Independent Contractor Regulation 306

Regulation 306 Approved: June 13, 2014
Independent Contractor Regulation
Regulation 306
Source of Authority: Internal Revenue Code § 3509;
Internal Revenue Code § 3121(d);
Internal Revenue Code § 3306(a);
Internal Revenue Code § 3401(c);
Internal Revenue Code § 3401(d)
Related Internal Revenue Service Regulations;
N.C.G.S. § 116-34(a);
UNC Code § 502(A)
Revision Authority: Chancellor
History: First Issued: February 17, 2011
Related Policies and Regulations: Internal Revenue Code § 3509;
Internal Revenue Code § 3121(d);
Internal Revenue Code § 3306(a);
Internal Revenue Code § 3401(c);
Internal Revenue Code § 3401(d)
Other Related Internal Revenue Service Regulations;
Accounts Payable Regulation 301;
Cash Management Regulation 302;
Honorarium Regulation 305
Responsible Offices: Controller's Office
Effective Date: February 17, 2011

I. Purpose

This regulation has been developed to set forth UNCSA policy and procedures for the engagement of independent contractors. Because significant tax penalties may be imposed for incorrectly classifying an employee as an independent contractor and the University may be exposed to unnecessary legal liability in the contracting process, it is important that UNCSA address these issues by defining a common standard in the way it conducts activities with external individuals and organizations. The IRS levies costly fines and penalties if it determines that an individual should have been paid as an employee and the organization paid the individual as an independent contractor.

II. Scope

This regulation is applicable in all situations in which a University department recognizes a need for supplemental services involving an individual or organization external to UNCSA (i.e., the required service is not available.).

Further, this regulation applies to all activities involving independent contractors, regardless of the State funding source.

III. Definitions

A. “Contract” means a legally binding, bilaterally executed agreement that establishes the rights and duties of the parties and provides remedies for breach.

B. “Consultant” means an individual who possesses specialized knowledge, experience, expertise and professional qualifications to investigate assigned problems or projects and to provide counsel, review, analysis or advice in formulating or implementing improvements in programs or services.

C. “Employee” means a person paid through the UNCSA payroll system to perform a service for the University. Typically, the University controls the work to be performed, as well as how, when, and where it will be performed. Employees are provided the facilities and tools necessary to perform their work and are not at risk for profit or loss.

D. “Guest Speaker” means an individual not employed by UNCSA, who is distinguished in a field of specialization and who is invited to visit UNCSA for a limited time to lecture or interact with the students, faculty, or staff. Examples include speakers at conferences, symposiums, or speaker series, and guest lecturers in classes or training events.

E. “Performing (Guest) Artist” means an individual not employed by UNCSA, who is distinguished in a field of the performing arts, and who is invited to visit UNCSA for a limited time to perform before an audience; interact with the students, faculty, or staff of UNCSA; or, teach and demonstrate the artist’s proficiency in their field of the performing arts.

F. “Independent Contractor” means an individual or organization having no connection or relationship with the University who is engaged to perform a specific service not readily available from within UNCSA. An independent contractor (a.k.a., guest artist, freelancer, etc.) is bound by contract to perform services as the master of her/his own time, with full liability for job-related actions, and responsibility for all aspects of the means and methods of the service to be performed. The University may require proof of adequate insurance from independent contractors.

G. “Non-Resident Alien” means a person who is not a citizen of the United States or is not a resident alien (i.e., someone who does not have a Green Card).

H. “Professional Services Agreement” or “PSA” means a bilaterally executed contract that establishes the relationship of employer-independent contractor, such that the independent contractor is expected to provide a specified service to the University. PSA’s are discussed in detail in the Procedures section of this regulation.

I. “Resident Alien” means an individual who is not a United States citizen, but who either has a Green Card or meets the “substantial presence test” of the Internal Revenue Service.

IV. Regulation

A. The procedures associated with this document must be completed in their entirety prior to the performance of any services by an independent contractor.

B. UNCSA complies with all applicable State and federal requirements for the classification, appointment and reporting of independent contractors.

C. Prior to the commencement of any engagement, the relationship of the parties must be identified to determine if the service provider should be classified as an employee of the University or as an independent contractor.

D. Current employees of UNCSA or another State agency as an administrative employee, faculty, graduate assistant, or student worker, and if the service rendered is teaching a credit generating course should be paid as employees.

E. Current University employees cannot be paid through a professional services agreement for any extra services provided; they must be paid through existing Payroll and Office of Human Resources procedures.

