9.12 Independent Contractor Services

Definitions:

1. Employee: The University controls both how and what the individual must do in exchange for remuneration.
2. Independent Contractor: The University controls only what the individual must do in exchange for remuneration.
3. Scholarship/fellowship: Payments that are philanthropic in nature. Such payments do not require the recipient to provide a service in exchange for funds.
4. Business Entity: Corporations, Partnerships, Limited Liability Companies, Governmental Agencies, and Trusts.
5. Employer Identification Number (EIN): All "business entities" must have an employer identification number. This is a unique nine digit number assigned by the Internal Revenue Service (IRS) to a business in the "business entity's" name. In Arizona, an EIN often begins with the numbers "86." The normal format of an employer identification number is XX-XXXXXXX. An example of an EIN is 86-1234567. An employer identification number is similar to a social security number in that it is used by the IRS to identify a particular taxpayer. It is different than a social security number in its format, social security numbers are formatted XXX-XX-XXXX. Another difference is that an employer identification number is used to identify a "business entity" whereas a social security number is used to identify an individual.
6. Guest Speakers: Professionals usually engaged by departments to speak on academic and research topics to a specific audience. Examples: Visiting professionals or specialists, and seminar presenters. Speakers generally receive reimbursement of expenses and/or a nominal sum as payment for their services. This category does not include entertainers as defined below.
7. Entertainers: Persons engaged to perform, for example, musicians, actors, comedians or other performing artists. Professional speakers may be included in this category but are differentiated from guest speakers in that they generally perform for a broad or general audience and are often engaged by student organizations, cultural resource centers, or UAPresents as opposed to an academic or research department.
8. Visiting Experts: These individuals are not current or former University employees but will serve in an advisory or consulting capacity with a University employee (for example, an individual working "with" a University employee in a "collaboration between equals" type arrangement) on a specific project. Visiting experts also include academic program reviewers. An academic program reviewer is selected based upon his or her stature in a particular field and is expected to review programs in his or her field of expertise for quality in relation to program mission.
9. Conflict of Interest: A conflict of interest exists when a personal influence might bear upon or appear to bear upon a decision made by a University employee in his or her capacity as a public employee. Any employee of the University, or relative of an employee, who has a substantial interest in any contract, sale, purchase, or service, including consulting, involving the University shall (a) make this fact known to the University Director of Procurement and (b) refrain from participating in any manner in such contract, sale or purchase. Further definition and examples of conflicts of interest are provided in the Purchasing Policies Manual, section 1.4, the University Handbook for Appointed Personnel, section 2.06.08, and the Classified Staff Personnel Policy Manual, section 413.0.
10. Subject Pay: Payment to an individual for voluntary participation as a subject in a research project.

