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Employees vs. Independent Contractors

Understand the distinction between NC State employees and independent contractors – and how it affects taxation.

An employee is an individual who performs a service for the university/agency and is working under the direction and control of the university/agency or its employees. Direction and control can be implied to exist when the employer has the right to control both the results as well as the means and methods of the worker. (IRS Treasury Regulation 31.3121(d)-1(c)).

An independent contractor is an individual engaged by the university/agency to perform a specific function or task and who is free to perform this function or task completely at the individual’s own discretion with regard to means and methods.  No taxes are required to be withheld or paid on compensation disbursed. (IRS Treasury Regulation 31.3401(c)-1(b)). The existence of an agreement or contract helps support the independent contractor position. This document should be fairly specific in what is to be provided and amount or lack of control the university/agency has over the individual.

The IRS training manual – Independent Contractor or Employee?, is also available.  This material can be used for reference and training purposes, but it should not be cited as authority for setting or sustaining a technical position for the University.