Carolyn Ainslie, Vice President of Finance and Treasurer
Office of Financial Services
Jason Knoch, Executive Director of Financial Services and Strategic Initiatives, firstname.lastname@example.org or (609) 258-9181
I. Policy StatementBACK TO TOP
Departments often engage the services of individuals who are not employees of the University, including independent contractors, guest lecturers, entertainers, suppliers, and others. It is important to correctly classify independent contractors and employees to ensure appropriate compensation method and tax obligation.
This policy sets out the criteria that define independent contractors and the required procedures to correctly classify and pay them.
II. Who is Affected by this PolicyBACK TO TOP
All University staff, faculty, and students.
For purposes of this policy, an employee is a worker who is hired through Human Resources or the Office of the Dean of the Faculty and should be paid under a W-2 (and not a 1099).
A one-time payment made for an academic activity or service for which fees are not traditionally required; payments for volunteered services unrelated to an individual's official duties; or payments granted in recognition of an academic activity conducted for the benefit of the University’s mission, such as lecturing, teaching, consulting, conducting research, attending meetings, symposia or seminars, or otherwise sharing knowledge. Readings and performances are included academic activities, so long as the activity is open to the public and/or students without charge.
For purposes of this policy, an independent contractor is an individual who provides services to Princeton University and is not an employee: namely, a worker who should be paid under a 1099 (and not a W-2). More specifically, it is a worker who: (a) is engaged in an independently established profession or business (b) provides a service outside of the University’s usual course of business; and (c) is free from the University’s control or direction when providing services. The criteria for determining whether a worker is an independent contractor are discussed below.
A category of service, provided by an independent contractor, that occurs only one time, or one time per year, for a fee of $5,000 or less.
IV. PolicyBACK TO TOP
This policy defines the criteria to qualify as an independent contractor, and sets out how independent contractors must be paid in order for the University to remain compliant with the state and federal Departments of Labor and the Internal Revenue Service (IRS) and other regulatory agencies. Payments to independent contractors are processed through Accounts Payable - not through Payroll.
Employees are not considered independent contractors. Employees are hired through Human Resources or the Office of the Dean of Faculty, and paid through the Payroll function. In special situations, a current University employee or student may provide a service outside the scope of their normal position responsibilities. In these cases, the employee should still be paid through Payroll (namely, additional pay), and not via a 1099. Please see the Paying Faculty & Staff webpage.
Criteria for Identifying Independent Contractors
United States federal and state law requires the University to properly classify its workers – as either employees or independent contractors. This policy and the accompanying independent contractor webpage identify the steps, documents, and processes necessary to ensure proper classification of and subsequent payment to independent contractors. To pay foreign nationals, please see the section below called “Paying Foreign Nationals and International Parties as Independent Contractors.”
An independent contractor is an individual who meets all of the following criteria:
- renders a service to the University for a specified payment amount for a specified result;
- is engaged in an independently established profession or business (namely, offers similar services to the general public on a consistent basis);
- provides a service outside of the University’s usual course of business;
- is not currently paid through University Payroll and has not been paid through Payroll within the current calendar year;
- provides services through a written contract (namely, the University's Independent Contractor Agreement or another University-approved form of agreement, e.g. Speaker Agreement) and
- is free from University control or direction when providing services.
The Independent Contractor Checklist is a tool that can help you make these determinations. Examples of some common types of independent contractors at the University are available at the independent contractor webpage.
Required Procedure: How to Identify and Engage an Independent Contractor (IC)
The following procedure is a required component of this policy, and includes all the steps a manager must take in order to properly identify and engage an independent contractor. At any time during this process, the manager should consult with the Office of Human Resources if they need help determining whether to hire the service provider as an independent contractor or as an employee.
- The manager sends a Service Provider Questionnaire (SPQ) to the potential service provider to complete and return with supporting documentation.
- The manager then completes the Independent Contractor Determination Checklist using the information provided in the Service Provider Questionnaire.