Policies

11. Nonresident Aliens: Payments to nonresident aliens are governed by policy 9.16 Payments to Nonresident Aliens, which contains detailed information about payments allowed and documentation required. Refer to policy 9.16 before a nonresident alien is engaged. Some visa types do not allow payments to or on behalf of nonresident aliens. For additional details on specific situations please contact FSO Tax Services.
12. Independent Contractor Classification: It is the department's responsibility to assure that appropriate evidence has been gathered to support the position that the University has engaged an independent contractor. If the department cannot provide sufficient evidence to support the classification of an individual as an independent contractor, the individual must be employed in accordance with the Human Resources Organization policies. . The department should contact Tax Compliance if it needs assistance in making the independent contractor determination.
13. Individuals cannot pay independent contractors with personal funds and then request reimbursement from the University. The University will not reimburse anyone who pays an independent contractor with his/her own funds. All requests for payments to independent contractors must be submitted in accordance with this policy and all payments must be made directly from the University to the independent contractor.
14. Former University Employees. A former University of Arizona employee rehired as a consultant will rarely meet the IRS's criteria for independent contractors, especially if the former employee is rehired during the same calendar year in which he/she terminated employment at the University. A department that engages a former employee as a consultant will almost always be required to use the employment process and make payments through payroll. The department should contact Tax Compliance before any work is performed if it needs assistance in determining whether or not a former employee may be treated as an independent contractor.
15. Employee Classification: Due to the nature of the university's business the following individuals will always be classified as employees:
    1. Anyone who teaches a course from which students may receive academic credit.
    2. Individuals performing trade type duties (for example, clerical, janitorial, grounds keeping services, farm attendants, laboratory technicians). However, when the university engages a temporary agency to provide these trades type services (for example, K-temp), the agency will be considered an independent contractor.
16. "Business Entities" will always be classified as independent contractors IF they provide the University with a valid Employer Identification Number (EIN). The EIN must be provided on the REQS . When engaging a "business entity," checks issued by Accounts Payable will be paid to the order of the business entity not an individual.
17. Arrangement prior to work: In most circumstances, arrangements to engage an independent contractor must be made with a Requisition prior to commencement of the work (see "Arranging for Independent Contractor Services Prior to the Engagement"). When a Requisition is required, a Purchase Order will be issued. In specific limited circumstances, a Disbursement Voucher is allowable. See "Requesting Payment with a Disbursement Voucher."
18. Sponsored Projects: If the independent contractor is to be paid from a sponsored project grant or contract account (3-000000 through 4-999990), prior written approval from the sponsor is required when the contract or grant specifically requires prior approval.
19. Restrictions apply to hiring certain persons as independent contractors, as follows:
    1. If an employee of one department is hired by another department to perform additional duties, complete a Supplemental Compensation Form to request the additional pay.
    2. Normally, students should be hired as employees in accordance with the Human Resources Organization policies, not as independent contractors. However, if appropriate to engage a student as an independent contractor, the student cannot be paid from Federal Work Study funds due to Federal Regulations.
    3. If a nonresident alien is being considered, review section 9.16 carefully since specific policies apply.
    4. Federal employees cannot be engaged as independent contractors on federally-sponsored contracts or grants.
    5. If conflict of interest is involved, specific competitive bid procedures are required prior to the independent contractor being engaged. Contact Purchasing for additional information.
20. Bidding Process: When an individual's or a business entity's fees plus expenses will be:
    1. Equal to or less than $10,000 for a single engagement or project, the bidding process is not required. The department selects the independent contractor and provides Purchasing with a statement outlining how and why the particular provider was chosen.
    2. Greater than $10,000 but no more than $50,000 for a single engagement or project, a competitive selection process is required. If approval is obtained from Purchasing, the department can be delegated the authority to conduct this competitive selection process. Contact Purchasing for an information packet before starting the selection process. The department should solicit at least three (3) written responses from individuals or business entities.
    3. Greater than $50,000 for a single engagement or project, Purchasing must solicit proposals and advertise the requested services.

