Independent contractors procedure

Santa Clara Valley Water District-Policies and Procedures (Internet Version)

Procedure: 4-027
Date: April 16, 1996
Subject: INDEPENDENT CONTRACTORS

I. PURPOSE

To establish a procedure to determine the withholding status of independent contractors.

II. POLICY

It is the policy of the District to withhold income taxes, including medicare tax, from independent contractors who are subject to IRS reporting and withholding requirements according to Federal and State Statutes (Statutes No. IRS Code Section 3401).

III. PROCEDURE

A. Requestor Responsibilities

1. Obtain Independent Contractor Questionnaire Form FC 1227 and accompanying instructions (Exhibit A) from Purchasing. The order will not be placed without a completed questionnaire.

2. Complete questionnaire to determine independent contractor withholding status and secure signature of independent contractor.

a. If the purchase is for contract programming services, attach a completed questionnaire to the purchase requisition and send to Purchasing.

b. If the purchase is for consultant services, attach a completed questionnaire and route per Procedure 4-025.

c. If the purchase is for technical/professional services, include a completed questionnaire and route per Procedure 4-026.

B. Purchasing Responsibilities

1. Review completed questionnaire for proper signatures (requestor and contractor).

2. Send questionnaire and purchase requisition to Chief Accountant.

3. Upon return of reviewed and approved questionnaire, assign purchase order number.

4. Send to Accounting only those questionnaires where withholding is required. All others are retained by Purchasing.

C. Clerk of the Board Responsibilities

1. Review completed questionnaire and agreement for proper signatures.

2. Assign agreement number.

3. Agendize, if required.

4. Send to Accounting only those questionnaires where withholding is required. All others are retained by Clerk of the Board.

D. Accounting (Payroll) Responsibilities

1. If applicable, establish the contractor in the payroll system.

2. Request contractor to fill out Withholding Allowance Certificates (W-4 and DE-4). If no certificate is filled out, withholding will be at Single-0 rate.

3. Retain completed questionnaire, executed contract, agreement, or purchase order, and completed W-4 and DE-4.

NOTE: WHEN AN EXISTING CONTRACT IS EXTENDED AND NO QUESTIONNAIRE HAS PREVIOUSLY BEEN COMPLETED FOR THIS CONTRACT, FOLLOW THE SAME PROCEDURES ABOVE AND TREAT THE EXTENSION LIKE A NEW CONTRACT.

4. When invoice is received from contractor:

a. Route invoice for approval.

b. Advise independent contractors to bill for mileage, travel, and other business expenses separately.

E. Contract Completion

When the contract is completed and the invoice is for a final payment, the department will note the termination on the invoice(s) and return to Payroll.

Factors to consider in answering questions in Section B of the questionnaire for determining contractor withholding status:

If at least five of the questions have a "no" answer, withholding is not required.

If at least five of the questions have a "yes" answer, withholding is required.

1. Supervision

a. If the District has employees performing substantially the same work with the same degree of supervision, the answer should be "yes."

b. If the department regulates hours of work, then the answer is probably "yes."

c. If the individual acts for the District as a "deputy" (deputy controller, deputy court clerk, etc.), the answer is "yes."

d. If the individual may be directed to do a variety of odd jobs that differ from the primary activity, then the answer is probably "yes."

e. If the independent contractor attends regular staff meetings, the answer is probably "yes."

f. If the District's oversight is limited to ensuring that it conforms to the agreed upon product, timeliness, etc., then the answer to the question is "no."

g. If the individual is subject to the will and the control of the District, both as to what shall be done and how it shall be done, then the answer is "yes."

2. Training

a. If the District pays for external training such as seminars, college courses, and conferences, the answer to this question is "yes."

b. If the District provides internal training, other then rudimentary orientation, the answer should be "yes."

3. Resignation--This question is self-explanatory.

4. Place of Work/Tools

a. If the District requires that the work be performed at a District location and provides the tools required to perform the job, the answer to this question is "yes."

b. If the individual maintains an office and could provide the tools, but uses District tools and facilities as a matter of expediency, rather than as a requirement, the answer is probably "no."

c. If tools are not required, base your answer on facilities alone.

d. If tools are provided by the individual, but the District agrees to perform maintenance on the tools, the answer could be "yes."

e. Your answer to this question should also consider tools used by assistants, whether employed by the District or the independent contractor.

f. Tools include standard office equipment such as typewriters, computers, and calculators, as well as tools which are specific to the job.

5. Length of Relationship

Relationships are generally continuing if there is no contractually specified output of a product or service and the end of the arrangement is based upon the passage of time rather than the completion of a product or service.

6. Ability to Provide Services to Others

a. The prohibition referred to in this question need not be in writing. "No" answers may also be based on the underlying concept that the individual does not have the time available to provide the services to others. Answers are often dependent upon the nature of the services being provided and common practices associated with obtaining such services from independent contractors.

b. For example, if someone provides programming services to the District 4 hours per week, services can be provided to others. However, if someone works 40 hours per week providing the same service, services cannot be provided to others.

7. Evidence That Product or Service is Provided to Others

Response to this question should be based on actions taken by the individual which indicate that the person is in the "business" of providing services to multiple clients. Factors to consider include:

a. Does the individual have a business license?

b. Does the individual have a professional license or designation provided by the state or some other regulatory organization?

c. Does the individual maintain an office which is available for meetings with clients?

d. Does the individual advertise the availability of the product or service in usual sources (newspapers, trade journals, yellow pages, etc.)?

e. Does the individual maintain policies of insurance covering product liability, performance bonds, errors, and omissions, etc., or, as an alternative, does the individual assume a financial risk associated with providing the service or product?

8. Payment Terms

a. "Lump sum" contracts which provide for periodic progress payments, or which provide for the lump sum to be modified in the event of changes in the scope of work, are still lump sum contracts.

b. If a payment is based upon a "piece rate" method, such as "per typewritten page" or "per patient," the answer to this question is "no."

9. Use of Assistants

This question is self-explanatory.