Policies & Forms

Individuals covered

All employees and those considered for independent contracting who are not employees.

Policy

It is expected that University 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 University employment or in emergency temporary circumstances.

Procedures on the following pages

The pages that follow describe these procedures:

• First Determination: employee or independent contractor
• Second Determination: U. S. residence for independent contractors
• Engaging a U.S. resident as an independent contractor and paying a U. S. resident as an independent contractor
• Engaging a non-resident as an independent contractor and paying non-resident independent contractors
• Engaging an employee as a consultant and paying an employee for consulting services

Overview of procedures

Two determinations must be made before engaging a person in work for which the University 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?

IF in the first determination, the individual is found to be an…	AND IF in the second determination, the individual is found to be a…
	U.S. citizen or permanent resident	Foreign national without permanent US residence…
	THEN the individual is to be…
Employee	Engaged as an employee and paid through the payroll	Engaged as an employee and paid through the payroll
Independent contractor	Engaged as a contractor and paid through Accounts Payable	Engaged as a contractor and paid through the payroll in order to apply the required taxation

Download forms for arranging payments to individuals from University Financial Operations.

Definitions

The distinction between employee and independent contractor is important for purposes of withholding income taxes, provision of employee benefits, and other legal requirements. The term “consultant” has special applicability to sponsored projects and these standards for the identification of consultants and payment of their fees are set to satisfy federal government requirements for such standards. A consultant is generally an independent contractor.

Employee. An employee depends on an employer for income on a continuing basis and is subject in the assigned work to the supervision and control of the employer.

A regular employee is hired by the University for continuing employment, and a temporary employee is hired for sporadic or casual employment. Full-time or part- time faculty and staff members who are eligible for University employee benefits are generally considered regular employees.

If an individual has been paid on the University payroll within the previous twelve months, the individual is treated as an employee on any payments for work performed, even if the relationship might otherwise qualify as that of an independent contractor.

Independent contractor. An entity or an individual not employed by the University who performs the required task or tasks according to the contractor's own manner and method, outside of the direction or control of the University, is an independent contractor. The independent contractor's activities are not controlled or directed by the University or subject to the University’s right to control or direct the task or tasks to be performed.

Consultant. An entity or individual who provides expert or professional analysis or advice on a short term basis is a consultant. In virtually all cases a consultant is a form of independent contractor and consulting services are performed by independent contractors. However, such service may be performed by employees under special and limited circumstances: (1) an employee may serve as a consultant if the service is in a department or disciplinary specialty other than that of the employee's employing department and (2) it involves an operation that is separate or remote from the individual's usual employment duties. Individuals already on the University payroll and performing such consulting services are paid for those services as employees and not as independent contractors. Students cannot perform services in a consultant role for purposes of this policy.

Twenty characteristics of employment, sometimes called “the common law classification factors,” help differentiate between the work of an employee and that of an independent contractor. The characteristics are matters of the employer’s direction and control of an employee’s work methods; and they also illustrate how the independent contractor’s work is not subject to this control. The characteristics follow in the table on the following page.

In general, an independent contractor is free of all of the controls illustrated by these characteristics. However, a contractor’s work may have one or more characteristics of an employee’s work while not coming under the direction and control of the University. For example, a contractor may work during University hours, but the individual maintains contractor status by being able to work at times other than University hours if he or she chooses.     As another example, the individual may work only for the University and no other client at a particular time, but that individual maintains contractor status by being able to solicit business at any time from clients other than the University while still maintaining the University contractor relationship.

Certain classification factors, derived from common law, are used to determine if a worker is an employee or independent contractor. Any of following characteristics of an employee relationship may indicate that the individual is an employee.

In this activity	An employee…	An independent contractor…
Following direction	complies with NU instructions about when, where, and how to do the work	determines own direction on when, where, and how to do the work
Training	receives training from or at the direction of NU	Acquires own training independently of NU
Operational integration	if separated from operation, affects its performance	is separable from the operation without affecting performance
Personal involvement	is required to render the services in person	may render services personally or through others
Hiring and supervision	hires and supervises NU employees	does not hire or supervise NU employees
Continuity	Continues in employ of NU	may work sporadically for NU
Schedule	follows NU’s work schedule	follows own work schedule
Full time	works full time for NU	may work for other employers while at NU only part time
Facilities	uses NU facilities for work	has own facilities for the work
Work sequence	performs the work in the sequence specified by NU	works according to own sequencing of the work
Reports	reports progress regularly	reports when work is complete
Payment	is paid on a regular periodic basis at set amounts	is paid as work is completed, possible progress payments
Travel reimbursement	is reimbursed for travel expenses	pays own travel expenses or may include them in contract
Tools and materials	uses NU’s tools and materials	supplies own tools and materials
Investment	has not invested in facilities to perform the services	has invested in own facilities to do the work
Business risk	cannot make a profit or suffer a loss from the services	makes a profit or suffers a loss based on services rendered
Exclusivity	works only for NU	may work for other employers while working for NU
Publicity	does not offer services to the general public	offers services to the general public as through advertising
Dismissal	can be dismissed from employment	cannot be dismissed as long as the work satisfies the contract
Performance liability	can quit with no liability for completion of the work	is liable for failure to complete the work.

