final Assessment

The final determination of an individual's relationship will be made by the HR Compensation division after submission of the Independent Contractor Questionnaire (ICQ) PDF. The assessment of the work characteristics will conclude with one of the following results:

Result 1: Employee

If the supervisor or the department expect to assert employer controls, the individual is to be engaged as an employee and paid according to the provisions for employees. For nonresidents, the individual's visa must qualify for employment in the determination of eligibility to work.  Refer to your department's HR contact to initiate employee paperwork.

Result 2: Independent Contractor

If the work will be free from employer controls, the individual may be engaged as a contractor and paid according to the provisions for engaging independent contractors. Refer to the Independent Contractor Payment Procedures to initiate payment.

Result 3: Employee as a Consultant

If the work is free from employer controls and the individuals already a Northwestern employee, the individual is to be engaged and paid according to the provisions for engaging employees as consultants.  Such payments should be processed as an Additional Pay Request.

Result 4: Unclear

If the result of the assessment is unclear, the individual will be hired and paid as an employee to ensure tax compliance.  Refer to your department's HR contact to initiate employee paperwork.


Other Requirements to Engage Non-employee Services


Engaging an Independent Contractor

Persons other than regular Northwestern employees may be used as contractors and paid from Northwestern funds only if all of the following conditions are met:

  • Employee unavailable. The services are needed and cannot be met by using a regular employee within the scope of his or her employment.
  • Selection process. A selection process has been used to secure the most qualified person available, considering the nature and extent of services required.
  • Appropriate fee. The fee is appropriate considering the qualification of the person to be used, his or her normal charge, and the nature of the services to be rendered. When the fee is charged to a sponsored project, it must conform to any limitation established by the award and funding agency.
  • Not already on payroll. The person has not been paid as a regular employee or temporary employee of Northwestern within the current calendar year.
  • Specified single period of engagement. The arrangement will last for a specified period and it is understood that no employment arrangement or repeated/extended arrangement will result.

Engaging an Employee as a Consultant

Persons who are regular employees of Northwestern may be used as consultants, and Northwestern funds may be charged for their activities, only if all of the following conditions are met:

  • Department employee unavailable. The services are needed and cannot be met by using a regular department employee within the scope of his or her employment.
  • Selection process. A selection process has been used to secure the most qualified person available, considering the nature and extent of service required.
  • Employee is outside of department. The services must be performed in a department that is not the usual department of the employee and must be an operation that is separate or remote from usual employment duties.
  • Appropriate fee. The fee is appropriate considering the qualifications of the person to be used and the nature of the service to be rendered. When the fee is charged to a sponsored project, it must conform to any limitation established by that award and funding agency. The fee must be appropriate for the job being performed and set in close relation to the average rate paid by Northwestern for similar work, even if not closely related to the employee's regular pay. The Compensation Division of Human Resources should be contacted for guidance in setting fees.
  • Prior review of fees. All fees are subject to provisions of the Fair Labor Standards Act, requiring among other things that premium rates be paid to non-exempt employees for overtime hours, and prior review of the Compensation Division of the Department of Human Resources.
  • Honorarium. An honorarium awarded to an employee is paid using the Additional Pay Request process.