When considering hiring a contractor for services, you must evaluate whether the person providing the services is an independent contractor or a Reed employee. The work of an Independent Contractor is unlikely to be integral to Reed, whereas an employee performs services which are integral to college relations.
An independent contractor is an individual that is free from direction and control, beyond the right of the service recipient to specify the desired result. Independent contractors are customarily engaged in an “independently established business.” To qualify under the law, an “independently established business” must meet 3 out of the following 5 criteria:
- Maintain a business location that is:
- Separate from a Reed work location
- Bear the risk of loss, shown by factors such as:
- Entering into fixed price contracts;
- Purchasing liability insurance.
- Provide contracted services for two or more different persons within a 12-month period, or routinely engage in business advertising, solicitation or other marketing efforts reasonably calculated to obtain new contracts to provide similar services.
- Make a significant investment in the business through means such as:
- Purchasing tools or equipment necessary to provide the services;
- Paying for licenses, certificates or specialized training required to provide the services.
- Have the authority to hire and fire other persons to provide assistance in performing the services.
Employee vs Contractor
Before sourcing an independent contractor, use the following checklist, which compares the characteristics of employee and independent contractor.EMPLOYEE
- Directed and controlled by Reed
- Does tasks in the manner Reed requests
- Reed provides tools, equipment, and skills training
- The individual works under Reed’s business license
- Often receives benefits beyond payment for service
- Reed withholds income tax and FICA taxes
- Works at Reed’s place of business
- Works the hours set by Reed
- Eligible for workers’ compensation benefits
- Has some rights prior to termination
- Covered by FLSA wage and hour rules
- Independent from direction & control of how work is performed by Reed
- Completes tasks with little or no input from Reed
- Assumes the costs associated with doing the work for Reed, comes to the job with required tools, equipment, skills
- The individual obtains their own business license
- Receives only payment for service
- Pays own taxes
- Works at their own office or home
- Sets their own hours
- Does not only work for Reed
- Provides services to multiple entities, has customers as a result of advertising and being known by the public as a business
- Not covered by Reed’s workers’ compensation
- No rights prior to termination unless contracted
- Paid as contracted; no overtime
Contractor Approval Path
If a department wants to engage an independent contractor, they must complete either the Personal Services Agreement (PSA) or the Complex Services Agreement (CSA) prior to the person providing any services. The PSA / CSA should be submitted to the Human Resources office via email (firstname.lastname@example.org). Human Resources will review the request to determine if the independent contractor criteria are met and will engage Risk Management as necessary. Once approved, please request affiliate status via the Computing Request form.
The Vice President of Finance and Treasurer must approve all former employees engaged by the college as an independent contractor. Accounts Payable will not process payments until this approval has been obtained.
If the person provides services that are a key aspect of the business, it is more likely that they will be considered an employee. If it is determined that the relationship you are considering falls into the employer/employee category, you must contact Human Resources by email at email@example.com or by phone at extension 4000 to determine the appropriate process for hiring.