Arranging for Independent Contractor Services prior to the Engagement

21. The department clearly defines what needs to be done.
22. The department determines the total cost for providing the services, including reimbursable expenses.
23. If the total cost will be equal to or less than $10,000 for a single engagement or project:
    1. The department sends a UA ICON form to the individual identified as a potential independent contractor. The properly completed UA ICON form is sent as an attachment to the REQS (see "How to Complete UA ICON form"). The UA ICON form is not required for a business entity with a valid Employer Identification Number (EIN). You must include the EIN on the REQS.
    2. If the department or independent contractor desires a written contract documenting the arrangements, forward the contract to the Contracting Office for approval prior to the start of services. The University's contract form is preferred and is available from the Contracting Office. Using the University's contract will result in a faster turnaround time. In the absence of other contracts, the Purchase Order will serve as the contractual agreement with the selected provider.
    3. To initiate a Purchase Order, prepare a REQS itemizing the following information:
       1. Description and scope of work to be performed. (see Note for information on Certificates of Insurance)
       2. Date work is to commence and be completed.
       3. Description of contract price (how and at what rate is the service provided to be paid, for example, hourly, daily, weekly, not to exceed a specified amount, or other restrictions).
       4. Specific persons or professional classifications of who are to perform the work.
       5. The rates to be charged for persons or professional classifications performing the work.
       6. Descriptions and amounts of any other cost included (see "How to Request Reimbursement of Expenses").
       7. Method and schedule of payment.
       NOTE: Certificates of Insurance may be required depending on whether the work to be performed creates special risk for the University, for example, preparing drawings and specifications for construction, medical services, transportation services, etc. Certificates of Workers' Compensation Insurance will be required if the Independent Contractor has more than one employee (themselves). Sole proprietors are required to either provide evidence of Workers' Compensation Insurance, or sign a Sole Proprietor Form waiving their rights of recovery for injury that happens in the course of university work. Contact Risk Management for assistance.
24. If the total cost will be greater than $10,000 but no more than $50,000 for a single project or engagement (see #26. if sole source):
    1. The department sends a description and scope of the work to be performed and an information packet which contains the "Agreement for Outside Professional Services" and insurance requirements obtained from Purchasing to the entities solicited. If the entity solicited is an individual, the department must also send a UA ICON form along with the proposal response. The UA ICON form is not required for business entities with a valid EIN. The EIN must be included on the REQS.
    2. Send the completed Agreement (two (2) originals), certificates of insurance and proposal responses to Purchasing with the REQS (Requisition) as an attachment. For individuals, also include a properly completed UA ICON form as an attachment to the REQS (see "How to Complete UA ICON form").
    3. The department shall include a statement outlining why the particular entity (individual or business) was chosen from those entities solicited.
    4. The Purchase Order and the signed Agreement will be the contract with the selected entity.
    5. To initiate a Purchase Order, prepare a REQS itemizing the following information:
       1. Description and scope of work to be performed. (see Note for information on Certificates of Insurance)
       2. Date work is to commence and be completed.
       3. Description of contract price (how and at what rate is the service provided to be paid, for example, hourly, daily, weekly, not to exceed a specified amount, or other restrictions).
       4. Specific persons or professional classifications of who are to perform the work.
       5. The rates to be charged for persons or professional classifications performing the work.
       6. Descriptions and amounts of any other cost included (see "How to Request Reimbursement of Expenses").
       7. Method and schedule of payment.
25. If the total cost will be greater than $50,000 for a single engagement or project (see #26 if sole source)
    1. Prepare a REQS itemizing the following information:
       1. Description and scope of the work to be performed.
       2. Date work is to commence and be completed
       3. Recommended individual's and/or business entity's to include in the solicitation.
    2. Purchasing in conjunction with the requesting department, will prepare a Request for Proposal (RFP) and advertise the requirements in a newspaper of general circulation. Selection of the independent contractor must be based on the evaluation criteria stated in the proposal.
26. If the total cost will be greater than $10,000 for a single engagement or project AND the department believes that a sole source* situation exists with the selected independent contractor.
    1. The department should contact Purchasing and provide written documentation to fully justify and support a sole source determination.
    2. If Purchasing does not concur with the request for sole source, the competitive selection procedures detailed in either (b) or (c) above must be followed. If Purchasing does concur with the sole source request as a waiver for competitive bidding, the department will send a signed "Agreement For Outside Professional Services" (two [2] originals), certificates of insurance and written proposal by the selected individual or business entity and a properly completed UA ICON form (when applicable - See "How to Complete UA ICON form"), as a REQS (Requisition) attachment. The Purchase Order and signed Agreement will be the contract with the selected individual or business entity.
       
       * The ABOR Procurement Code states: "A contract may be awarded for a material, service or construction item without competition if the procurement officer determines in writing that there is only one source for the required material, service or construction item. Sole source procurement shall be avoided except when no reasonable alternative source exists. A written determination of the basis for the sole source procurement shall be included in the contract file."
    3. To initiate a Purchase Order, prepare a REQS itemizing the following information:
       1. Description and scope of work to be performed. (see Note for information on Certificates of Insurance)
       2. Date work is to commence and be completed.
       3. Description of contract price (how and at what rate is the service provided to be paid, for example, hourly, daily, weekly, not to exceed a specified amount, or other restrictions).
       4. Specific persons or professional classifications of who are to perform the work.
       5. The rates to be charged for persons or professional classifications performing the work.
       6. Descriptions and amounts of any other cost included (see "How to Request Reimbursement of Expenses").
       7. Method and schedule of payment.
    4. The department sends the UA ICON form to the individual selected.

