GAP 200.129, Special Rules for Engaging and Paying Current and Former Employees as Independent Contractors

I.  General

II. Procedures

I. General

Determination of an individual’s status as an independent contractor or an employee is based on the relationship between that individual and Duke University/Duke University Health System.  Once an individual has established an employment relationship, it is difficult to suggest that the employment relationship ceases to exist, even upon termination of employment. Accordingly, current and former employees should generally be paid through the Corporate Payroll system. As a result, individuals should not receive both a W-2 and a 1099 form in the same tax year for services provided to Duke University/Duke University Health System.  In addition to IRS purposes, Fair Labor Standards Act and Worker’s Compensation are reasons to consistently treat an individual as employee.

However, there are a few situations where it may be more appropriate to treat such an individual as an independent contractor. In such a case, substantial facts must be present and well documented to support this position. Even past employment can taint the status of the individual for subsequent services provided to Duke.  Therefore, to help establish an independent contractor relationship additional documentation is required.

II. Procedures

If an individual is providing services in substantially similar capacity or under similar direction and control as when they were an employee, they are an employee. This prior relationship is documented by completing the Former Employee section of the Independent Contractor Checklist.

If an individual is providing services in substantially similar capacity or under similar direction and control as other Duke employees, the individual should be paid as an employee. (Independent Contractor Checklist)

It is the engaging department’s responsibility to research the employment history of the individual.  The person completing this form should have ample knowledge of all the facts and circumstances surrounding the situation to provide detail on the individual’s situation as the basis of this request.  If an individual is misclassified as an independent contractor this could result in a status reclassification of the individual and other individuals in similar situations.  Such reclassification would result in additional costs, including but not limited to withholding, additional taxes, and penalties and interest on the under withheld or underpaid amounts.

The Internal Revenue Service (IRS) recently created Form 8919 as a method for an individual to claim they were misclassified as an independent contractor. If this occurs the University/Health System may be requested by the IRS to provide information to enable the IRS to make the classification determination.  The IRS would request the University/Health System to complete Form SS-8 in this process. Upon such request, the approving department will be responsible for providing sufficient detail in order to respond.  Please see the IRS website for Form SS-8.