Federal and state tax and labor laws require Georgia Institute of Technology to ensure that individuals who provide services are properly classified as an employee or an independent contractor. Proper classification of an individual will determine Georgia Tech's tax withholding and reporting obligations.
Individuals who perform services for Georgia Tech are presumed to be employees unless the relationship, supported by documentation, satisfies the Internal Revenue Service (IRS) and state law standards for an independent contractor status. Individuals who receive a Form W-2 from Georgia Tech should be paid as an employee for all services provided and typically should not also receive a Form 1099 from Georgia Tech.
Georgia Tech's Procurement and Business Services Department works collaboratively with Georgia Tech tax compliance, legal affairs, and human resources staff to determine the classification categories of payments to individuals.
Classification of Employee
An employee is a person hired through Georgia Institute of Technology Office of Human Resources and paid via Georgia Tech Payroll. Georgia Tech controls and directs this person's activities, both in terms of what must be done and how it must be done. An employee may be classified as a permanent full-time employee, part-time employee or as a temporary employee. Generally, employees will always be paid through the payroll system even if the duties they perform are unrelated to their primary role.
Some Examples of Characteristics of an Employee
- Performs duties dictated or controlled by others
- Is given training for work to be done
- Teaches a course from which students may receive academic credit
- Performs trade type duties, e.g., clerical, janitorial, grounds keeping services, lab technicians. (Important to Note: When Georgia Tech engages a temporary agency to provide trade type services, the agency, and not the individual, will be considered an independent contractor.)
Classification of Independent Contractor
An independent contractor, also referred to as contractor, consultant, freelancer, etc., may be an individual or sole proprietor which renders services to the general public. An independent contractor is responsible for the means and methods for completing a task based on specifications in a contract with Georgia Tech. An independent contractor generally has multiple clients, maintains a separate workplace and is not supervised or controlled by a Georgia Tech employee. Independent Contractors do not receive Georgia Tech benefits. Checklist for Determining Independent Contractor or Employee status
Examples of characteristics of an independent contractor:
- Operates under a business name
- May have his/her own employees
- Maintains a separate business bank account
- Advertises his/her business services
- Invoices for work completed
- Has own tools and sets own hours
- Keeps business records
PRIOR to engaging an Independent Contractor
- Georgia Tech must confirm Independent Contractor status
- Hiring official and departmental Human Resources representative are required to complete the Georgia Tech Checklist for Determining Independent Contractor or Employee.
- Once the form is completed, send the form to firstname.lastname@example.org for final classification of the individual
- Department will be contacted within three to five business days after receipt of form
- If the individual is classified as an independent contractor, the approved form must be attached to the requisition in Workday.
- For contractors hired on sponsored projects, consult OSP for the proper classification of the contractor (subcontract, vendor, contract labor, etc).
What is the consequence of misclassification?
Misclassification of an individual as an independent contractor may have a number of costly legal and financial consequences for Georgia Tech. Consequently, it is essential that proper characterization of an individual be determined before any agreements, contracts (oral or written) or payments are made. The fundamental difference between an employee and independent contractor from a tax point of view is that an employer withholds employment taxes, and pays FICA taxes on its employees.
If an independent contractor is discovered to meet the legal definition of an employee, Georgia Tech may be liable for:
- Wages that should have been paid to them under the Fair Labor Standards Act, including overtime and minimum wage
- Back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment
- Any misclassified injured employee's workers' compensation benefits
- Employee benefits, including holiday pay, health insurance, retirement, etc.
Classification of Non-US Tax Resident Individuals
Individuals who are not U.S. citizens or permanent legal residents (green card holders) may be subject to a variety of restrictions on employment or independent contractor services. All non-employee service providers who perform a service on U.S. soil, must initiate a GLACIER tax compliance record, including a review of immigration documentation, prior to initiation of a Workday requisition, an invitation, a service agreement, or verbal commitment to make payment. Contact email@example.com for additional guidance.
Forms/Georgia Institute of Technology Policy
- Georgia Tech Business and Finance Policy 5.3.3 Consultants (Individuals and Firms)
- Georgia Tech Checklist for Determining Independent Contractor or Employee (under the "Compensation" section)
- Georgia Tech Business and Finance Policy 5.3.5 Payments to International Vendors and Nonresident Alien Consultants