What You Should Know
Departments invite and hire many people who are not considered employees of the University, including guests, independent contractors, and consultants. It is important to understand the different definitions, compensation methods, and tax implications among these groups.
Definitions
Consultants & Independent Contractors
Consultants and independent contractors are engaged when the required knowledge or expertise is not available at the University. To be considered a consultant or independent contractor, a person must meet the following criteria:
- The University directs and controls only the intended results of the work or services and not the means of accomplishing them.
- A substantial part of the consultant or independent contractor’s work is derived from a number of clients, including the University.
- If the consultant or independent contractor’s work is unique or professional in nature and requires a considerable amount of independence and specialized knowledge or training acquired elsewhere.
For more information, see the IRS definition.
Guests
Guests are non-University employees without any employment or consultant obligations to the University; services provided by guests are voluntary and payment is not required. When payment is made in the form of a gift or gratuity it is called Honoraria.
Paying Consultants & Independent Contractors
For information about hiring consultants and independent contractors, see How to Buy Services.
When you receive and approve an invoice from a consultant or other service provider, process it using a Vendor Voucher. Use the Business Travel Expense Report for reimbursements to consultants for travel. For reimbursements of non-travel project-related expenses incurred by the consultant on the University’s behalf, process using a Vendor Voucher.
Payments for Services Rendered Outside the United States
When you pay for independent contractor or consulting services that are rendered outside the United States, you must provide the location the services are rendered on the Vendor Voucher, and obtain an IRS Form W-8BEN (or a W-8 BEN Substitute) from the individual.
This documentation is required:
- to establish that the independent contractor or consultant is not a U.S. Person;
- to claim that the individual is the beneficial owner of the income to which that payment applies; and
- to certify that the income is not effectively connected with the conduct of a trade or business in the United States.
The W-8BEN (or W-8BEN Substitute Form) must be submitted with the voucher at least 30 days before payment is due in order to process applicable treaty benefits. Failure to provide the W-8BEN within this timeframe may result in 30% federal tax withholding. Form W-8BEN is required for all forms of payment including checks, wire transfers, and foreign drafts.
Paying Guests & Speakers
Honoraria are payments made for services for which fees are not traditionally required, payment for volunteered services unrelated to an individual's official duties, or payments granted in recognition of a special service such as a speech. Payment of honoraria is not required; it is a courtesy. It is common to pay for the travel expenses of a University guest or speaker.
To hire speakers who require payment, see How to Buy Services.
Note:
Honoraria are not allowable as a charge against most federally-sponsored projects.
When the guest is a U.S. citizen there is no federal withholding on honorarium payments, but the recipient will receive a 1099 from the University. For foreign nationals, tax implications of honoraria payment are more complicated. See Payments to Foreign National Employees & Guests.
Gifts vs. Honoraria
One fairly common scenario is this: You’ve invited a guest to speak. Your guest agrees to speak, and says “No, don’t pay me an honorarium, just give me a gift. I’d like tickets to a Broadway show.” Providing tickets to Broadway show would be payment for services, not a gift, because the speaker is conditioning her appearance on the receipt of tickets. If you provide the tickets anyway, process them as an honoraria payment using an Honorarium Voucher.
To pay an honorarium to a speaker use the Honorarium Voucher and Honorarium Acceptance form. A form W-9 or 8233 also must be submitted.
Travel expenses associated with the honoraria are not considered income. If you wish to expressly pay for the travel expenses associated with a guest’s visit and do not want the individual to be taxed on those expenses, the expenses need to be documented separately on the Business Travel Expense Report. Otherwise, the entire honoraria with be considered income and taxes may be withheld.
