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Independent Contractor Policy and Procedures

Revised October, 2006

1. Introduction

POLICY STATEMENT

This policy applies to anyone wishing to contract for supplemental services to be paid by Brown University regardless of the source of funds. This policy supersedes all previous policies. A department intending to engage a service provider as an independent contractor must follow University approval and contracting procedures before the performance of services.

A service provider currently or formerly (within the calendar year) employed by the University may not provide services to University as an independent contractor. Please refer to the section on Current and Former University Employees.

REASON FOR POLICY

Designation of independent contractor status is governed by the Internal Revenue Service (IRS) tax code and common law. Significant tax penalties exist for incorrect classification of an employee as an independent contractor. In addition, contracting with an independent contractor may expose the University to significant risk. Therefore, it is imperative that common standards are applied in classification and contracting, and that each case is fully documented and auditable.

GENERAL RESPONSIBILITIES OF SERVICE PROVIDERS WHO USE PROFESSIONAL SERVICES AGREEMENTS

Heads of Operating Units:

  • Read and understand the Independent Contractor Policy, and comply with its provisions.
  • Communicate the information in this policy to prospective independent contractors as appropriate
  • Determine status (independent contractor vs. employee).
  • Ensure a professional services agreement is in place before service is provided.
  • Follow appropriate procedures for payment.
  • Obtain training sufficient to understand and communicate the provisions of this policy to all faculty and staff who might seek to engage an independent contractor.
  • Review each professional services agreement for content and compliance with policy.
  • Heads of academic and administrative departments, centers, institutes, and similar units are authorized to execute professional service agreements at amounts up to and including $25,000. (see signature authority policies)

Heads of Divisional Units

  • Ensure compliance with the Independent Contractor Policy within the department.
  • Deans, directors and administrative officals for those units which report directly to a senior officer ("divisional units") sign all professional services agreements at amounts up to and including $100,000. (See signature authority policies)

Senior Officers

  • Approve and sign all professional services agreements for greater than $100,000. (See signature authority policies)

Independent Contractor

  • Provide detailed and accurate information for determination of status and contract formulation.
  • Sign professional services agreement prior to providing services.
  • Provide appropriate documentation for payment of services.
  • Provide completed "Notice of Designation as Independent Contractor" form.
  • Provide W-9.

Controller / Purchasing Department

  • Determine whether or not independent contractor status is appropriate ( $2,000 or less, Controller's Department; greater than $2,000, Purchasing Department).
  • Review professional service agreement for content and compliance with University policies.
  • Ensure that insurance and risk issues are addressed to avoid liability to the University.

Office of Sponsored Projects (5-ledger accounts)

  • Review all professional services agreements to ensure that the service provided falls within provisions of the funding agency.

Office of the General Counsel

  • Review professional services agreements in excess of $50,000.
  • Draft specialized professional services agreement for any service where the standard professional services agreement does not meet the needs of the department.
  • Review and approve all professional services agreements/contracts that are not on a University standard form, regardless of the amount.

2. Professional Services Agreement

A professional services agreement (PSA) is a contract used to engage a consultant, freelancer, or LLC (Limited Liability Corporation), to provide professional services to the University. (Transactions such as auditing services, investment services, and fund raising initiatives will be handled via customized contracts.) These service providers are called independent contractors. A PSA differs from a purchase order (PO). A PO is a commercial document issued by a buyer to a seller, indicating the type, quantities, and agreed prices for products and/or services that the seller will provide to the buyer. Its purpose is to document/communicate a transaction's specifications, and form a contract for purchase. The numbered form also serves as documentation for invoice processing, and as an auditable source document supporting the incurred financial liability.

Standardized PSA contracts are in place and should be used in all cases. Exceptions must be approved by the Office of the General Counsel. Once a PSA is accepted, it has legal force of a binding contract.

In addition to the above mentioned professional services agreements, there are specialized contract templates for some departments (Student Activities, Music Department, Center for Public Policy, and the Brown Alumni Monthly) prepared by the Office of the General Counsel. Departments with contracts prepared by the Office of the General Counsel may continue to use those contracts.

3. Determination of Service Status

A determination must be made as to whether the service provider will be an employee of the University or an independent contractor. All standardized contracts provide questions that assist university personnel in making the correct relationship determination. Proper classification of a service provider ensures that the University is in compliance with the following: the Fair Labor Standards Act and Immigration and Naturalization Services regulations, as well as statutes regarding income tax withholding, unemployment insurance taxes, Social Security, and Medicare taxes. Improper classification results in penalties to the University, and the responsible department may be required to absorb these costs.

