Policy for Hiring Consultants/Independent Contractors

Introduction 

The purpose of this policy is to provide criteria for engaging and paying consultants including independent contractors (External Service Providers) who provide professional services (including consulting services) to the University in a manner that complies with federal, state and University regulations.

Policy Statement 

The University should retain external service providers only when the skills required are not available or able to be provided by University faculty or staff. External Service Providers normally possess specialized skills, knowledge or credentials that are not readily available among the University’s faculty and staff, and the expertise is provided on a temporary basis.

Fees charged to the University for services must be appropriate for the services rendered and the External Service Provider’s qualifications.  External Service Providers must be selected in accordance with the University’s competitive bid policies.  Contracts with External Service Providers for Professional Services and Consulting Agreements, including PSA templates, must be signed by an authorized person before the commencement of work.

Individuals currently or formerly (within the calendar year) employed by the University may not provide services to University as an External Service Provider.

If the service being provided is the same as or similar to that of a current employee, the individual (External Service Provider) must be paid as an employee and not, as an independent contractor.  Exceptions to this provision are to be reviewed and approved (if allowable) during the contract review process.

Definitions 

Contract: A contract is a written, legally binding agreement between Brown and an External Service Provider.   

External Service Providers:  Organizations or individuals (independent contractors) who provide professional or other services to the University for a fee.   When the services provided are for professional or consulting services, a Contract is required.  The Contract format can be the University’s Professional Service Agreement standard template or, the external service provider’s contract.  If the external service provider’s Contract is used, it must be reviewed through the University’s contract review process prior to the start of work.

Independent Contractors: Independent contractors are self-employed individuals in an independent trade, business, or profession who offer their services to the general public under a contract or agreement. Typically, independent contractors supply their own workplace and tools, are not supervised, control their work schedule, and have a particular set of skills not found elsewhere within the University. These individuals are not eligible for employee benefits and are not covered under the University’s workers compensation program.

Professional Service: Professional and Consulting Services are usually customized services, that utilize specialized intellectual or creative expertise, based on personal skills or ideas of an individual (s) or company that are provided for a fee, which is determined with each customer for each service Contract.

These services are unique, technical, and/or infrequent functions and, the External Service Provider is qualified by education, experience, and/or technical ability to provide services. In most cases, these services are of a specific project nature, and are not a continuing, ongoing responsibility of the institution.  The services rendered are predominately intellectual in character even though a professional license may not be required of the External Service Provider.

Senior Officer: President, those officers reporting to the President, and the deans and vice presidents who report to the Provost and the Executive Vice president for Finance and Administration.

Specialized, Trade and Maintenance Services: Specialized, Trade and Maintenance Services are services that are routinely provided to a large number of customers usually at published rates without significant customizing.  Some examples of this type of service are: repair services, maintenance services, and musical instrument tuning.  A professional services agreement may not be required for these types of services.  The bid or quote for services to be provided, in combination with a University issued purchase order, with standard University terms and conditions, can serve as the Contract. 

Responsibilities 

This policy applies to anyone wishing to contract for professional/consulting services on behalf of the University regardless of the source of funds. This policy supersedes all previous policies. A department intending to engage an External Service Provider as a consultant must follow University contracting procedures prior to the start of any work or performance of services.

University representative/department initiating a professional services agreement:

  • Determine appropriate status (independent contractor vs. employee).  In instances where a purchase order is not required, the initiating department has primary responsibility for ensuring that this step is completed. Review each professional services agreement for content and compliance with policy
  • Ensure that an approved Contract is in place before service begins. (PSA, contract specifically drafted by OGC, or an external contract that has been through the University’s contract review process).
  • Ensure that any services contracted for comply with University policies and/or any applicable external sponsor guidelines.
  • Follow appropriate procedures for payment.
  • Follow University signature authority policy.

Office of Sponsored Projects - For professional services agreements charged to externally sponsored grants or contracts:

  • Provides assistance to the Principal Investigator and/or the departmental business office when preparing funding requests (i.e. proposals) to ensure entities represented in the proposal are appropriately reflected as either a supplier/vendor/consultant or as a subrecipient. 

Assists departments in verifying the allowability of charging professional services/consulting to a sponsored award as well as assessing whether the relationship should be that of a supplier or a subaward (a/k/a subrecipient).  Requisitions for Professional Services Agreements (PSA) for individuals and companies charged to grants/sponsored contracts route to OSP- for prior approval). 

