PURPOSE
To establish uniform guidelines
and policies for contracting with independent contractors. These guidelines
apply to appointing authorities with job classifications established
under section 124.14(A) of the Ohio Revised Code.
GENERAL
Pursuant to section 124.14(A)
of the Revised Code, the director of the Department of Administrative
Services is to establish a job classification plan for all employments,
the salaries of which are paid in whole or in part by the state. Appointing
authorities with service needs that cannot be fulfilled with traditional
employee appointment may enter into a personal services agreement
and contract for the performance of those services. Care should be
taken to distinguish between a contract employee and an independent
contractor.
An independent contractor
is paid a fee or other payment by contractual arrangement for particular
services. Personnel of the appointing authority usually do not control
or supervise the manner of an independent contractor's work. Independent
contractors are not eligible for employee fringe benefits such as
vacation or sick leave, and do not appear on a public payroll. They
are generally required to provide their own supplies and equipment
and to provide and pay assistants if necessary. Independent contractors
receive a Form 1099 for income tax reporting purposes and are not
eligible for workers compensation.
Established Criteria of
an Independent Contractor
Control is the common criteria
established in common law and by the Internal Revenue Service, Department
of Labor and Public Employee Retirement System in determining whether
a particular individual is a contract employee or independent contractor
of an employer.
The following guidelines
combine various sources to establish the general characteristics possessed
by an employee and contrast those characteristics with those generally
possessed by an independent contractor.
Factors to weigh in determining
control (and thus, whether the worker is an employee):
a. A worker who is required
to comply with instructions about when, where and how the worker is
to work is ordinarily an employee. The employer's right to instruct,
not the actual exercise of the right is important. Instructions may
be oral or written (e.g., procedures and manuals).
b. Training of a worker by an experienced employee who works with
the worker is a factor indicating control because it indicates that
the employer wants the services performed in a certain manner. Independent
contractors ordinarily use their own methods and do not receive training
from the one who purchases the services.
c. If services must be rendered personally and the employer is interested
in who does the job, as well as in getting the job done, it indicates
that the employer is interested in the methods used, as well as the
result of the services rendered, and thus favors employment rather
than an independent contractor relationship.
d. The hiring, supervision and payment by an employer generally shows
control over the persons on the job. However, if a worker hires, supervises
and pays assistants under a written contract to provide materials
and labor, the worker may be an independent contractor.
e. The existence of a continuing relationship between the worker and
the employer tends to indicate an employer-employee relationship.
A continuing relationship may exist when work is frequently performed,
even though at irregular intervals or when the contract is long term
or regularly renewed.
f. If the employer sets the hours of work, that is indicative of control.
g. An independent contractor is free to work for as many employers
as he or she chooses. An employee works full time for the employer.
h. The location where the work is performed might indicate an element
of control. If the work is performed on the employer's premises, an
element of control is implied, especially if the work could be conducted
elsewhere. Likewise, if the worker uses the employer's tools, materials,
etc. that is indicative of control. In contrast, if the worker makes
a significant investment in the facilities he or she uses (e.g., rents
an office from an unrelated party), he or she would tend to be an
independent contractor.
i. If the employer directs how the work must be performed (e.g., the
sequence of tasks, regular reports, the manner in which something
is to be accomplished, the worker is likely an employee).
j. Employees are typically compensated for work done by the hour,
week or month. Independent contractors are paid by the job or on a
commission basis.
k. If a worker makes his or her services available to the general
public, he or she would tend to be an independent contractor.
l. An employer has the right to discharge an employee. The services
of an independent contractor are terminated for breach of contract.
m. If there is an opportunity for profit and loss, the worker is likely
to be an independent contractor.
Assessment of Agency Needs
A multi-step analysis is
required to assess agency needs. Determine whether the worker's function
is that of an independent contractor. Then use the guidelines set
out below to determine whether the worker's function is inherently
governmental. This determination involves an assessment as to whether
the worker's function is so intimately related to the public interest
that the work must be performed by a governmental employee. As a guide,
ask the following questions:
1. Is the work to be performed
policy making or managerial in nature? In most instances, policy should
be established by a governmental employee.
2. Is the contract being used to bypass personnel ceilings, pay limitations
or employment procedures?
3. Is the "contract" to be given to a former agency employee?
4. Will the "contractor" aid in influencing or enacting
legislation?
5. Is the "contractor's" expertise available within the
agency or from another agency?
If the answer is "yes"
to questions 2, 3, 4 or 5, it may be that the worker's function is
inherently governmental and should be performed by a governmental
employee.
If the function is not
inherently governmental, involves independent judgment, extended analysis
and advanced training, determine whether the service is personal in
nature and, therefore, appropriate for a personal services contract.
determine whether the service is a regulated profession under Title
47 of the Revised Code. Many of these professions have state job classifications.
Each appointing authority
is to evaluate the functions of its workers to determine whether the
individual is an independent contractor or a contract employee. If
the individual functions as an employee, every effort should be made
to place the individual into an appropriate employee job classification
so that appropriate IRS, PERS and other employee withholdings may
be made. Temporary employees hired through an employment agency or
temporary service should have employee withholdings made through that
service.
Selecting an Independent
Contractor
Typically, the personal
services of an independent contractor should not be long term, and
contractors should not be hired to perform work that could be performed
by state employees. Long-term personal services may be acquired through
seasonal, intermittent, part-time or permanent state employees. Contracts
may not cross over the biennium, but may be renewed when necessary.