DETERMINING INDEPENDENT CONTRACTOR STATUS

The IRS uses a common law test to determine a service provider's classification as either an employee or an independent contractor. The common law test holds that if a business tells or has a right to tell a service provider how, when and where to work, then the service provider is an employee. A service provider free from such direction can generally be classified as an independent contractor. The IRS developed the 20-Factor Test to determine is a business controls and directs a service provider, or has a right to do so.

The intent of Brown and the service provider is important and the written agreement will lend credence to the classification. All contracts for services (other than guest speakers contracted for less than $2,000) include a shortened version of the 20-Factor Test to assist in making the proper classification. If the service provider is determined to be an independent contractor, proceed with this application of this policy. If it is not clear into which category a service provider falls, assistance will be provided by the Office of the General Counsel, the Controller's Office or the Purchasing Department. These same offices have the authority to override a department's decision to classify a service provider as an independent contractor in order to ensure consistency throughout the University. Note: The department representative submitting and/or authorizing the contract must ensure this determination procedure has been followed. In other words, if the status is questioned by the Office of the General Counsel, the Controller's Office, or the Purchasing Department, the department must be able to support its identification of the service provider as an independent contractor.

EXCEPTIONS TO THE INDEPENDENT CONTRACTOR STATUS CLASSIFICATION

Current and Former University Employees

If the service provider you wish to hire is a current University employee, a former employee (paid through University payroll during the current calendar year) or is providing a service the same as or similar to that of a current employee, he or she will be paid as an employee and not as an independent contractor. Contact the Director of University Disbursements at 3-7579 for assistance when a current or former employee is being considered for a contractual service.

Fees, Prizes, and Royalty Payments

The following types of payments are not for services performed. Payment is requested on a request for check unless the recipient is an employee. Employees are paid through the University payroll.

  • Royalty or Permission Fee - payment that represents compensation for the sale or use of copyrighted or patented work of an author, composer or inventor.
  • Prize or Premium - a reward or gift of money for a competition or other achievement. Prizes and premiums to individuals currently employed at Brown must be paid through the payroll system.

The following types of payments are for services performed by a service provider but do no trequire "determination procedures." Such one-time payments are typically of a fixed, minimal amount and are taxable to the recipients:

  • Participation Fee - payment for participating in surveys, seminars or research projects.
  • Human Subject Fee - payment to service providers who volunteer as human subjects in research projects.

NON US RESIDENT/CITIZEN

Professional service providers who are not US residents may be paid and/or reimbursed for their services and expenses depending on their VISA type. to assist in that determination, review the foreign payment table. If the professional service provider's VISA type permits payment and/or reimbursement, complete the appropriate PSA (see below) and submit the PSA along with the service providers tax identification number, and if appropriate, Federal Form 8233 - Exemption from Withholding on Compensation for Independent Personal Services of a NonresidentAlien individual. Review the Payments to Foreign Visitors procedures on the Controllers website for more information.

4. Procurement and Payment Procedures

If it is determined that the service provider is an independent contractor, following proper procedures on behalf of the University for the procurement of services will ensure that all contracting requirements have been met. Fair pricing (ensuring industry/market standards) is an important consideration in the negotiation of fees for service for all Professional Services Agreements.

GUEST SPEAKER $2,000 OR LESS

An abbreviated guest speaker payment authorization form (GSPA) is used to facilitate payment to a guest speaker/lecturer when the payment for service does not exceed $2,000. The agreement incorporates a Request for Check form to reduce the processing of paperwork at the department level.

INDEPENDENT CONTRACTOR - UP TO $2,000

An abbreviated Professional Services Agreement (PSA) is used to contract for a variety of professional services when the payment for services rendered is up to $2,000. The abbreviated PSA is used for a single payment. If multiple invoices are expected the payment must be processed on a PSA for services exceeding $2,000. This agreement incorporates a Departmental Certification and the contract Terms and Conditions.

INDEPENDENT CONTRACTOR - GREATER THAN $2,000

A standardized Professional Services Agreement (PSA) is used to contract for a variety of professional services when the payment for service rendered (including fee, travel and other expenses) is greater than $2,000. This agreement incorporates a departmental certification and the contract Terms and Conditions.

AMENDING A PROFESSIONAL SERVICES AGREEMENT

A professional services agreement is a contract. Changing the terms and conditions of an existing contract requires the completion of an Amendment to Professional Services Agreement form. The form allows for change to the scope of service, period of performance or financial consideration for the service performed. All other terms and conditions of the original agreement will remain in full force and effect. The amendment must be signed by the independent contractor and the appropriate University representative. Note: A contract cannot be amended after it has expired or once the contract amount has been spent. If the original contract period has passed, a new contract is required for the performance of additional services by the same vendor.

Processing of an Amendment to Professional Services Agreement will follow the same procedure as the original contract. However, if the fee for the service to be performed changes and is greater than the original contract, the approval and payment process for the new category will govern.

