Good Afternoon --

I hope you can shed some light (hope, encouragement) on this situation. Our
office is responsible for issuing subcontracts and consulting agreements
funded by contracts and grants and in March we issued a 5 day consulting
agreement (March 17- 21) to Dr. X to present several seminars. The agreement
was for a fee and actual travel expenses. Dr. X did the seminars and
submitted a voucher and receipts as required and we instructed the Principal
Investigator to issue a requisition for payment. All this is as we would
normally do.

In late April, Dr. X was hired by the University as a full-time employee.
Our Accounting Department is now holding the consultant agreement payment
requisition for the fee portion of the payment saying that Dr. X is an
employee so must be paid through the Payroll system. We explained that the
consultant work preceded his employment and they said it didn't matter
because IRS would be very upset if we issued a 1099 and a W-2 form to the
same person in the same year. [Two different payment situations. Seems to me
that this would warrant two different tax forms.] They now tell us that we
must submit a payroll form for his March effort, despite the fact that he
wasn't an employee. It seems to me that we are not being entirely
straightforward with our payroll records if we do this.

Is there some IRS ruling, regulation, whatever that would require that we
treat non-employees as employees even if we have agreements with them
specifically stating that we do not have an employer-employee relationship?

As always, thank you for your wisdom & experience . . .

Val Seaquist
The University of Alabama in Huntsville

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