Administrative Policies and Procedures Manual - Policy 4325: Purchasing Services from Independent Contractors

Date Originally Issued: 10-15-1995
Revised: 07-01-2004, 03-01-2006, 05-22-2006, 01-04-2018

Authorized by RPM 7.4 ("Purchasing")

Process Owner: Chief Procurement Officer

1. General

The University may purchase services from an independent contractor; however, the individual or firm providing the services must satisfy most of the common law factors that distinguish them from an employee. Generally, an independent contractor is an individual or firm that provides services to the public to make a profit. Although the Internal Revenue Service (IRS) looks at all the common law factors in deciding if an employment relationship exists, the IRS focuses on the:

• Degree of control exercised by the University over the details of the work.
• Degree to which the independent contractor offers similar services to the general public.
• Independent contractor's involvement in the regular operations of the department.
• Permanency of the relationship.
• Independent contractor's investment in the facilities, tools, or materials used in the work.
• Independent contractor's opportunity to realize a profit or loss.
• University's right to discharge the independent contractor.
• Type of relationship the parties intended to create.

Misclassification of individuals as independent contractors, which avoids withholding and payroll taxes, is illegal under the Internal Revenue Code. If an employment relationship is determined to exist, the individual must be hired as an employee. Refer to UAP 3210 ("Recruitment and Hiring") for hiring procedures.

2. Determination

The University must be able to prove to the IRS that an individual or firm providing services to the University is an independent contractor. In order for the University to determine whether the appropriate legal tests have been met, a department wishing to purchase services from an independent contractor must complete a Service Provider Questionnaire (SPQ) form at the time of preparing a Purchase Requisition in LoboMart, unless the vendor has an approved universal SPQ reflecting a similar scope of work included in the vendor's profile. If the independent contractor does not have a SPQ on file or is being contracted for a different scope of work, the department must complete an SPQ in LoboMart. The SPQ addresses the more critical common law factors that the IRS relies on to determine the status of service.

To purchase services from an independent contractor, the department must prepare a Purchase Requisition in LoboMart and submit it electronically for approval. The requisition must include a detailed description of the purpose or function of the service (scope of services). The appropriate accounting office must approve the request and the Purchasing Department must issue a Purchase Order before an independent contractor may be engaged. The University Counsel's Office must approve the purchase of legal services. These approvals are necessary to ensure compliance with IRS regulations, the State Procurement Code, and other laws.

3. Conflict of Interest

New Mexico law states that employees of the University, individuals employed at UNM in the past twelve (12) months, public and student members on advisory boards and committees, and UNM volunteers serving in an official capacity may not use their position to enhance their direct or indirect financial interest or use confidential information learned as employees for anyone's private gain. If any of these individuals have a direct or indirect financial interest in a firm offering services as an independent contractor, proof of compliance with RPM 6.4 ("Employee Code of Conduct and Conflicts of Interest Policy") and UAP 3720 ("Employee Code of Conduct and Conflicts of Interest") must be submitted to the applicable accounting office before the purchase requisition will be approved.

4. Taxability

Payments to independent contractors are income subject to taxation. The University must report all payments made to independent contractors to the IRS. Independent contractors are required to provide a completed W-9 to the University before payment will be processed. Without this form, the University is required to withhold a designated percentage of each payment made to the independent contractor and send it to the IRS. The Purchasing Department will request a W-9 from independent contractors who have not previously given the University a W-9.

4.1. Foreign Independent Contractors

Payments to foreign nationals or corporations will be subject to withholding unless a tax treaty with the home country creates an exception or the work is performed entirely outside the United States. Even then, IRS filing requirements will apply both to the foreign person or corporation and the University. Generally, a J-1 visa will be required. All foreign independent contractors are required to provide their U.S. Social Security Number or Individual Tax Identification Number to the University in order to receive payment. Before making any commitments to foreign nationals or corporations, contact the University Taxation Department. Refer to "Foreign Nationals" Policy 2180, UBP for more information.

5. Related Links