HOME / FINANCIAL POLICIES /

Classification of Employee Fellow vs Nonemployee Fellow

This guidance is a working draft. Submit feedback to financialpolicy@harvard.edu by 5/31/23

Guidance Summary - Download complete guidance at left

Purpose of Guidance

At Harvard, research scholars who are neither students nor faculty members are known by a variety of titles (fellow, postdoc, scholar, trainee, grantee, stipendee, awardee, etc.). Regardless of title, it is important that these individuals be correctly classified either as Harvard employees (receiving payments of employee compensation from Harvard) or nonemployees (receiving nonemployee fellowship payments from Harvard). A misclassification may result in adverse tax or other consequences to Harvard or the individual (who for the sake of consistency are referred to as “fellows” below).

The Harvard department is required to classify the fellow based on the objective, specific facts and circumstances of the fellow’s position and responsibilities. The classification does not depend on such subjective or arbitrary factors as the department’s or fellow’s classification preference, the fellow’s job title, or the label attached to the payment (stipend, grant, award, etc.).

Individuals paid on federal research awards are generally considered compensation for services (employee fellow). Nonemployee fellows are only allowed on specific grant types (e.g., training grants T31 or NSF Doctoral Dissertation Grants) or participant support costs. In rare cases, a sponsor agreement may require a particular classification (for example, fellows supported by NIH National Research Service Awards (NRSA)) are required to be classified as nonemployee fellows per IRS 201705001 (117.05-00, 117.05-06). What a sponsor may call the appointment in the RFP or budget does not necessarily match what the individual should be classified as to meet labor and IRS requirements. See the Checklist for Classifying Employee Fellow vs. Nonemployee Fellow and additional materials to aid in classification.

This document provides guidance to departments in determining the appropriate classification under the facts-and-circumstances test. If there is uncertainty on the classification of an individual being paid on a sponsored award, contact your research administration office. For non-sponsored funding, contact financialpolicy@harvard.edu. Classifying an individual as an employee is the most conservative path.

Based on classification, visa type, and work location, additional restrictions may apply. See the Payroll Policy website.

Classification and Processes

Basic Distinction

Employee Fellowship
Employee fellowship payments are made in exchange for services that are primarily for Harvard’s benefit*. Employee fellowship payments represent compensation (i.e., salary or wages) and generally include payments that:

  1. Relate to activities that are subject to Harvard’s control or supervision, meaning a Harvard representative tells the individual where, when, and how to do the work, OR
  2. Subsidize studies or research primarily for the benefit of Harvard, OR
  3. Relates to research where the research topic is determined by Harvard or the sponsor, OR
  4. Represent payments for teaching.

    This classification includes payments for research services performed under most federal agency research grants.

*Relevant Factors for determining if Work would be primarily for Harvard or a sponsor’s benefit for work/services that is more than de minimis or insignificant and would include one or more of the following:

  1. services are for a grant that has a deliverable to the sponsor;
  2. individual is performing a function that directly enhances the program or activities of Harvard or the sponsor;
  3. individual is participating in an activity that generates income to Harvard or the sponsor;
  4. primary purpose of the work is for Harvard to obtain useful results from the individual’s research;
  5. Harvard or the PI determines the research activities.

Nonemployee Fellowship
By contrast, the IRS defines nonemployee fellowship payments as payments made to support an individual in the pursuit of their professional development, scholarship or research. Nonemployee fellowship payments are not payments in exchange for services, but rather are payments to allow someone to carry out their own research or educational activities under supervision or mentorship of a faculty member. Nonemployee fellowship payments often fund living, travel, or research expenses.
Generally, nonemployee fellowship payments meet ALL of the following conditions:

  1. The primary purpose is to aid the fellow’s pursuit of study or research.
  2. The payment is an award with few strings attached, i.e., no requirement on the fellow's part to perform substantial services or a specific set of tasks for the sponsor or the University[1].
  3. The research topic is determined by the fellow, not assigned by the sponsor or Harvard (although faculty may advise recipients).
While the University or sponsor may receive some benefit from a recipient’s work product (for example, certain intellectual property rights), Harvard or the sponsor is not the primary beneficiary of the work, and the work does not primarily support a faculty member’s project or reserach program.

NOTE: Contact your GSS Consultant for individuals classified as fellows who will primarily located outside of the United States.

Relevant Factors

While reciting the legal standard is fairly simple, applying the standard as a practical matter may be more challenging. Many positions will not squarely fit one classification or the other. In that case, the department should consider the nature of the position and the fellow’s responsibilities, and determine which classification, is the closer fit.

In making this determination, department should be aware of certain factors that, where present, tend to suggest one classification or the other (although a given factor is not, by itself, necessarily determinant).

