Independent Contractor vs. Employee

TAMUS Employees

As a general rule, payments to individuals for services who are currently TAMUS employees or have been employed by TAMUS within the last 12 months must be processed through Payroll and cannot be paid through Accounts Payable. 

Employee or Independent Contractor?

It is critical that TAMU correctly determine whether the individuals providing services are employees or independent contractors.

Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The IRS uses the "Common Law Rules" to gather facts that provide evidence of the degree of control and independence.

• Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
• Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
• Type of Relationship: Are there written contracts or employee type benefits (e.g. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

TAMU Tax office has developed an Employee vs. Independent Contractor Checklist that will gather facts on the three areas mentioned above. This document should be completed at the time of initial hiring/contracting if there is any question if the payment to the individual should be treated as an employee or independent contractor. Email the completed document to individualreimburse@tamu.edu. The document will be reviewed by Tax Compliance and a determination provided on processing the payment as an independent contractor through Accounts Payable or as an employee through Payroll.