ࡱ> ]_\` bjbj 2(2| 8  $h> T T T T ///$jh // T T "^T T /{T 2 k% NpGL80hO,ll{l{ /1}s///  ^X///h&&  DATE: June 21, 2006 TO: Deans, Directors and Department Heads FROM: Janet S. Lowe, CPA Associate Vice President for Administration RE: Independent Contractor Determination The classification of an individual who provides products or performs services for ѿTV is an important and sometimes difficult decision. The status of a worker as either an independent contractor or an employee has implications for both the university and the individual. Each party must be able to anticipate and meet their tax responsibilities accurately and in a timely manner. University personnel make these decisions based on individual needs, worker availability and perhaps customer expectations. Either classification independent contractor or employee can be appropriate based on the facts and circumstances of each case. Certain relationships are more straightforward than others. For colleges and universities the following people are generally considered to be employees: instructors, adjunct faculty, full-time administrative workers and clerical workers. For those situations that are not as clear-cut, it is important that we document the basis for our decision to classify a worker as an independent contractor. Department personnel are in the best position to make the initial classification determination, because they possess the knowledge about each particular situation. To assist in this task, the Division of Administration has developed a tool an Employee/Independent Contractor Determination Worksheet - to help personnel think critically about the relationship and substantiate the status of an independent contractor. The worksheet is required and must be attached to all personal services contracts. Personal services contracts must be executed with independent contractors performing work totaling $1,500 or more. Please note that the final determination rests with the Vice President for Administration, as the officer who has the authority to contractually bind the university. It is important to make the correct worker classification determination before the work is performed. Paying a person who should be classified as an employee as an independent contractor can result in Internal Revenue Service penalties being assessed against the university. If you classify a worker as an independent contractor and the IRS reclassifies them as an employee, your department will be responsible for all tax assessments, penalties and interest associated with the misclassification. In recent years, the IRS has been stepping up their auditing in this area. An IRS audit can be initiated by random selection, receipt of a tip from a disgruntled former worker, or from information obtained in the audit of someone that was incorrectly paid as an independent contractor. If the university were audited on worker classification issues, the IRS can assess taxes, substantial penalties and interest on the compensation of any workers that they determine to be employees rather than independent contractors. If the misclassification is deemed to be unintentional, your department would be required to pay 20% of the FICA taxes the employee should have paid, 100% of the FICA taxes the university should have paid, 1.5% of the compensation paid as a penalty for not withholding federal income taxes and all FUTA taxes owed. The IRS could also impose various penalties, including the Trust Fund Recovery Penalty, which is equal to 100% of the employee FICA and federal withholding taxes that should have been withheld. The tax assessments and penalties would also be subject to interest assessments, with the rate currently at 7%. All of these assessments, penalties and interest can add up to 30% or more of what the worker was originally paid. If the misclassification is deemed to be intentional, the assessments and penalties can be even higher. The Employee/Independent Contractor Determination worksheet is available with the personal services contract at  HYPERLINK "http://uwadmnweb.uwyo.edu/legal/" http://uwadmnweb.uwyo.edu/legal/. Select Contracts in the middle of the page and then Employee vs. Independent Contractor. If you have questions about how to fill out the worksheet, please call Megan Hanneman in the Taxes & Investments office at 6-2821. Your cooperation in meeting this important requirement is appreciated.     Associate Vice President Division of Administration Dept. 3314 Room 202, Old Main 1000 E. University Avenue Laramie, WY 82071 (307) 766-3307 fax (307) 766-4836 e-mail: jlowe@uwyo.edu Financial Services Business Office P.O. 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