Office of the General Counsel:

  • Create standard professional service agreement template (Note: Only the Office of General Counsel is authorized to draft Contract templates).
  • Draft specialized professional services agreement for any service where the standard professional services agreement does not meet the needs of the department or, for services that require specialized Contract language. (Such as: construction, fundraising, investment services, computer programming/software development, advertising/marketing, performance or visual arts, social media/web services).
  • Review and approve changes to OGC drafted templates.
  • Provide support to SPCI and UHR on classification of worker issues.

Strategic Purchasing, Contracts & Insurance (SPCI):

  • Provides guidance regarding supplier selection and contract negotiations
  • Reviews and approves all agreements related to goods and services. Note: OGC drafted templates that have not been modified, do not require additional Contract review or approval.
  • Manages supplier registration process for external service providers and performs related supplier set-up and maintenance activities.
  • Issues purchase orders upon submission, review and approval of a purchase requisition and with supporting documentation

Human Resources

  • Provides second level review of  worker classification

Tax Office 

  • Provides guidance for determining the tax classification of a payment to an independent contractor.

 Accounts Payable 

  • Processes professional service agreements (PSAs) that are under $1,000 in total value and are for a single payment.
  • Reviews documentation submitted and use of spend category for transactions
  • Issues payment according to the payment terms associated with the supplier record

Independent Contractor Responsibilities:

  • Provide detailed and accurate information for determination of status and contract formulation.
  • Be in receipt of a signed professional services agreement or purchase order prior to providing services.
  • Provide appropriate documentation (an invoice) for payment of services.
  • Register with the State of Rhode Island Department of Labor and Training prior to the start of work for the University: 
  • Complete Brown University Supplier and Individual Payee Registration process:  http://brown.edu/Administration/Purchasing/.   This step is required for set up in the University’s procurement system and to provide the information needed for compliance with IRS requirements.
  • Individuals who are not United States citizens will need to complete additional tax forms in order to receive payments. 

Consequences for Violating this Policy 

Federal and state enforcement agencies have made worker misclassification a top priority, and the consequences for misclassification can be significant. In addition to owing back pay, overtime, and benefits to a misclassified worker, the employer may be ordered to pay back taxes, interest, and fines. If departmental misclassifications result in fines and/or penalties to the University, departments will be billed for their proportional taxes, interests, and penalties.

Signing an agreement/contract that has not been properly reviewed or, one that you do not have appropriate signature authority to sign, is a violation of the University’s Code of Conduct.

Procedures 

Contracts are required when Professional or Consulting Services are being provided to the University.  The contract format will be the University’s standard Professional Services Agreement (PSA) or, the External Service Provider’s Contract.  Whenever possible, the University’s standard PSA should be used. If the External Service Provider’s Contract is used, it must be reviewed and approved through the University’s contract review process.  The University’s policies for obtaining competitive bids is also applicable to Professional and Consulting Services.

When engaging with an individual to perform professional services, an evaluation and classification must be completed prior to the start of the work. This step is required to ensure compliance related to proper worker classification, payment and tax withholding. The Department of Labor, as well as the IRS tax code define whether an individual can be classified as an independent contractor or, must be classified as an employee. Improper classification of an employee as an independent contractor may subject the University to significant tax penalties as well as penalties under other federal regulations. It is imperative that common standards are applied in classification and contracting, and that each case is well documented for audit purposes.  

Hiring an Individual to perform Professional Services:

When engaging with an individual to provide services where there will be more than one payment or, the total payment will exceed $1,000, the following procedures must be followed:

Work cannot begin until the hiring/contracting process is complete.

