60.2 Handling Consulting & Independent Personal Services, Honoraria and Miscellaneous Payments
Approval Authority: Chief Financial Officer
Responsible Executive: Controller
Responsible Office: Office of Finance
Originally Issued: February 13, 2006
- Policy Statement:
This document provides guidance regarding the Institute's policy concerning the engagement of consultants or others who provide independent personal services. It sets forth regulations and procedures governing payments to individuals for consulting or other independent personal services, intellectual property, honoraria and other miscellaneous activities.
- Reason/Purpose for Policy
These regulations and procedures were developed to facilitate the efforts of faculty and staff, and to ensure that the Institute is in compliance with a variety of state and federal laws and regulations, including specific withholding and reporting requirements issued by the Internal Revenue Service (IRS). They apply to payments made to United States citizens, resident aliens and nonresident aliens. If these procedures are not followed, the Institute may be exposed to severe monetary penalties for failing to properly document expenditures and report income and/or withhold income and employment taxes.
Briefly stated, the Institute cannot treat personal service providers as independent contractors for income or employment tax purposes if in fact an employee/employer relationship exists. The Institute must enter into all consulting or other service arrangements at arms-length, and conflicts of interest must be avoided.
- Policy Scope
This policy applies to:
a. Anyone performing services on behalf of Stevens Institute of Technology.
- Related Documents
- Vice President for Human Resources
- Director of Procurement
- The Policy
- CONSULTING AND INDEPENDENT PERSONAL SERVICE/CONTRACTOR ARRANGEMENTS
Generally, individuals performing services for the Institute for remuneration are hired as employees of the Institute and paid through the Institute's payroll system. However, under certain circumstances it may be appropriate to engage a consultant or other independent personal service provider to perform specialized services for the Institute and pay that individual through the Institute's Accounts Payable and invoice processing system. Institute employees are not prohibited by this policy from providing services to another department or an externally sponsored program of the Institute; however, under NO circumstances may an employee of the Institute be paid for these services through the Institute's invoice processing system. When an employee does render authorized (sanctioned by the employee's home department) and compensable services to another department or an externally sponsored program of the Institute, the compensation must be paid through the Institute's payroll system either as an additional appointment, when that is appropriate, or as Extra Compensation.
Any additional compensation paid to an employee rendering service to an externally sponsored program of the Institute must have the prior written approval of the sponsoring agency. For procedures regarding extra compensation for staff employees, see Policy # xx.x.x . For procedures regarding faculty extra compensation, consult the Faculty Handbook, Section # xx.
- A consultant or independent contractor (IC) is defined as an individual, sole proprietorship, partnership, association or other non-incorporated entity engaged by the Institute to provide specialized advice or service for a fee but not as an employee. This type of individual is commonly referred to as an independent contractor by the IRS.
- The distinction between an employee and an independent contractor is important under state and federal tax laws because an employer must withhold income and employment taxes from an employee but generally not for an independent contractor. In addition, an employer must match an employee's social security contribution and pay unemployment taxes for an employee but not for an independent contractor. If an individual has been misclassified as an independent contractor, the Institute may be assessed for unpaid taxes, interest and penalties by taxing authorities.
- Generally (as defined by the IRS), an employee/employer relationship is deemed to exist when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he or she has the right to do so. If the Institute retains this level of control, the individual must be hired as an employee and not engaged as a consultant or IC. An individual cannot be engaged as a consultant or IC simply because a department may not have a budgeted position available to support the worker or because it is an easier or less costly method to effectuate payment to the individual. A Checklist for Determination of Independent Contractor Status (Checklist) is included in the Request for Consulting or Independent Contractor (RCIC) form to facilitate the determination of whether or not a sufficient level of control exists to constitute an employee/employer relationship.
- Payments made to corporations for professional or other services are not governed by this policy. Corporate services must be contracted through Institute Purchasing using an Institute purchase requisition
Authority and Responsibility
As a general rule, only principal investigators, deans, directors, and their superiors have the authority to engage consultants or other ICs. Employees who have the authority to engage, or approve the engagement of consultants or other ICs are required to certify that the individual is qualified to provide the proposed service and that the selection of the individual and the fee for the service is appropriate and reasonable.
Authorized employees must determine that an employee/employer relationship does not exist with the consultant or IC by completing the Checklist.
Authorized employees must be familiar and act in compliance with other Institute regulations and procedures concerning procurement (Policy # xx.xx.xx) and Conflicts of Interest (Policy # xx.xx.xx), and, when applicable, the specific terms and conditions of the sponsored program for which the consultant or IC is being engaged. Regarding the latter, sponsoring agencies generally require that consulting arrangements be approved in writing in advance of the engagement.
Required Documentation, Approvals and Processing
- Employees authorized to engage consultants or other ICs must complete both a RCIC form and a Independent Contractor Agreement (Agreement) before any services can commence.
