Purchasing - Consultants/ Independent Contractors
Policy and Procedure
PURPOSE: To properly classify workers as either employees or consultants/independent contractors.
POLICY: Massachusetts law concerning the use of independent contractors presumes that individuals providing services to Northeastern University are, unless demonstrated otherwise, university employees. Misclassifying an individual service provider as an independent contractor is a violation of Federal tax and wage law, exposes the university to financial penalties, and may involve individual staff liability.
When engaging the services of an independent service provider, all of the following criteria must be satisfied to classify the individual as an independent contractor:
(refer to the "Special Advisory" prepared by the Office of Legal Counsel which explains these criteria - Addendum A)
PROCEDURE:
To assure compliance with the new law, the Employee/Independent Contractor Certification Form (Addendum B) must be completed and affixed to all contracts with independent contractors and consultants. The following administrative process will be utilized:
Alternatives to the professional services arrangement may to be to utilize one of the following:
Questions regarding the application of the law should be directed to the Office of University Counsel (x2157). Questions related to the scope of work, contact the Compensation Manager in HRM.
ADDENDUM A
MAY 2005
SPECIAL ADVISORY
NORTHEASTERN UNIVERSITY
Changes in Independent Contractor Law
There have been significant recent changes to Massachusetts law concerning independent contractors.
The new law defines an independent contractor quite narrowly. It is also significantly more limited than treatment of independent contractors under federal wage and tax laws . In short, the law presumes that every worker is an employee unless each and every one of the following three criteria apply:
1. Freedom from Control. A worker must be free of Northeastern University's "control and direction." There must be a written document which states this explicitly. However, the document itself is not enough to make a worker an independent contractor. An individual must perform his or her functions independently. Independent contractors perform their functions using an approach of their own choosing. They can determine when and where they work, and how much work is needed to perform the project for which they have been retained. In contrast, employees are subject to more control. For example, an employer determines the work methods and schedules of employees.
2. Work Outside the Usual Scope of Employer's Business. Independent contractors must provide services and/or perform functions which are outside the employer's usual sphere of business. An individual who performs functions which typically are performed by employees will be considered a Northeastern University employee, not an independent contractor. For example, if the University retains an individual to perform management functions or data entry, that person could be characterized as an employee under Massachusetts law. Both of these functions fall within the normal scope of the University's business.
3. Independent Trade, Occupation or Business. An independent contractor must hold him or herself out to the public as available to provide the same or similar services to a variety of employers. A true independent contractor has a financial investment in his/her contracting/consulting business. It is not enough merely to work outside an institution's place of business to meet the criteria of having one's own business. For example, the Attorney General's advisory on this topic cites real estate brokers who work for a brokerage firm or office as an example of workers who are likely to be considered employees under the new law. In this example, one is not an independent contractor simply because one can conduct much of his or her work from home or from sites outside the office base.
The Attorney General's office has stated that it considers these three factors as "rigid". In a change from previous practice, the Attorney General will not be flexible when considering a proposed contractor relationship, and will not balance different factors such as the work functions and work environment in question on a case by case basis.
Please note that an employer's failure to contribute to unemployment compensation insurance, provide worker's compensation insurance, or withhold payroll taxes is irrelevant to the question of whether an individual is an independent contractor or an employee. In fact, if the Commonwealth determines that a contractor actually was an employee, an employer could be ordered to pay retroactive taxes for benefits on the individual's behalf.
The other penalties for non-compliance are significant, including but not limited to fines of up to $50,000, criminal penalties including imprisonment, and debarment from contracting work. The law also provides for individual liability.
The Northeastern University Professional Services Agreement template has been updated. It is important that this agreement only is used in appropriate circumstances, those which meet the criteria described above.
Should you have any questions or need information concerning a specific situation or any of the content of this advisory, please contact the Office of the University Counsel, 115 Churchill Hall, x2157.
ADDENDUM B
Employee/Independent Contractor Certification Form
I have read the three conditions below and certify that the engagement of services by the designated contractor satisfy all three conditions necessary to designate the service provider as an independent contractor/consultant.
Independent Contractor:……………………………………
Certification:
Freedom From Control
Work Outside the Usual Scope of the Employer's Business
Independent Trade, Occupation or Business
1 The federal tax and wage requirements still also remain in effect.
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