The Internal Revenue Service requires the university to properly classify independent contractors. This policy and the accompanying independent contractor website (see below for ink) identify the steps, documents and processes necessary to ensure proper classification of and subsequent payment to independent contractors.
An independent contractor is an individual who meets the following conditions:
- Offers similar services to the general public on a consistent basis
- Provides services through a written contract (the university’s Independent Contractor Agreement)
- Renders a service to the university for a specified amount of compensation for a specified result
- Performs services for which the university does not control the methods used to obtain the results
An independent contractor is not paid on university payroll, has not been paid on payroll within a given calendar year, and receives payment from the university documented by issuance of an IRS Form 1099.
Examples of the types of independent contractors used by the university are available at the independent contractor website (see below).
Questions regarding this policy may be directed to Purchasing Services or Human Resources Administration:
Todd R. Dickey, Senior Vice President, Administration
Robert Abeles, Senior Vice President, Finance and Chief Financial Officer
University of Southern California
To ensure that independent contractors are being correctly classified, Business Services will conduct routine audits. Violations are subject to disciplinary action.
Section 1 – Work Status Evaluation and ICA forms, amendments and attachments
1.1 Work Status Evaluation form
Prior to engaging an individual, the responsible USC manager must complete and sign the university’s Work Status Evaluation form, which is available on the independent contractor website. This form must be submitted with the Independent Contractor Agreement (ICA) form (see 1.2 below) to the department’s HR Partner for review and approval of appropriate classification.
Departments are required to attach the Work Status Evaluation form to the ICA form for each new engagement, and a new form must be completed and re-approved each fiscal year. Departmental budgets are financially responsible for the settlement of any disputes or penalties arising from improper classification.
1.2 Independent Contractor Agreement form
Forms and instructions for preparing an ICA are available at the independent contractor website. If applicable, include Attachment A (Request for an Independent Contractor on a Sponsored Project) and a resume or curriculum vitae and submit to the Department of Contracts and Grants for approval before sending to Purchasing Services.
The department’s HR Partner is required to review and approve all ICAs indicating that he/she has determined that the individual is an independent contractor, prior to processing by Purchasing Services. A Work Status Evaluation form completed within the current fiscal year must be attached to the ICA (see 1.1 above).
- Independent contractors on sponsored project accounts
Payment requests to independent contractors on sponsored project accounts require review by Contracts and Grants. Once the ICA has been reviewed and Attachment A has been signed and stamped by Contracts and Grants, the documentation can be sent with the requisition and back-up to Purchasing Services at firstname.lastname@example.org.
1.4 Amendment to Independent Contractor Agreement
Any subsequent changes to an ICA must be supported by a written amendment (Attachment B: Amendment to Independent Contractor Agreement). The amendment must be signed by the independent contractor, responsible USC manager, and, if on a sponsored project account, Contracts and Grants. The amendment then needs to be submitted to Purchasing Services for final signing. Purchasing Services will attach the amendment to the purchase order.
1.5 Non-resident aliens as independent contractors
The regulations set by the IRS and United States Citizenship and Immigration Services (USCIS) that affect employees who are non-resident aliens also affect independent contractors who receive payments, prizes/awards, and/or reimbursement for expenses. Therefore, all payment requests for independent contractors who are non-resident aliens (including check requests for reimbursable expenses) must be submitted to Payroll Services for review before payment is made.
Section 2 – Processing payment to independent contractors
2.1 WEBBA payment processes
The requisition process, including blanket requisitions, should be used for payment for professional services of independent contractors (WEBBAP.REQ for paperless requisitions or WEBBA.FORM.PO.U for forms requisitions).
Independent contractors should send invoices to the department that engaged them. The department should subsequently note the purchase order number on the invoice and forward it to Accounts Payable at email@example.com.
The Check Request process (WEBBA.FORM.CHK.U) should be used for payment of reimbursable expenses for independent contractors. Check requests should also be used for one-time payments, which do not require the worker status form (see 1.1 above). Check requests are sent to Disbursement Control at firstname.lastname@example.org.
Once Purchasing Services is in possession of the ICA, these documents need not be provided again for the duration of the project. However, a new worker status form must be completed each fiscal year (see 1.1 above).
2.2 Object codes: Independent contractor service payments
|Object codes for independent contractors|
if less than $25K
if using a SSN
if more than $25K
if using an SSN
if less than $25K
if using a Federal Tax ID
if more than $25K
if using a Federal Tax ID
if subcontract and less than $25K
if subcontract and more than $25K
Note: The majority of independent contractors engaged by the university are individuals who operate under a Social Security Number.
2.3 Out-of-pocket expense reimbursements
Independent contractors who are eligible for expense reimbursements can submit their out-of-pocket expenses in one of the ways specified at the independent contractor website (Independent Contractor Processes). The independent contractor’s reimbursable expenses are limited to the amount identified in the ICA or the university’s Expenditure and Travel Policies and Procedures, whichever are lower.
|Object codes for independent contractor reimbursements|
|Materials and supplies
2.4 Electronic deposit
As with all university suppliers, independent contractors receiving more than one payment from the university should be established for electronic funds transfer (www.usc.edu/dc/directdeposit).
Section 3 – Tax reporting, withholding and insurance requirements
3.1 1099s and California income tax withholding
Payments to independent contractors are subject to tax withholding and IRS Form 1099 reporting as charted below.
|If payments total more than $600 in a calendar year (all independent contractors)||Payment reported to IRS via Form 1099|
|If payments total more than $1,500 in a calendar year (non-California residents performing service in California)||7% California income tax withholding|
Notes about withholding and reporting:
- Tax withholding and IRS Form 1099 reporting requirements are clearly articulated in the ICA (Section 1.3).
- California non-residents who are exempt from the 7% income tax withholding must complete a California Withholding Exemption Certificate Form 590, available at the independent contractor website (Independent Contractor Processes). This form need only be submitted with the first invoice.
- The information contained in Section 1 of the Independent Contractor Agreement is all the university needs to properly report and/or withhold income.
3.2 Insurance requirements
Independent contractors are responsible for maintaining the required insurance coverage at their own expense for the duration of the engagement. Independent contractors will provide proof of insurance coverage as requested by the university.
|Insurance requirements for independent contractors|
|Comprehensive general liability insurance||USC requires coverage for Bodily Injury and Property Damage with the single limit of $1,000,000 for each occurrence.|
|Automobile liability insurance||USC requires coverage for Bodily Injury and Property Damage with the single limit of $1,000,000 for each occurrence.|
Additional insurance requirements are imposed on construction- and architectural-related independent contractor engagements. These requirements can be obtained from Purchasing Services.