When hiring individuals as consultants/independent contractors, the 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 consultants and independent contractors 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. Use the Employee vs Independent Contractor Checklist to assist in making the determination.
In addition, the contracts used to engage consultants and independent contractors are important legal documents that serve to clarify responsibility and expectations which are important protections to both parties in the contract.
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 a consultant, or independent contractor must follow University approval and contracting procedures prior to the start of any work or performance of services.
Individuals 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.
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. 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 supplier.
Professional and Consulting Services: 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 may be determined individually with each customer for each service contract
Standard Services: Standard 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, small equipment rental, and laboratory testing services. A professional services agreement is not required for Standard Services. For Standard Services, the bid or quote for services to be provided, in combination with a University issued purchase order, with standard University terms and conditions, will serve as the contract.
For Brown University representative initiating a professional services agreement:
- Review each professional services agreement for content and compliance with policy
- Determine appropriate status (independent contractor vs. employee)
- Ensure that an approved contract is in place before service is provided. (PSA or contract specifically drafted by OGC)
- Follow appropriate procedures for payment.
- Follow University signature authority policy for PSA’s
Office of Sponsored Projects - For professional services agreements charged to grants or sponsored contracts:
- Review all professional services agreements charged to grants and contracts 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 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 professional services agreements/contracts that are not on a University standard form, regardless of the amount. (OSP and Purchasing also review contracts that their areas have been authorized by the corporation to approve).
- Review amendments that cause the total value of the PSA to exceed $50,000.
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 when payment will exceed $5,000 and the length of service will be 30 continuous days or more. http://www.dlt.ri.gov/wc/icmain.htm
Independent Contractors can choose to register with the RI Department of Labor for consulting work provided at a lesser dollar amount. However, Brown requires that this registration be completed for consulting work performed for more than 30 days and in excess of $5,000. This practice supports the University’s efforts to make an appropriate determination of the proper status of the consultant (independent contractor vs. employee).
- 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. Contact the Brown University department you are working with for additional information.
Determination of Status Procedure
When hiring an individual, a determination must be made as to whether the service provider will be an employee of the University, hired using nextSource (Brown's partner for temporary staffing needs) or hired as an independent contractor. The Determination of Proper Status section of the PSA template for individuals provides 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 Service’s regulations, as well as statutes regarding income tax withholding, unemployment insurance taxes, Social Security, and Medicare taxes. A misclassification may result in taxes, interests, and penalties being assessed by the IRS. If this happens, departments will be billed for their proportional taxes, interests, and penalties.
OGC has developed templates for PSA’s
- Professional Service/Consultant Agreements up to $5,000 (abbreviated PSA)
- Professional Service/Consultant Agreements over $5,000 (choose the version for individual consultants or company)
In addition, for Guest Speakers who will be paid up to $5,000, OGC has provided the Guest Speaker Payment Authorization form (GSPA).
Fees paid to consultants/independent contractors who are US residents and earn more than $600 in a calendar year, will be reported to the IRS and the individual will receive an IRS Form 1099 Misc (Miscellaneous Income) for tax purposes. Fees paid to consultants/independent contractors who are foreign nationals will be reported to the IRS and the individual will receive an IRS Form 1042S for tax purposes.
OGC has also developed specialized contract templates for some departments (Student Activities, Music Department, Center for Public Policy, and the Brown Alumni Monthly) Departments with contracts prepared by the Office of the General Counsel may continue to use those contracts.
Professional Services Agreements are not required for Standard Services. Standard 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, small equipment rental, and laboratory testing services. A professional services agreement is not required for this type of work. 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, will serve as the contract.
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 Professional Service Agreements are submitted to Purchasing if the total value of the contract will remain less than $50,000. If the Amendment causes the total value of the PSA to an amount greater than $50,000, the amendment must be reviewed by OGC.
- Amendments to a contract originally processed using a Supplier Invoice (less than $5,000) require 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 $5,000) require the completion of the Purchase Order Change Authorization section for the Amendment to Professional Services Agreement. The documentation for the amendment should be forwarded to the Purchasing Department for processing.
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. Submit a request for check form for payment 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 (not students) must be paid through the payroll system.
The following types of payments are for services performed by a service provider but do not require "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.
PAYMENTS TO 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. Please review the Payments to Foreign Nationals policy and the related charts and forms for additional information.
Travel Reimbursement for Consultants/Guest Speakers:
Consultants/Independent Contractors may be reimbursed for travel expenses under the following circumstances:
- They are being paid less than $5,000, comply with Brown University’s travel policy, and can provide original receipts with a University travel report.
- They have included travel expenses in their contract fees and will include those expenses in their invoicing to the University. These fees will be included in their IRS Form 1099/Form 1042S earnings that are reported at year end. Consultants paid $5000 or more must include their expenses in their invoicing. They will not be reimbursed for travel expenses under Brown University’s travel policy.
Please refer to the University’s Travel policy on for complete instructions.
Other key points regarding Consultant/guest speaker travel expenses:
- The reimbursement of travel expenses must follow federal tax and immigration guidelines.
- Departments may use 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 $5,000. 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 for Auxiliary Housing will be processed using a Journal Entry.
- 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.
- Brown University employees will not be reimbursed for travel expenses personally incurred for a guest speaker.