Amendments to a contract originally processed using a Request for Check (less than $2,000) requires the completion of the Payment Authorization section of the Amendment to Professional Services Agreement.

Amendments to a contract originally processed using a purchase order (greater than $2,000) require the completion of the Purchase Order Change Authorization section fo the Amendment to Professional Services Agreement. The documentation for the amendment should be forwarded to the Purchasing Department for procession.

INDEPENDENT CONTRACTOR REFUSAL TO SIGN AGREEMENT

If the independent contractor refuses to sign Brown University's Professional Services Agreement written or wants a representative from Brown University to sign their contract, the contract review and approval will be the responsibility of General Counsel. Departments do not have the authority to change a Professional Services Agreement template or to sign a vendor's contract.

5. Travel Expenses

Professional Service Providers whose fee for service is equal to or less than $2,000 may be reimbursed for travel expenses by the University. Their expenses must be in compliance with the Brown University Travel Policy. They must complete a travel expense report. Original receipts are required for all expenses. The missing receipt report may be used for expenses less than $50. Any travel expense over $50 not substantiated with an original receipt will be reported as taxable income.

Brown University employees will not be reimbursed for travel expenses personally incurred for a guest speaker. The reimbursement of travel expenses must follow federal tax and immigration guidelines.

Departments may use University guest rooms or short-term visitor housing (Auxiliary Housing) for the lodging of a guest speaker or independent contractor if the total payment for service does not exceed $2,000. However, the service provider must maintain permanent residence elsewhere and the stay must not exceed the lesser of one year or the contract period. Payment will be processed using an Interdepartmental Invoice.

Service providers whose fee for service is greater than $2,000 are responsible for their travel arrangements. They may invoice the University for these expenses. The service provider's fee and expenses will be reported to him/her on Form 1099 Misc.

Travel arrangements for a service provider without the financial means to expend personal funds in advance must be handled directly with the Controller's Office. Contact the Director of University Disbursements (extension 3-7579) for assistance in handling this special circumstance.

6. Signatures and Signature Authority

The University Corporation recently approved the expansion of authority to execute contractual agreements for professional services (i.e. guest speakers, consultants, independent contractors). The Corporation approved authorization in the following manner, and in accordance with the administrative procedures and requirements stated below. We believe that this expanded authorization will help improve the processing of these agreements by creating a better assignment of authority with responsibility and through the elimination of duplicative, non-essential steps in our current procedures.

The new authorization is structured along organizational lines with some delegation allowed within the units identified below. Please keep in mind that this authority applies to agreements funded from any source of funds, including grant/contract funds. The Authorization Form will be used to designate and approve those individuals authorized for the applicable academic or administrative unit.

Agreements funded from non-grant/contract funds in excess of $50,000 must be reviewed by the Office of the General Counsel prior to execution including those utilizing the University Standard Form located on the Controller's website. Any agreement, regardless of the amount, which is not written on the Standard Agreement Form must be reviewed by the Office of the General Counsel prior to execution.

All agreements funded from grant/contract funds will continue to require review by the Office of Sponsored Projects, for budgetary and sponsor allowability, as is currently the case. OSP signature is not required on the professional services agreement.

The following units have been defined with the dollar thresholds indicated:

  1. Operating Units

    Heads of academic and administrative departments, centers, institutes and similar units ("operating units") are authorized to execute professional services agreements at amounts up to $25,000. Heads of operating units may delegate to their manager-level subordinates authority to execute agreements at amounts up to and including $10,000.

  2. Divisional Units

    Deans, directors, and administrative officials for those units which report directly to a senior officer ("divisional units") are authorized to excecute professional services agreements at amounts up to and including $100,000. Heads of divisional units may delegate to their manager-level subordinates authority to execute agreements at amounts up to and including $50,000.

    Senior officer definition: For purposes of this policy, senior officers are defined as the President, those officers reporting to the president, and the deans and vice presidents who report directly to the Provost and the Executive Vice President for Finance & Administration.

  3. Senior Officers

    Senior officers, as defined above, are authorized to execute agreements at amounts up to and including $1 million, subject to the requirement that agreements in excess of $250,000 must be countersigned by either the Provost or the Executive Vice President for Finance & Administration.

    Professional services agreements over $1 million must be countersigned by the President.

All delegations of authority permitted by this authorization shall be made annually in writing on an Authorization Form prescribed by the Controller's Office. Such form will identify responsibility within the operating or divisional unit to be filed with the Controller's Office and the Office of the General Counsel.

The Standard Forms for professional service agreements have been updated and can be found at http://www.brown.edu/Administration/Controllers_Office/forms/index.html.

Any questions can be directed to Director of University Disbursements, Accounts Payable Manger, or the AVP and Controller.