If your organization hires a person to perform a service for pay, that person is considered an employee, regardless of the number of hours worked, unless that person:

• Is free from control and direction in the performance of the service. An independent contractor would be given a project to complete. An employee would receive specific directions from you on how to complete the project. An employee would use your equipment and have specific hours to be on the job.

• Is performing similar services for other organizations. That person may have a corporation established for the purpose of contracting with your organization. They would have business insurance and invoice you for time spent working on your project. Your organization would establish an amount to pay for the finished project.

When your organization decides to hire a person for a project, you may decide to write a contract. This will help to establish the relationship as an independent contractor as opposed to an employee. The contract should establish:

• The person is not required to work for the nonprofit organization exclusively; only the period of time specified in the contract.

• The amount to be paid for the project as opposed to a salary or hourly rate of pay.

• The time frame for the completion of the contract; not the hours to be worked.

• The business name of the individual hired to complete the project.

• The person hired may not be terminated at will; the cancellation provisions should be listed in the contract.

• Benefits normally paid to an employee will not be included.

• The person hired will not receive a “paycheck” that includes tax and social security withholding.

Protect your nonprofit when you use independent contractors by requesting a certificate of insurance. The policy period shown on the certificate should cover the time frame for your project. Other items to review are:

• The certificate is issued and signed by the agent or the insurance company – not the independent contractor.

• The name of the insured is the independent contractor you hired and are paying. If a Professional Employers Organization (PEO) or leasing company is listed as the insured, the independent contractor’s name should appear at the bottom of the certificate in the description of operation box.

• The certificate should include a policy number and not a notation of “applied for”, “pending”, or “to be determined.”

• The certificate was issued within a few days of your request.

Documentation of an independent contractor’s status will be reviewed at the time of a claim or an insurance policy audit. Having a contract, certificate of insurance or a completed independent contractor form (most workers’ compensation carriers will provide this form) will make it easier to prove.

At Colorado Nonprofit Insurance Agency, our insurance programs offer a wide range of competitively priced packages. Remember profits earned by Colorado Nonprofit Insurance Agency are used to support Colorado Nonprofit Association programs. Contact us at (303) 894-0298/ (866) 537-1142 when you are purchasing insurance for your organization.