  1. The department seeking to engage an individual for services needs to create the proposed scope of work. The scope of work is needed in order to perform the evaluation to determine if the individual can be hired as an independent contractor (step 2).
  2. The department completes the Employee Versus Independent Contractor Checklist and reviews the Checklist with their HR Business Partner in order to make the proper decision regarding worker classification. The abbreviated PSA template, which includes a checklist, can be used if total payments will be $5,000 or less. 
  3. Once the determination has been made:
    1. If the result is that the individual is qualified as an independent contractor  - proceed with the Professional Services Agreement process described in step 4) below.
    2. If the result is that the individual is determined to be an employee, additional steps will be required prior to approving the increase to staff. Senior Officers, HR Business Partners and University Human Resources must be consulted to determine the appropriate method to address the staffing need.  All staff hires require budgeted salary and benefits funds be identified prior to finalizing the hire. 
  4. If the individual qualifies as an independent contractor or, a company has been selected to provide professional services, whenever possible, use a Professional Services Agreement template created by the Office of the General Counsel. If there are any changes made to the template, it will require review and approval through the contract review process prior to signing and prior to the start of the engagement.
    1. When the University’s template is not used, the agreement must be reviewed and approved by Strategic Purchasing, Contracts & Insurance prior to signing the agreement and the start of the engagement.  
  5. Amendments to extend or change the terms of the original agreement, including templates, must be reviewed and approved prior to the expiration of the original agreement.  Only OGC, or SPCI with OGC approval, can draft agreements and/or change a template.
  6.  The University’s Signature Authority policies apply to all contracts and agreements. Only those employees authorized to sign a contract on behalf of Brown University are individuals with delegated authorization.
  7. Review all professional services agreements charged to grants and contracts to ensure that the service provided falls within provisions of the funding agency.  If the budget originally included consultants but the determination process indicates that an individual must be hired through Human Resources or nextSource, consult with Sponsored Projects.
  8. Once the PSA contract has been finalized, and the External Service Provider is registered as a supplier, a requisition can be created and submitted through Workday in order for a purchase order to be created and issued. *Please note that Foreign National individuals will need to have completed FNIS prior to beginning work to ensure that their Visa type allows for these kind of payments. Work can begin once the purchase order has been issued. 

When engaging with an individual to provide services where there will be only one payment and the total payment will not exceed $1,000 the following procedure may be used:

The Abbreviated PSA template, the standard PSA template, and other templates created by OGC, can be used without the creation of a purchase order when all 3 of the following conditions are met:

  1.   The answers in Part 1 of the abbreviated PSA template indicate that the individual qualifies as an independent contractor or, the department completes the Employee Versus Independent Contractor Checklist, reviews the Checklist with their HR Business Partner and the review confirms that the individual qualifies as an independent contractor.
  2.    There will only be one payment made to the Independent Contractor.
  3.    The amount will not exceed $1,000

When all 3 of these conditions have been met, these contracts may be processed directly through Accounts Payable. 

Hiring a Company to perform Professional Services:

When engaging a Company to provide Professional Services, , the following procedures must be followed:

Work cannot begin until the contract review process is complete.

  1. If a company has been selected to provide Professional Services, use the Professional Services Agreement template created by the Office of the General Counsel. If there are any changes made to the template, it will require review and approval from OGC prior to signing and prior to the start of the engagement.
    1. When the University’s template is not used, the agreement must be reviewed through the University’s contract review process prior to signing and the start of the engagement.  
    2. There are PSA templates for use 1) when the value exceeds $5,000 (Standard PSA template) or, when more than one payment will be made and 2) when the value is up to $5,000 (abbreviated PSA template) and only one payment will be made. Use of the standard PSA template is encouraged in all instances. It is not necessary to use the abbreviated PSA if the value is under $5,000.
  2. Amendments to extend or change the terms of the original agreement, including templates, must be reviewed and approved prior to the expiration of the original agreement.  Only OGC, or SPCI with OGC approval, can draft agreements and/or change a template.
  3.  The University’s Signature Authority policies apply to all contracts and agreements. Only those employees authorized to sign a contract on behalf of Brown University are individuals with delegated authorization.
  4. Review all professional services agreements charged to grants and contracts to ensure that the service provided falls within provisions of the funding agency.
  5. Once the PSA contract has been finalized, and the External Service Provider is registered as a supplier, a requisition can be created and submitted through Workday in order for a purchase order to be created and issued. Work can begin once the purchase order has been issued.   PSA’s that are $1,000 or less can be processed directly through Accounts Payable using the Supplier Invoice business process in Workday.
Forms/Instructions
Frequently Asked Questions
Policy Owner
Approved by 
Strategic Purchasing, Contracts & Insurance (contract review/purchasing policies & procedures
University Human Resources (classification of independent contractors)
Contact(s) 

Jeanne Hebert
Senior Director, Strategic Purchasing, Contracts & Insurance (contract review/purchasing policies & procedures)
[email protected]
401-863-3366

Elizabeth Warner
Director - Compensation and Organizational Services, University Human Resources (classification of independent contractors)
[email protected]
401-863-1792

Revision Date:  Fri, 2020-05-08 15:07