 

Assessment of employee vs. independent contractor

The assessment of the work characteristics may conclude with one of the following results.

Result 1: employee. If the supervisor or the department expect to assert any of the employer controls illustrated in the 20 characteristics, the individual is to be engaged as an employee and paid according to the provisions that follow for employees. For nonresidents, the individual’s visa must qualify for employment in the determination of eligibility to work.

Result 2: independent contractor. If the work will be free from the employer controls illustrated by the 20 characteristics, the individual may be engaged as a contractor and paid according to the provisions that follow for engaging independent contractors. Residence must also be determined using the procedure provided below.

Result 3: employee working as consultant. If the work is to be free from the employer controls of the 20 characteristics and the individual to perform the work is already a university employee in another department, the individual is to be engaged and paid according to the provisions that follow for engaging employees as consultants.

Result 4: assessment is unclear. If the result of the assessment is unclear, the individual is to be hired and paid as an employee in order to assure tax compliance for the University.

For help in deciding individual situations, the Compensation Division of Human Resources can provide guidance.

Engaging an individual as an employee

Requirements and procedures for engaging an individual as an employee are found in the manual Human Resources Policies and Procedures, in Chapter 1, “Employment.”

Procedures for paying an individual as an employee are found in the manual Human Resources Policies and Procedures, Chapter 6, “Payroll,” and in the Human Resources Information System manual, “Human Resources Procedures, December, 1996.”

Requirements to engage independent contractors

Persons other than regular employees of the University may be used as independent contractors, and University funds may be charged for their activities (including Current Funds Unrestricted, Designated and Restricted) only if all of the following conditions are met:

• Employee unavailable. The services are needed and cannot be met by using a regular University employee within the scope of his or her employment within the University.
• 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 the University within the twelve months preceding his or her work as an independent contractor.
• Specified single period of engagement. The arrangement will last for a specified period and it is understood that no employment arrangement or repeated or extended arrangement will result.

Determining residency for individual contractors

Tax regulations for nonresidents vary significantly from those applying to U.S. residents and U. S. citizens. To assure compliance with tax law, the university must determine the residency status of an independent contractor before engaging the contractor. The university representative engaging the contractor must make this determination by ascertaining citizenship for U. S. Citizens or by applying either the Green Card Test or the Substantial Presence Test to ascertain residency for noncitizens.

• Citizenship.  An individual born in the United States can be considered a citizen. All others should pass one of the following tests.
• Green card test.  An individual is U.S. resident if he or she has been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. Evidence of the grant of this privilege is the possession by the candidate of a Permanent Resident Card or a Resident Alien registration card, known as a “green card”.
• Substantial presence test.  To meet this test, the individual must be physically present in the United States:
  • at least 31 days of the current calendar year, and
  •  at least 183 days consisting of the days present in the current calendar year, plus 33.3 percent of days present in the prior calendar year, plus 16.6 percent of the days present in the next prior calendar year.
  •  A day counts if the person is present in the U.S. at any time during the day.
•  U.S. citizen or resident. An individual who is a citizen of the U.S. or who satisfies the “green card” or “substantial presence test” is a resident. A citizen or resident is engaged as an independent contractor according to the “Procedure to engage a resident as an independent contractor,” which follows on page 37.
•  Nonresident. A non-US citizen who satisfies neither the “green card” nor the “substantial presence test” is a nonresident, sometimes called a nonresident alien. Such an individual must complete immigration requirements and tax status forms in order to be paid as an independent contractor. A nonresident is engaged as an independent contractor according to the “Procedure to engage a nonresident as an independent contractor,” which follows.