Factors suggesting employee fellow or nonemployee fellow payment

Factors Suggesting Employee Fellow Payment Factors Suggesting Nonemployee Fellow Payment
  • Pay is based on percentage of effort.
  • Payment is tied to completion of one or more deliverables.
  • Harvard can immediately stop payments if the fellow interrupts the work.
  • The relationship between faculty member and fellow is more supervisor/worker than mentor/mentee.
  • The faculty member closely supervises the work.
  • The fellow is doing work previously done by an employee or is acting as a replacement or substitute for an employee fellow, such as a research assistant/associate.
  • The faculty member or sponsor identified the research topic.
  • Payment is typically based on a flat amount
  • Payment is for housing or other living expenses such as food, accommodation or health insurance.
  • Harvard cannot immediately stop payments if the fellow interrupts the work.
  • The relationship between faculty member and fellow is more mentor/mentee than supervisor/worker.
  • The faculty member has nominal supervision over the work.
  • The fellow identified the research topic (perhaps with advice from the faculty member).
  • The fellow applied for and obtained the funds from an outside sponsor (even if the sponsor required the funds to flow through Harvard).

 

Other Information

Supplemental Stipends or Secondary Employee Appointments

If a recipient has two discrete roles and duties and is receiving separate funding for each, it may be appropriate they be treated as two different appointments and classifications (e.g., one appointment as an employee fellow and another as nonemployee fellow).

Some sponsors may have restrictions around multiple stipends or appointments. Confirm with the fund terms and conditions before giving a secondary stipend or employee appointment. In order to determine whether stipend supplementation or a second salaried appointment is the best approach for support, sponsor requirements dictated by the stipend source as well as the secondary source of support (stipend supplementation or second salaried appointment) must be considered.

Supplemental Stipends

To supplement a stipend means to provide additional support in the form of additional stipend to an individual from a funding source (sponsored or institutional funds) other than the original source of the stipend (e.g., the fellowship or training grant). Such stipend supplementation often occurs when there is a gap between the stipend amount received from an external fellowship and the amount specified in Harvard’s appointment letter.

When a nonemployee fellowship recipient is allowed, based on the terms and condition of the award, to receive additional financial support, generally, the supplement should also be in the form of nonemployee fellow stipend payments rather than employee fellow salary.

Stipend supplementation should not be confused with using formal salary compensation.

Stipend supplements should not be charged to sponsored awards.

Secondary Appointments

Nonemployee fellows may receive additional pay in the form of employee salary in narrow circumstances. For example, when a nonemployee fellow works directly on a PI’s research grant, they may receive salary compensation for effort on the project. The research activity for which the salary is paid must be separate and distinct from the research activity from which the stipend is paid and must be allowable under both the terms and conditions of the nonemployee fellow’s existing fellowship arrangement and the research grant.

Employee fellows may hold multiple appointments as long as the combined appointments do not exceed a one FTE. Students have more restrictive FTE limits.


Corrections Due to Misclassification

A misclassification may result in adverse tax or other consequences to Harvard or the individual. Misclassifications must be corrected within a certain period of time and follow certain steps in order to comply with state and federal reporting and withholding requirements. Schools and Units should coordinate this process with their Finance Office or Payroll Office. Contact OSP for guidance around correcting misclassifications.

Tuition Remission on Sponsored Awards

Graduate tuition remission is considered compensation and associated with graduate student employees paid a salary. See the Sponsored Tuition Policy for specific restrictions.

Work Location and Visa Status

  1. After classifying as employee or nonemployee, departments and units must confirm that an individual’s visa status allows them to be paid using that classification. For example, recently graduated students with an Occupational Practical Training (OPT) extension, cannot be paid as a nonemployee fellow stipendee.
  2. Nonresident aliens may also have additional restrictions on their work location and should consult with Harvard International Office (HIO) to confirm eligibility to work remotely or in another Harvard registered state. See Remote Employment Guidance and Payroll Policy.

Processing Payments

Based on classification, visa type, and work location, additional restrictions may apply. See the Payroll Policy website.

  1. Employee

Compensation/salary and wage payments are made through PeopleSoft for those working in Harvard Registered Payroll states. These payments are reported on a Form W-2 or Form 1042-S (if a foreign national and a tax treaty applies). Individuals seeking to work in a non-registered payroll state or outside of the United States must comply with the Payroll Policy.

  1. Nonemployee

Fellowship/stipend payments may be processed via PeopleSoft or by Accounts Payable. Check with your local academic or student affairs office for school-specific policies and processes.

  1. PeopleSoft Payments: generally recurring payments paid directly to the individual and processed via the Monthly Stipend Process (MST) using object code 6440 or Monthly External Payroll (MEP) using object codes 6450 or 6452. These payments are overseen and administered by the school’s financial aid office and considered U.S. sourced income.
  2. Accounts Payable Payment: Generally processed as one-time stipends/ fellowships/ awards/ grants. Be sure to use appropriate object code and note the period and location of the activity. Special rules apply for foreign individuals, see NRA Tax Compliance Location of Activity.

 

 

 

[1] A requirement that the fellow provide evidence of effort – such as through limited oral or written progress reports -is NOT considered substantial services or a specific set of tasks.

 

 

See also: Policy, Payroll, Payment