F. If the individual is considered a consultant, contact Purchasing Office to ensure proper classification when hiring and paying these individuals.

G. Non Resident Aliens

1. Non-resident aliens may be paid as independent contractors providing their specific visa requirements permit compensation for services as well as have an authorization to work.

2. Non-resident aliens may be exempt from the withholding of taxes in accordance with tax treaties between their country and the United States.

H. In accordance with Internal Revenue Service (IRS) guidelines, a service provider must be free to determine how and when work is to be performed. In the absence of such independence, a worker should normally be classified as an employee.

I. All the facts and circumstances of a particular situation must be taken into account in determining whether an individual worker should be processed as an employee or as an independent contractor.

J. If an individual’s relationship to the University is questionable as to whether he/she is to be paid as an independent contractor or an employee, Financial Services must be contacted in order to determine the classification of the relationship.

K. Departments should submit a copy of the agreement attached to payment request.

L. Financial Services will make the final determination of the individual status.

V. Revision History

A. February 17, 2011 – Adopted by Board of Trustees as part of UNCSA Policy Manual

B. June 13, 2014 – Revised to include “Performing (Guest) Artists” and redefine “Guest Speakers”


Independent Contractor Procedures

Procedure 306

I. Processing Independent Contractor’s Services

A. Once the department makes the determination that a worker is to be hired as an independent contractor, the department must complete the Independent Contractors Form 303 which can be found on UNCSA’s website.

B. Departments must obtain the appropriate signatures prior to submission to Human Resources. All forms should be sent to the following email address:

C. Human Resources will review forms for continuing relationships and forward findings to Financial Services.

D. Financial Services will make the final determination of the individual status. If Financial Services approves the individual as an independent contractor, a Professional Service Agreement should be completed.

II. Professional Services Agreement

A. Professional Service agreements establish a contractual agreement for one-time or short duration services with individuals (such as guest speakers, entertainers, etc.).

B. The Professional Services Agreement form is available on UNCSA’s website.

C. In general, Professional Service Agreements are to be used for independent contractors.

D. Before any performance of services, campus units contracting for personal/professional services must assess the relationship with the individual provider to ensure that individuals hired or contracted to perform services are properly classified.

E. All agreements should contain a precise statement of what service the provider is to render, terms of the payment and if any, negotiated travel expenses, and the provider’s social security number or individual taxpayer identification number, etc.

F. Agreements must be signed by the appropriate personnel, both within UNCSA and the provider of the services, prior to the beginning of service.

G. Departments should submit a copy of the agreement attached to payment request.

H. The provider should be advised by the paying unit that the amount paid will be reported to the IRS on a 1099 form by January 31 of the following year.

I. For foreign contractors, the amount may be reported to the IRS on form 1042-S.

J. Occasionally, the provider is not able to sign the contract in time for a check to be ready for payment at time of performance of services. In these cases, it is allowable to use an agreement with all items filled in except signature, with the understanding that the signature will be obtained at time of performance. The signed form is then to be sent to the appropriate division of the Financial Services for attachment to the invoice voucher.

III. Obtaining a Purchase Order

A. Departments should submit a requisition to Purchasing along with the approved Independent Contractor Form 303.

B. Purchasing will then create a purchase order and submit a copy to the department.

C. Departments still must submit the final signed copy of Professional Service Agreement to Purchasing once completed.

IV. Determining Worker’s Status

A. The IRS has developed a series of twenty questions (factors) aimed at satisfying the common law test of independence.

B. The IRS 20-question test for determining independent contractor status is available on UNCSA’s website (

C. The IRS stresses that the degree of importance of each factor varies depending on the occupation and the factual context in which services are performed.

V. Independent Contractors Payment Procedure:

A. In order to process an Independent Contractors payment, the Independent Contractors Form 303 should be completed and approved by all applicable parties and the form must be submitted to Accounts Payable Office along with the Professional Service Agreement attached.

B. Payment will not be paid without all required documentation.

C. Travel reimbursements must include travel receipts attached to a direct pay request to reimburse the independent contractor. A Non-Employee travel authorization should be completed and approved prior to travel arrangements.

D. Incomplete documentation will be return to the department.

VI. Questions Regarding Payment

A. Contact Human Resources with any questions regarding payment of these individuals through the regular University payroll.

B. Any questions involving the determination of whether or not an employer/employee or an independent contractor situation exists should be addressed to the Financial Services.

C. If you have questions regarding immigration and taxation regulations concerning foreign contractors, you can contact UNCSA’s Disbursement Officer at extension 1353.