- After completion of the Independent Contractor Checklist, if the form indicates the service provider is an Independent Contractor, the manager forwards the service provider the Independent Contractor Agreement (ICA). On the other hand, if the form indicates the provider should be treated as an employee, or if a determination could not be made, the manager should contact the Office of Human Resources for assistance.
Limited Engagement of an Independent Contractor
A limited engagement is a service provided by an independent contractor that qualifies for an exception to the regular independent contractor process. A limited engagement service is defined as being provided by an independent contractor who performs a one-time service, or one time per year, for a fee of $5,000 or less. The following forms are waived for qualifying limited engagements: Service Provider Questionnaire (SPQ), Independent Contractor Determination Checklist, and Independent Contractor Agreement form. However, one of these forms must be completed: Limited Engagement Agreement (for U.S. citizens) or Limited Engagement Agreement (for Foreign Nationals).
Please note that professional entertainers and artists hired to create works for the University never qualify for a limited engagement exception. Below we list common examples of independent contractor services that qualify as one-time limited engagements for a fee of $5,000 or less.
- Academic guest speaker, artist, or special lecturer
- Distinguished guest speakers at University functions
- Professional publication manuscript reviewers and editors
- Non-recurring seminar and workshop leaders
Honorarium Payment for an Academic Limited Engagement
An honorarium is payment for an academic limited engagement. To be considered an honorarium, the payment must include all of the following criteria. An honorarium is:
- related to usual academic activity such as lecturing, teaching, conducting research, attending meetings, symposia or seminars or otherwise sharing knowledge; and
- $2,500 or less; and
- offered for a volunteered service (namely, no invoice is provided by the individual).
Any of these criteria disqualifies a payment as an honorarium:
- is as expense on federally sponsored projects
- is designated to a third party
- is intended as payment to a Princeton University employee (including student employees) or an individual who was employed by the University during the current calendar year.
PAYING FOREIGN NATIONALS AND INTERNATIONAL PARTIES AS INDEPENDENT CONTRACTORS
For independent contractor services performed within the United States:
To ensure compliance with IRS regulations, prior to engaging a foreign national for services, the University must analyze the foreign national’s eligibility to work in the U.S. and residency status for tax purposes. We encourage you to review the procedural reference materials and also contact our Foreign National Tax Analyst at (609) 258-3734 to help plan your engagements.
For independent contractor services performed outside the United States:
It is necessary to contact the International Appointments Manager (Office of the Dean of Faculty) for guidance prior to the engagement of any worker for services to be performed outside the U.S. Each country has unique criteria and regulations that define whether an individual is an independent contractor or an employee. Incorrectly paying an individual for services performed outside of the U.S. may adversely impact the University, as well as the individual performing the work.
REIMBURSING TRAVEL OR OTHER BUSINESS EXPENSES TO INDEPENDENT CONTRACTORS
As with all approved travel and other business expense reimbursements, expenses incurred by an independent contractor must be approved and documented according to the University’s regular Business Expense Policy and Reimbursement Policy.
V. Procedures BACK TO TOP
VI. Forms BACK TO TOP
VII. Contact Roles and Responsibilities BACK TO TOP
|Purchasing||Assist with sourcing, approve Independent Contractor Agreement, approve Purchase Requisition and Purchase orders. Contact email@example.com.|
|Financial Service Center||Provide guidance when engaging Independent Contractors, Limited Engagement Independent Contractors, and Honoraria recipients. Contact firstname.lastname@example.org or (609) 258-3080.|
|Foreign National Tax Analyst||Provide guidance when engaging a foreign national service provider to perform work in the U.S., monitor tax documentation for compliance. Contact Karen Murphy Gordon, email@example.com, or (609) 258-3734.|
|Office of Human Resources||Hiring employees. Contact John Martin, JM2@princeton.edu, or (609) 258-3300.|
|Office of General Counsel||Provide guidance for hiring workers providing services outside of the U.S.|
VIII. Update Log BACK TO TOP
Updating broken link to ICA.