1. Department representative sends procedures to U. S. resident independent contractor. Before any contracted services begin, the prospective independent contractor must be given a Vendor Code Request for Individuals and the Northwestern University Contracted Services Agreement. The forms with instructions and a statement of the independent contractor provisions may be copied for the contractor from this policy following; and they are also available on line for printing at http:/www.nwu.edu/ . . . . These forms do not need to be completed for a reimbursement, a research subject fee, a payment to a consulting firm (i.e., a vendor with a Federal Employer Identification Number), [OR AN HONORARIUM PAYMENT?].
2. Department representative reviews grant requirements. If a sponsored project is to be charged for the contracted service fees, the prospective user of the independent contractor or consultant must be certain that any requirements applicable to the grant or award have been met prior to entering into a contracted services agreement.
3. Contractor returns Vendor Code Request and Contracted Services Agreement. If the contractor has not previously been paid as a contractor by the University, the contractor completes the Vendor Code Request for Individuals and the Northwestern University Contracted Services Agreement, returning them to the Northwestern representative engaging the contractor. If the contractor has previously been paid as a contractor by the University, the contractor returns only the Northwestern University Contracted Services Agreement. The University representative forwards the Vendor Code Request to the Accounts Payable Department, and holds the Agreement until the services are completed.
4.  The department representative forwards the Vendor Code Request for Individuals to Purchase Order Processing Services (POPS) and holds the Northwestern University Contracted Services agreement until the services are completed.

 

Procedure to pay a U. S. resident independent contractor

Contractor provides invoice. After the completion of the work, the contractor sends an invoice to the representative who engaged the contractor.

Contractors completes Travel Expense Report. The independent contractor will be required to complete the Travel Expense Report if reimbursements were part of the original agreement between the department representative and the independent contractor. Original receipts must be attached to the Travel Expense Report. Department representative completes payment information. The department representative completes the payment information, documenting that the work is complete and the contractor is to be paid according to the policy. The date of completion for contracted services must be prior to the University approval date. If expenses are to be reimbursed, enter the amount on the Contracted Services Agreement, an attach the Travel Expense Report with original receipts.

Secure approvals. For sponsored project contractors or consultants the Principal Investibaory must sign and date the Contracted Services Agreement, and the Director of the Office of Research and Sponsored Programs (ORSP) must sign and date the form. For non-sponsored project contractors or consultants, the hiring representative must sign and date the form and the Controller must sign. The form provides space for additional approval if required by the school or center.

For sponsored project accounts, when the Contracted Services Agreeemnt is recevied in Accounting Services for research and Sponsored programs (ASRSP), ASRSP will secure the signature from ORSP. For non-sponsored project accounts, when the Contracted Services Agreement is received in Accounts Payaboe, AP will secure the signature from the Controller.

Department respresentative initiates payment.

1. Create a purchase order (PD) on CUFS and reference that number on the contractor or consultant’s invoice and the Contracted Services Agreement.
2. Set up the PD as “receiver NOT required.”
3. Use object code 5010 for independent contracting or consulting charges.
4. On the commodity screen of the PD, choose the most appropriate commodity code based on the services provided. For charges to non-grant accounts, use CONSULT as the commodity code and for charges to grant accounts, use GRANT CONSULT.
5.  For reimbursement of out-of-pocket expenses, complete a Travel Expense Report.
6.  Add a separate account line to the PD, charging object code 5015 and a separate commodity line as the commodity code of T&E if a non-grant account is being charged or GRANT T&E if a grant account is being charged.
7.  Make sure that all electronic approvals are applied before sending the agreement and invoice for approval.
8.  For non-sponsored accounts, send the contractor or consultant’s invoice for services, the Contractor Services Agreement, and if applicable the Travel Expense Report and original receipts, to Accounts Payable.
9.  For sponsored accounts, send all paperwork to ASRSP.

 

Procedure to engage a nonresident independent contractor

Department representative identifies contractor and residency status. The hiring representative of the school or department identifies an individual to perform the contractual service. The hiring representative also determines the residency status of the contractor, as described on page 38. For purposes of the following procedures, the independent contractor has identified that he or she is not a U.S. citizen or a U.S. resident.

Honorarium. If a payment has been negotiated with the recipient, it is considered a speaking fee or consulting payment, and a Nonresident Contractor Services Agreement is required, with the procedures that follow.    If the recipient’s standard appearance payment is made as an honorarium, the Agreement and its procedures are not required. The individual and the IRS receive a report of university payments on form 1042S after the end of the year.