The RCIC form is required to document:
- the classification as and justification for the use of a consultant;
- the qualifications of the consultant;
- the basis on which the consultant was selected; and,
- the reasonableness of the proposed fee
This form is attached to a purchase order and is used to record a financial commitment for the pending services in the Institute's Financial Reporting System and eliminates the need for the completion of a purchase order. The Checklist must also be completed and attached in order to process the request. Detailed instructions accompany the form. Failure to follow these instructions completely will cause delay in fulfilling the request, or rejection of the request.
- A written Agreement must be executed after the appropriate approvals are obtained on the RCIC form and before professional services commence. The agreement should, among other things, specify the services to be rendered, the time frame in which they are to be performed, and the amount and timing of the fee to be paid.
A copy of both the RCIC form and the executed Agreement should be routed through the department's normal business channels to Purchasing for commitment. Subsequent payment requests will be processed in accordance with Payment Procedures detailed in the Procedures for Paying Independent Contractors If for some reason it becomes necessary to expand the scope of services provided by the consultant or IC at additional cost, a new and separate authorization and consulting agreement must be completed.
Detailed procedures for paying consultants and independent contractors are included in the Procedures for Paying Independent Contractors.
Of special note: There is a change in process when services are performed by a non-resident alien. A Nonresident Alien Request for Payment form must be completed and attached to the vendor invoice. This form captures additional information required by the IRS and should be prepared accordingly.
When consulting engagements are anticipated to cost $1,000 or less in a given year, abbreviated procedures may be utilized. Please use procedures under section xx.
- INTELLECTUAL PROPERTY, HONORARIA AND OTHER MISCELLANEOUS ACTIVITIES
The Institute from time to time makes payments to inventors for patent rights assigned to the Institute under the Institute's Patent Policy (Section ). Payments made to individuals under this policy should be processed using the Institute's Request for Payment form for United States citizens and resident aliens, and the Nonresident Alien Request for Payment form for nonresident aliens. All payment requests should be prepared in accordance with Payment Procedures. Please be sure to use the appropriate subcodes.
The Institute from time to time makes royalty payments to artists and authors for the right to publish their creative works. Royalty payments should be processed using the Institute's Request for Payment form for United States citizens and resident aliens, and the Nonresident Alien Request for Payment form for nonresident aliens. All payment requests should be prepared in accordance with Payment Procedures. Please be sure to use the appropriate subcodes.
An honorarium is defined as a payment for personal service on which custom or propriety forbids a price to be set. Typically, honoraria are paid to guest lecturers or experts for brief appearances at the Institute. Service arrangements providing for more extensive involvement on the part of an expert, such as a program review requiring the preparation of a written evaluation, are to be treated as consulting arrangements. Honorarium payments made to Institute employees, if and when appropriate, must be approved by the appropriate Dean or Vice President and processed through the Institute's payroll system. Honorarium payments made to non-employees should be processed using the Institute's Request for Payment form for United States citizens and resident aliens, and the Nonresident Alien Request for Payment form for nonresident aliens. All payment requests should be prepared in accordance with Payment Procedures. Please be sure to use the appropriate subcodes.
If an honorarium payment is being made to a guest lecturer or expert for a brief visit, the individual?s honorarium fee may be treated separately from his/her expense reimbursement; it is not necessary to combine both of these components into the honorarium fee. If the honorarium is separate from the travel reimbursement, the honorarium payment must be made in accordance with the preceding paragraph, and the travel reimbursement must be in accordance with the Institute?s travel policy.
If the recipient of the honorarium prefers not to separately account for and report (on a TABER**) traveling expenses, this amount, or an estimate thereof, may be included in a single honorarium payment.
Other miscellaneous activities include:
- human subject fees ? fees paid to persons participating in surveys, experiments, etc. So as not to impede confidential scientific research, social security numbers will not be required on the payment of individual human subject fees under $500.
- participant support costs ? payments for items such as stipends or subsistence allowances, travel and registration fees paid to participants or trainees (but not employees) in connection with meetings, conferences, symposia or training projects.
- prizes and awards ? payments for prizes or awards paid to students and non-employees. Prizes and awards (including recognition awards) paid to employees are generally considered taxable wages and must be paid through the Institute?s payroll system.
- performance fees ? payments to entertainers, artists, and athletes for performances sponsored by the Institute. Any such performance fee paid to an employee must be processed through the payroll system.
Payments for these miscellaneous activities should be processed using the Institute's Request for Payment form for United States citizens and resident aliens, and the Nonresident Alien Request for Payment form for nonresident aliens. All payment requests should be prepared in accordance with Payment Procedures. Please be sure to use the appropriate subcodes. The Institute is required to report amounts paid to individuals for independent personal services or intellectual property to the IRS on IRS Form1099-MISC for payments made to United States citizens and resident aliens, and IRS Form 1042S for payments made to nonresident aliens. Finally, the Institute is generally required to withhold income taxes from payments of this type made to nonresident aliens
- CONSULTING AND INDEPENDENT PERSONAL SERVICE/CONTRACTOR ARRANGEMENTS