A general rule is that the exempt organization, as the payer, has the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Vera Elm, an electrician, submitted a job estimate to a tax-exempt low-income housing organization for electrical work at $16.00 per hour for 400 hours. She is to receive $1,280 every two weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also is to perform additional electrical installations under contracts with other organizations, that she obtained through advertisements. Vera is an independent contractor to the low-income housing organization.

Refer to paying independent contractors if you need information on what your responsibilities are when paying contractors. Publication 15-A, The Employer's Supplemental Tax GuidePDF has detailed guidance including information for specific industries.