How are you paying your adjunct faculty, as employees or independent contractors? Online adjuncts work from home, have a flexible schedule, use their own equipment, often work for multiple schools, and usually are only contracted for one term at a time. Can they be hired as independent contractors?
Many people still look exclusively at the “20-factor test” that the IRS used to help determine if a worker was an employee or independent contractor. Although the IRS has not abandoned these factors, beginning in 2004, the IRS began focusing more on the evidence of the “employee’s” degree of control and independence, which were determined to fall into three categories:
1. Behavioral - is the right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The behavioral control factors fall into the categories of:
2. Financial - is the extent to which the business has the right to control the economic aspects of the job. The financial control factors fall into the categories of:
3. Type of Relationship - refers to facts that show how the worker and business perceive their relationship to each other. The factors, for the type of relationship between two parties, generally fall into the categories of:
A hiring manager may look at these factors and think, “Great. It seems like they can be independent contractors, right?”
According to every determination made by the IRS that we could find, part-time faculty (adjuncts) including those teaching in continuing education, whether they work on your campus or online, are employees. These determinations stem from the fact that teaching and instruction are the primary business of a university, the faculty are told what to teach, within which timeframe to teach it, the method by which it will be taught. They are given either the location to teach or provided the software on which they teach, and there are acceptable standards of performance that are evaluated.
This is not a new issue. In a 2001 memorandum issued by the IRS, it was stated, “We know of no case or ruling in which members of the faculty of a school or college were found to be independent contractors.”
There have been several occasions when the IRS has made a ruling on an adjunct professor’s employment status. In some cases these rulings were prompted by the IRS, while in others they were requested by the university or by a faculty member. Below are three brief summaries of the outcomes cited from tax court, Private Letter Rulings (PLR) and Revenue Rulings:
Schramm v Commissioner of Internal Revenue (Case No. 8938-09)
This case was brought forward by an online adjunct faculty member of Nova Southern University who believed he should not be classified as an employee and was entitled to write-off expenses. The important citation in this 2011 finding is as stated, “On January 8, 2007, NSU’s payroll manager, [...], sent him a letter advising him that NSU classifies all of its adjunct professors, including petitioner, as employees and not as statutory employees or independent contractors. NSU’s decision regarding the classification of employees was in conformity with an SS-8 ruling 3 the Internal Revenue Service (IRS) issued on June 10, 2003, regarding another adjunct professor who taught online courses at NSU.
In 1990, the IRS applied the common law factors in concluding that part-time instructors at a public community college were employees, not independent contractors. Most of the instructors held other full-time jobs and taught only one course during the semester. The college did not have a main campus; classes were held at various community buildings. The college did not prescribe course content.
A 1989 determination request was made by a part-time faculty member who reclassified as an independent contractor after years of being classified as an employee, with no change in duties. Rev. Rul. 70-308 held that, under the facts presented, the instructors were employees of the school for purposes of the FICA, FUTA, and federal income tax withholding.” Cited in the ruling were several factors, including: (a) The school determined the courses that were to be offered and the requirements of each course in terms of what was to be taught and the number of class or laboratory hours that were required. (b) The school advertised and otherwise offered the courses in its own name, enrolled the students, and provided the classrooms and other facilities and materials used. (c) Fees for the courses were paid directly to the school. (d) Each instructor performed the teaching services on the school's premises, followed its curriculum, reported in person when classes were to be conducted, and was subject to periodic observation as to his teaching techniques by representatives of the school. (e) An instructor was permitted to terminate his relationship with the school at any time and the school was permitted to terminate the relationship if the instructor did not follow the curriculum.
If you have been paying your adjunct faculty (online or on-ground) as independent contractors you will want to get advice from your accounting firm or tax attorney on how and when to change their status.
If you are uncertain about how to classify a worker, you can request an IRS determination by filing Form SS-8, “Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” However, some tax specialists caution that IRS usually classifies workers as employees whenever their status is not clear-cut. In addition, employers that request an IRS determination lose certain protections against liability for continued misclassification.
Halunen, C. (Halunen & Associates) (2010), American Bar Association Annual Conference, Summary of Notes. https://bit.ly/2E3trcD Controller’s Office (2011), University of Nevada, Reno, IRS Rulings on Independent Contractor Determination https://bit.ly/2Gn2mD0
Internal Revenue Website -(1) https://bit.ly/1ULFS0i; (2) https://bit.ly/2IhmGXg; (3) https://bit.ly/2J5xMPZ; (4) https://bit.ly/2IeTTSU
Kich, M (2015), The department of labor’s guidelines on the distinctions between independent contractors and employees—and their application to adjunct faculty, in Academe Blog : The blog of Academe Magazine (July 15, 2015), https://bit.ly/2E4invT.