Send procedures to nonresident independent contractor. Non-resident independent contractor is sent the booklet Engaging Nonresidents as Independent Contractors and Consultants. Included in these procedures is a copy of:

• Contracted Services Agreement for Non-Residents,
• Form SS-5 Application for Social Security Card,
• Form W-8 - Certificate of Foreign Status,
•  Form W-7 Application for IRS Individual Taxpayer Identification Number (if no SSN is allowed, this form enables the individual to apply for an ITIN),
•  Form AR-3 – Alien Tax Status Form for Independent Contractors,
•  Form 8233 – Exemption From Withholding on Compensation for Independent Personal Services of a Non-Resident Alien Individual,
•  Travel & Entertainment Report.

Check grant requirements. If a sponsored project is to be charged for the contracted service fees, the prospective user of the independent contractor or consultant must be certain that any requirements applicable to the grant or award have been met prior to entering into a contracted services agreement.

Agreement and invoice. Upon arrival on campus, the nonresident independent contractor presents the Northwestern University Contracted Services Agreement for Nonresidents and the contractor's invoice to the representative who engaged the contractor. Prior to arriving on campus the contractor should complete the form, including the rate or expected fee. Reimbursement for Travel Expenses may be submitted to the Payroll Office on a separate Contracted Service Agreement for Nonresidents when all travel is completed.

Department representative approval. The department representative should review for accuracy:

• Rate of pay or flat fee
• Checkbox for receipts (see Travel and Entertainment Instructions)

Accounting information. The department representative should complete the accounting information, including:

• 6 digit department code (See FASIS Code Book)
• 6 digit Location Code (See FASIS Code Book)
• Address Code:
  • Local Address - 0010,
  • Permanent Address (foreign) - 0015,
  • Department code - (See FASIS Code Book), or
  • Pick Up at Payroll - 0002
  • CUFS account number
• Amounts to be charged to CUFS account - these amounts should match
   
• Total services expense and total travel expense boxes

Scheduling the check. The check for a nonresident’s payment can be available on the day of the contractor’s completing the work if the check is arranged sufficiently in advance of the completion date. The payment process for a nonresident takes about 5 business days.          

The department representative should check the Payroll Schedule of Cut Off Dates for Independent Contractors, identify when the check will be issued, and enter that date in the box "Request check by" on the Contracted Service Agreement for Nonresidents.

The check will not be released from the payroll division until services are completed. The paycheck issue date cannot be earlier than the contracted service completion date. If at any time the department feels that the contractor will not complete the services by the check issue date, the department must contact the Payroll Office immediately and cancel the payment.

Signature of contractor. The contractor or consultant must sign and date the Contracted Services Agreement for Nonresidents to signify performance of the contracted services and the date services will be completed.

Signature of department representative. The department representative signs the agreement attesting that the work will be completed by paycheck issue date and that the contractor is to be paid according to the policy and the agreement. The representative ensures that account is valid and the proper objects of expenses are open.

Approvals.   Approvals for sponsored project contractors or consultants require signatures of the principal investigator and the director of office of research and sponsored programs (ORSP), as the authorized institutional representative.

For non-sponsored project contractors or consultants, the University controller or authorizing agent must sign and date the contracted services agreement for non- residents as the authorized institutional representative.

When the Contracted Service Agreement is received in the payroll department directly from the nonresident independent contractor, the payroll office will obtain the signatures from the director of the office of research and sponsored programs (ORSP) or the University controller.

Travel and expense form. The nonresident independent contractor will be required to complete the Travel and Expense Form if reimbursements were part of the original agreement between the department representative and the non-resident independent contractor. Travel expenses for nonresidents are considered taxable income unless receipts are presented.

Department approval. The department representative should review and sign the Travel and Expense Form and verify that all receipts are presented and that the box "Receipts Received" is checked YES on the Contracted Services Agreement Form for Non-Residents.

Meeting with Payroll representative

If the department knows the arrival date of the individual, the department representative should schedule an appointment for the individual with the Payroll Office so that the nonresident independent contractor can present all payment and immigration forms when he or she arrives. This meeting should take place before the person begins his assignment to assure authorization to fulfill their contractual services.

The department should call 1-7362 to set an appointment for the visitor.

Requirements for engaging an employee as a consultant

Persons who are regular employees of the University may be used as consultants, and University funds may be charged for their activities (including Current Funds Unrestricted, Designated and Restricted) only if all of the following conditions are met:

• Department employee unavailable. The services are needed and cannot be met by using a regular University employee within the scope of his or her employment with the University.
• 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 is to be appropriate for the job being performed and set in close relation to the average rate paid by the University for that kind of work, even if not closely related to the regular University salary rate of the consultant. The Compensation Division of Human Resources should be called 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 nonexempt 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 arranged with the use of an Additional Pay Request., using the procedure that follows.