Guidelines for Employee vs. Independent Contractor

• Employee vs Independent Contractor
• Guidelines for Employee vs. Independent Contractor
• Consultants

Employee vs. Independent Contractor

Independent Contractors are paid via commercial invoice-vouchers routed through the Business Office (Hovey Hall 102). Independent contractors will receive a 1099 tax form for miscellaneous income from the Business Office in January following the calendar year in which the income was earned.

An employee is paid through the payroll office (Hovey Hall 101). An employee will receive a W-2 Form from the Payroll Office in January following the calendar year in which wages and salary were earned.

If an individual is classified as an employee, please contact the following offices for payment authorizations:

• Provost's (Academic Personnel) Office:
  • If the individual is currently employed by Illinois State University as an administrative/professional, faculty, faculty associate or lab school faculty.
    OR
  • If the service rendered is teaching a "for credit" course.
• Graduate School: if the individual is currently a graduate assistant with Illinois State University (depending upon the type of service provided), the Graduate School may process the payment via the Provost Office or Human Resources.
• Human Resources Office for all others. It is important that the individual is classified properly before committing the payment.

Guidelines for Employee vs. Independent Contractor

Tax laws regarding this topic are subject to interpretation. If an individual's relationship to the University is questionable as to whether they are to be paid as an independent contractor or an employee, the Internal Revenue Service (IRS) will most likely rule in the direction of an employee relationship. The IRS levies costly fines and penalties if it determines that an individual should have been paid as an employee and the organization paid the individual as an independent contractor.

All the facts and circumstances of a particular situation must be taken into account in determining whether an individual worker should be processed as an employee or as an independent contractor. The IRS stresses that the degree of importance of each factor varies depending upon the occupation and the factual context in which services are performed.

Consultants

Consultants are individuals who provide professional advice. There are two types of consultants:

• External Consultants: Individuals who are not on payroll. Their particular skill or knowledge is not available within the University. They are paid contractually through the Business Office.
• Internal Consultants: Individuals who are currently on the payroll and must be paid through the payroll system. For non-salaried individuals, overtime concerns must be considered when making payments to the employee.

If there are any questions on interpretation, please call the Payroll Office.

For Examples of Independent Contractors/External Consultants and Internal Consultants please contact the Payroll Office.