Writing a successful grant proposal depends on a number of factors: clearly written, concise objectives; compelling need to carry out objectives, match between proposed objectives and sponsor interest; and expertise to get the job done.

In order to successfully carry out project objectives, there may be times when an investigator has to enlist expertise in a particular area or someone with a particular skill set.  Balancing the team in terms of expertise is important for a successful outcome.  How people are involved on sponsored awards depends on the roles they play and their relationship with the Institution.

This blog will address considerations when hiring someone as an employee or as an independent contractor, and will focus on three characteristicsthe IRS (Internal Revenue Service) takes into account when classifying workers.  Work classification is important because it determines if CSU must withhold income taxes and pay Social Security.  Misclassification of workers may result in financial implications to the worker and to the Institution and may cause difficulties when trying to pay someone off a sponsored agreement.

Behavioral Control, Financial Control, and Relationship of Parties

Behavioral control refers to the amount of direction and control the Institution has over the work being performed, including when and where the work will be performed.  More control indicates an employer-employee relationship.  Additional factors when considering behavioral control include:

• Training– If a worker needs trained on how to do a job, then likely that worker is an employee.
• Evaluation– Measurement of job performance, rather than the end result, often indicates an employer-employee relationship.
• Instruction– Instructions such as when and where to work, what tools or equipment should be used (or if tools/equipment are supplied) and detailed instructions reflect a high degree of control indicating an employee relationship.

In addition to behavioral control, financial control over the direction of the business aspects of the worker’s job indicate an employer-employee relationship.  If the risk of financial loss or opportunity for gain is on the worker, then they are likely an independent contractor.  Contractors are often engaged for a fixed price and have to absorb additional expenses they might incur.  Additionally, independent contractors are generally free to seek out other business opportunities.

Finally, the type of relationship depends on how the worker and Institution perceive their interactions with each other.  While the nature of the relationship may be set forth in a contract, a contract stating the worker is an employee or independent contractor is not sufficient to determine worker status.  Other relationship factors to consider include:

• Benefits– Workers who receive employee benefits (e.g., health insurance, life insurance, vacation or sick pay) are employees; workers who do not receive benefits may or may not be employees.
• Permanency– An expectation that the relationship will continue indefinitely is evidence of intent to create an employer-employee relationship.
• Key business activities– If a worker is providing a service that is a key activity of the Institution (e.g., instructional activities at CSU), then that person should be hired as an employee.

Employee

An employee is anyone who performs services in which the employer directs what is done and how it should be done.  Often an employee receives instruction and training on their job duties and is evaluated on job performance.  The hours of work are set by the employer and the employee is paid by time, either hourly or salary, not by job.  In an employer-employee relationship, the employer furnishes tools, equipment, or materials and supplies the employee needs to do his or her job.  Finally, the employer or employee can terminate services at any time.

Independent Contractor

An independent contractor is engaged in an established trade and offers services to multiple clients.  Services should be different from those typically offered by the employer and are reimbursed by job.  An independent contractor is free from control and direction, receiving no training, supervision, instruction, materials, or evaluation of job performance.  Services are based on contractual obligations, therefore termination of services may come with risks to either party.

The following table provides a general checklist to help make the proper determination between an employee or independent contractor.

Before Work Begins

Proper classification of individuals should happen prior to any work being performed.  This is especially true if the position is grant-funded, as an individual may not be able to be reimbursed from a sponsored agreement if not properly classified, or the award may not support the position if the cost of employee benefits were not included in the original budget.

Just because a position was proposed and awarded one way, does not mean the Institution is obligated to classify the position so that it aligns with the sponsored award.  Proper classification depends on the factors discussed above, not on any contracts with an individual or classifications in the sponsored agreement.

When in doubt, contact CSU Business & Financial Services and complete the Employee vs. Individual Independent Contractor Form provided online.