How to Complete the UA ICON form

27. The department sends a copy of the UA ICON form to the individual that will be performing services.
    1. The individual (potential independent contractor) completes the UA ICON form, signs it, and returns it to the department.
    2. The department reviews the UA ICON form for completeness and accuracy. The Form is complete when all questions on the Form have been answered. The Form is accurate if the UA employee most familiar with the potential independent contractor reviews the Form and believes that its content is most likely the truth.
    3. Based upon the information provided on the UA ICON form and any other relevant information available, the department determines if the individual meets the independent contractor criteria.
28. If the independent contractor criteria are met:
    1. The departmental University employee most familiar with the independent contractor signs the UA ICON form to indicate concurrence as to the Form's accuracy (Part IV signature number 1). This signature is required for payment.
    2. The departmental employee responsible for requesting funding either through the REQS or Disbursement Voucher process is a second signer on the Form (Part IV signature number 2). The second signature indicates that the Form is complete and that the individual meets the independent contractor criteria. This signature is required for payment.
    3. The third signature in Part IV identified as "College/Division" is for a higher level of authorization if desired. It is not required for payment.
    4. The department sends a copy of the UA ICON form with all required signatures to the independent contractor, and sends or faxes the original to Purchasing with the REQS (Requisition) as an attachment. The original form or fax will be maintained in Purchasing. If a fax is sent to Purchasing, the department is responsible for maintaining the original and making it available upon request.
    5. When payment is made via a Disbursement Voucher (DV), the original signed UA ICON form is required to be sent with the DV Cover sheet, along with an invoice or any further supporting documentation to substantiate the payment
       
       NOTE: Tax Compliance signature is not required for processing of the UA ICON form. Departments may, however, request assistance from the Tax Compliance Office.
29. If the independent contractor criteria are not met, the department should consider hiring the individual as an employee through the Human Resources Organization. Alternatively, the department may select another individual and start this process over to determine if the newly selected individual meets the independent contractor criteria.

Requesting Payment with a Disbursement Voucher

NOTE: The Requisition must be used to make arrangements with an independent contractor prior to the engagement unless one of the circumstances numbered 30 through 41 below apply. Falling under one of these circumstances does not mean that the individual engaged meets the independent contractor criteria. The following circumstances are simply situations under which the University will allow payment through the Disbursement Voucher process. It is the department's responsibility to review each case and assess whether or not the individual being engaged meets the independent contractor criteria, no matter what the form of payment (Requisition or Disbursement Voucher). If the department needs assistance in determining the status of an individual as an employee or independent contractor, the department should contact Tax Compliance.
 

