E. Consultants vs. Employees

Objective:  To assess the strength of procedures within the unit to manage independent contractors appropriately and ensure compliance with Internal Revenue Service (IRS) provisions.

Criteria:  The Business and Finance Manual, Section 5.3.3 provides guidelines for making payments to individuals who are not employees.  When the Institute is required to make payments to individuals, the rules and regulations of a number of governmental regulatory bodies must be considered.  A determination is to be made to ensure that payments to individuals for services (instructors or consultants) clearly meet the Internal Revenue Service (IRS) definition of Independent Contractor and that the regulations of the Internal Revenue Service and Bureau of Citizenship and Immigration Services respect to Non-Resident Aliens have been followed.

Any individual who performs services for the Institute is presumed to be an employee unless the relationship satisfies the IRS’s standards for Independent Contractor.  A consultant should be used only when the services are not readily available from existing employees or where the services cannot be performed more economically or satisfactorily through the Institute employment process.

The department/unit must make the determination whether an individual is an employee or independent contractor because of the familiarity of the relationship. If the answer is “yes” to any of the following questions, the individual must be treated as an employee. The questions are modeled after and capture the contents of the IRS 20 common law factors.

  • Does the individual provide essentially the same service as an employee of the Institute?
  • Is the individual a current employee (or within the previous 36 months) of Georgia Tech providing the same or similar services?
  • Is it expected that the Institute will hire this individual as an employee immediately following the termination of his/her services as a consultant?
  • Does the Institute control how the individual will perform or accomplish the service?
  • Will the individual supervise or control Institute employees in accomplishing the service?

If any of the above questions are answered as “yes”, campus units are instructed to consult Human Resources regarding employment of the individual.  If all answers are “no”, the Purchase Request for Services form is used to request the purchase of and encumber funds for the expenses of independent contractors that are to be funded from state funds (instructions below).  If the independent contractor will be paid from sponsored funds, the agreement must be executed through the Office of Contract Administration on a “Request for Sub-Agreement Form”.

Risk:  Improper classification of independent contractors/employees could result in the Institute being out of compliance with IRS regulations, thereby increasing the liability of tax penalties and fines, as well as negative publicity.