30. Entertainers: When paying an entertainer and:
    1. Payments will be <= $1,000: A Performance Arrangement must be completed and signed by the authorized departmental signer and the entertainer prior to the engagement. The Contracting Officer does not need to approve Performance Arrangements. Performance Arrangements are available on the Procurement and Contracting Services website. An ICON form is not required.
    2. Payments will be > $1,000: A Performance Contract must be completed, signed by the Entertainer and forwarded to the Contracting Office for approval prior to the engagement. Performance Contracts are available on the Procurement and Contracting Services website.  An ICON form is not required. NOTE: If an Entertainer prefers to use his or her own contract, it must be approved by the Contracting Office prior to the engagement. Please allow two weeks additional processing time.
31. Cooperating (Mentor) Teachers: Attach the original Cooperating Mentor Teacher form signed by the Cooperating Teacher. This form must list the teacher's home address and social security number. An ICON form is not required.
32. Officials for NCAA sponsored events: Attach a copy of the NCAA's letter or form listing the designated officials for the event. An ICON form is not required.
33. Subject Pay: Provide a brief description of the program the subject is enrolled in, including the dates of service. The individuals name, home address and social security number must be entered on the Disbursement Voucher. Exception:
    1. If subject payments will be $50 or less from all University of Arizona sources for the calendar year, social security numbers and home addresses are not required.
    2. If the research project is a confidential study, it is not necessary to identify the human subjects by name or SSN. However, an NIH Certificate of Confidentiality or other substantiating document must be provided along with the Disbursement Voucher, and the total payment to any individual participating in a confidential study must be less than $600 in a calendar year. The principal investigator should maintain the disbursement record on file and make it available upon request.
    If payment to nonresident alien human subjects does not fall in the above exception, policy 9.16, Payment to Nonresident Aliens will apply. Employees receiving subject pay will receive a 1099 form at the end of the calendar year if the payment received in the calendar year is $600 or more. An ICON form is not required for subject pay.
34. Scholarships/fellowships: Refer to section 13.00, Introduction to Methods of Student Payments. An ICON form is not required.
35. Guest Speakers and Visiting Experts who are expected to receive fees not including expenses of $600 or less for the calendar year, and who are expected to perform services for 3 days or less during that calendar year will not be required to complete the ICON form IF the department attaches a brochure/flyer providing the details of the speech to the Disbursement Voucher. NOTE: To qualify as a "guest speaker" a fee cannot be charged to attend the speech. AS AN ALTERNATIVE TO SUBMITTING A BROCHURE/FLYER, the department head may submit a signed letter which includes the following:
    1. Name of the guest speaker
    2. Topic discussed by the speaker
    3. Group addressed by the speaker
    4. Date and place of the speech,
    5. A statement that no fee was charged to attend the speech,
    6. Amount the speaker is to be paid.
36. Guest Speakers and Visiting Experts that do not qualify under item 31 listed above,who receive less than $10,000 per calendar year in total (fees plus expenses), and whose engagement is no more than fourteen days in duration may use the Disbursement Voucher process rather than the Requisition process. Attach the original, properly completed ICON form to the Disbursement Voucher, see"How to Complete UA ICON Form." If reimbursing expenses, see "How to Request Reimbursement of Expenses."
37. Conference speakers. Speakers at conferences hosted by University of Arizona departments may be routinely treated as independent contractors and paid using the Disbursement Voucher process under the following conditions:
    1. The speaker receives an honorarium payment of $600 or less.
    2. The speaker gives a presentation, lecture, and/or workshop, not to exceed a total of 3 hours during the conference. (A speaker may, in addition to the above, serve as emcee or perform other insubstantial duties during a conference.)
    3. The conference includes presentations by several speakers.
    4. The conference is not an instructional course of a type typically offered by the university, Extended University, or any department within the university.
    5. The conference takes place off campus.
    6. The conference is not primarily intended for UA students, faculty, and staff (i.e., conference attendees include a majority of non-UA people and the conference is publicized outside the University).
    A copy of the conference program with listings of individual sessions and speakers must be attached to the Disbursement Voucher. An ICON form is required.
38. Royalty and Permission Fees: "Royalty" (sometimes called "permission fee") commonly refers to a payment made to the owner of property for permitting another to use that property; royalties often are connected with a specific, temporary or one-time right to use intangible property. Royalties include (but are not limited to) payments for the production or reproduction of literary, dramatic, musical, or artistic works, as well as payments for the use of inventions, patents, copyrighted material, etc. An ICON form is not required. Attach one of the following to the Disbursement Voucher:
    1. contract
    2. letter of agreement
    3. invoice
    4. statement of distribution
39. Agnese Haury Instructors: Certified interpreters hired as instructors for the Agnese Haury Summer Institute may use the Disbursement Voucher process. The Disbursement Voucher must include a statement confirming that all services performed by the individual are solely in the capacity of Agnese Haury Institute instructor. No ICON form is required.
40. Manuscript Reviewers who are expected to receive $200 or less during the calendar year may use the Disbursement Voucher process rather than the Requisition process. Attach a properly completed ICON form to the Disbursement Voucher, see "How to Complete UA ICON Form." If reimbursing expenses, see "How to Request Reimbursement of Expenses."
41. Reimbursement of expenses only - No Fee: Submit the documentation requested under "How to Request Reimbursement of Expenses."

How to Request Reimbursement of Expenses

42. The University is allowed to reimburse independent contractors for reasonable expenses. Reasonable expenses are those ordinary and necessary expenses related to the performance of the services, such as transportation, lodging and meal expenses. Personal expenses such as dry cleaning, personal telephone calls, entertainment, alcoholic beverages and other expenses not related to the performance of the contract or specifically disallowed by University policy should be identified and excluded from the total expenses to be reimbursed. Expenses may be paid using one of the following methods or some combination of these. NOTE: The independent contractor is not required to sign the Disbursement Voucher for expense only reimbursement.
    1. The independent contractor may pay his own expenses, with no reimbursement by the University.
    2. The independent contractor may be reimbursed for expenses. When providing original itemized receipts, identify each expense as business or personal and include an adding machine tape of the business expenses with the receipts.
       1. Meals may be reimbursed based on actual costs, supported by original itemized receipts, or on a per diem basis, not to exceed the low cost city per diem established for University employees on travel status (see section 14.13).
       2. Lodging and commercial travel may only be reimbursed at actual cost; original itemized receipts must be provided.
       3. Mileage may be reimbursed at the rate established in section 14.15.
    3. The expenses may be paid by the University directly to a third party such as an airline or a hotel. The hotels and independent contractors should be informed that only the cost of lodging, related sales tax and other approved allowable expenses will be paid by the University. Payments to third parties may be made in one of two ways.
       1. In advance: The University can prepay airfare if the ticket is only for the independent contractor's travel to and from the University, and the ticket is written so that it is refundable only to the University of Arizona. To request payment in advance prepare a REQS (Requisition).
       2. Afterwards: Expenses to third parties may be submitted on a Disbursement Voucher after completing the travel. If the Disbursement Voucher is used, prepare separate Disbursement Vouchers for each third party and for the independent contractor. Attach original itemized invoices for all expenses to be paid.
    4. The independent contractor may be paid a specified amount to cover expenses. If a payment is made to the independent contractor to cover expenses, but the expenses are not supported by original itemized receipts, this amount will be reported to the Internal Revenue Service as part of the total payment to the outside professional.
43. Unallowable expenses are the responsibility of the independent contractor. If inappropriate expenses are charged to a third party vendor, departments are responsible for arranging for the independent contractor to pay the vendor before an invoice is sent to Accounts Payable. The invoice must list only the amount due from the University. If this is not the case, the department should request a corrected invoice from the vendor.
44. Compensation and/or expense reimbursement may be disbursed only after completion of the service as agreed, except as specified by written agreement (for example, progress payments).
45. Upon completion of the services, the business entity or individual must submit an invoice to the Accounts Payable Office. The independent contractor should reference the PO number on the invoice(s) and mail to The University of Arizona Accounts Payable, 1303 E University, Box 5, Tucson, AZ 85719-0521 or via fax (520) 626-1243 or email invoices@fso.arizona.edu
46. On receipt of the invoice, Accounts Payable will process the payment according to the Purchase Order type and terms outlined in the PO. After the check is produced it will be mailed directly to the payee. Exceptions for departmental pick-up of checks:
    1. The payee must be an individual not a business entity and
    2. The check is to be given to the individual by the department head or delegate at the completion of services and
    3. The cost of services, fees plus expenses, is less than $10,000.
47. All payments to nonresident aliens for independent contractor fees or reimbursements of expenses or payments made on behalf of nonresident aliens must meet the criteria established in this policy and the additional criteria established in 9.16, Payments to Nonresident Aliens.

Reporting Payment for Services

48. The University will issue forms 1099 or 1042S (for nonresident alien) to all independent contractors at the end of each year if required by IRS regulations. The 1099 or 1042S form will indicate the amount of reportable fees paid to the independent contractor during the calendar year.
49. If the independent contractor received reimbursement for business related expenses supported by original itemized receipts, these expenses will not be included in the 1099. However, if the expenses were not supported by original itemized receipts, the total amount paid to the independent contractor will be reported on the 1099.

Independent Contractor Payment Summary Chart