University Policies
Policy Contact
Sr. Director Strategic Purchasing, Contracts & Insurance (contract review/purchasing policies & procedures) Email 401-863-3366
Director, Compensation and Organizational Services, University Human Resources (classification of independent contractors) Email 401-863-1792

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.

To Whom the Policy Applies 

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 versions of this policy. 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.

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 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 Professional Services Agreement (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

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 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 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 tuningA 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

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 University policies for obtaining competitive quotes/bids.
  • When a purchase requisition is created for a contract that has been through the Brown Contract Management System, select the appropriate supplier contract number to connect the finalized contract with the purchase order or supplier invoice when a PO is not required.
  • 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 agreement templates (Note: Only the Office of General Counsel is authorized to draft contract templates).
  • Draft specialized agreements for any service where the current Professional Services Agreement template 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 the purchase of goods and services.
  • 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.
  • Review and approve contract requests submitted through the Brown Contract Management System (includes PSA templates)
  • Create the contract record in the Brown Contract Management System, including use of the PSA template and facilitate the signature process to finalize the contract.

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 Services 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 are 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.

Step 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).

Step 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.

Step 3: Once the determination has been made:

a. If the result is that the individual is qualified as an independent contractor - the individual will need to register as a supplier in order for the contracting process to proceed. Once the supplier registration step is completed, follow the Professional Services Agreement process described in (step 4) below.

b. 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.

Step 4: If the individual qualifies as an independent contractor whenever possible, the contract requester will choose to use a Professional Services Agreement template created by the Office of the General Counsel when creating the contract request in the Brown Contract Management System (BCM). The PSA template will be populated through the Brown Contract Management System (BCM). Staff who are designated as Contract Requesters for their areas will be provided with access to BCM once they have completed the required contract process training. Once the contract request has been created in BCM, a Contract Manager in SPCI or CIS will complete the review process which will populate the PSA template and send it for electronic signature using DocuSign.

When the contract is fully executed, the contract requester will be notified and work can begin.

a. When the University’s template is not used, Contract Requesters will create a contract request in BCM and upload the other party’s contract terms.  Once the contract request has been created in BCM, a Contract Manager in SPCI or CIS will complete the review process including negotiations of terms using the BCM system and once it is finalized, will send it for electronic signature using DocuSign. When the contract is fully executed, the contract requester will be notified and work can begin.   This same process will apply if there is an OGC agreement that is not available as a standard template in BCM.

Requests for Renewals, Agreement Termination and Amendments to extend or change the terms of the original agreement, including templates, must be submitted through BCM prior to the expiration of the original agreement. Contract Managers in SPCI or CIS will review the request and process them through the system once the review and any negotiations are complete. 

Only the OGC, or SPCI with OGC approval, can draft agreements and/or change a template.

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.

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.

Once the PSA contract has been finalized, a requisition can be created in Workday.  The basic contract information and contract number assigned from the Brown Contract Management System will be automatically sent to Workday.  Financial Coordinators will indicate the contract number in the requisition process in order for a purchase order to be associated with the contract.  Once the requisition is submitted, reviewed and approved, the purchase order will be created and issued electronically. *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 kinds 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 without sending the template through the Brown Contract Management System:

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 three of the following conditions are met:

  1. 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 three of these conditions have been met, these contracts may be processed directly through Accounts Payable.

Hiring a Company to perform Professional Services:

When engaging with a company 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.

The department seeking to engage a company for services needs to create the proposed scope of work.

If the company is not already registered as a supplier in Workday, they will need to register as a supplier in order for the contracting process to proceed. Once the supplier registration step is completed, follow the Professional Services Agreement process described below:

Whenever possible, use a Professional Services Agreement template created by the Office of the General Counsel. The PSA template will be created through the Brown Contract Management System (BCM).  Staff who are designated as Contract Requesters for their areas will be provided with access to BCM once they have completed the required contract process training. Once the contract request has been created in BCM, a Contract Manager in SPCI or CIS will complete the review process which will populate the PSA template and send it for electronic signature using DocuSign.  When the contract is fully executed, the contract requester will be notified and work can begin.

a. When the University’s template is not used, Contract Requesters will create a contract request in BCM and upload the other party’s contract terms.  Once the contract request has been created in BCM, a Contract Manager in SPCI or CIS will complete the review process including negotiations of terms using the BCM system and once it is finalized, will send it for electronic signature using DocuSign. When the contract is fully executed, the contract requester will be notified and work can begin.

Requests for Renewals, Agreement Termination and Amendments to extend or change the terms of the original agreement, including templates, must be submitted through BCM prior to the expiration of the original agreement. Contract Managers in SPCI or CIS will review the request and process them through the system once the review and any negotiations are complete. 

Only the OGC, or SPCI with OGC approval, can draft agreements and/or change a template.

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.

Once the PSA contract has been finalized, a requisition can be created in Workday.  The basic contract information and contract number assigned from the Brown Contract Management System will be automatically sent to Workday.  Financial Coordinators will indicate the contract number in the requisition process in order for a purchase order to be associated with the contract.  Once the requisition is submitted, reviewed and approved, the purchase order will be created and issued electronically.

When engaging with a company to provide professional services where there will be only one payment and the total payment will not exceed $1,000 the following procedure may be used without sending the template through the Brown Contract Management System:

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 both of the following conditions are met:

1. There will only be one payment made to the Independent Contractor.

2. The amount will not exceed $1,000

Related Information

Schedule of Signature Authority

Fees paid to External Service Providers who are independent contractors and, are US residents paid 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 External Service Providers who are independent contractors and are foreign nationals will be reported to the IRS and the individual will receive an IRS Form 1042S for tax purposes.

External 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.

When services are performed overseas, if the individual is a Foreign National, he/she will not be receiving any tax documents and does not need to go through the FNIS process. However, if any intellectual property or royalties are involved, then regardless of where the services are performed, FNIS may need to be completed. Specifics about the anticipated professional services and plans for use or license of any intellectual property must be provided to the Tax Department at [email protected] prior to guidance being provided. 

Travel expenses for External Service Providers are to be included in their contract fees and 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. 

Related Procedures:

Competitive Bid Requirements

Contract Review

Hiring Temporary Employees

Purchasing Process

OSP – Determining Contractor vs. Subrecipient

Policy Owner

Approved By
Strategic Purchasing, Contracts & Insurance (contract review/purchasing policies & procedures University Human Resources (classification of independent contractors)
Contact Info
Sr. Director Strategic Purchasing, Contracts & Insurance (contract review/purchasing policies & procedures) Email 401-863-3366
Director, Compensation and Organizational Services, University Human Resources (classification of independent contractors) Email 401-863-1792

Policy Last Reviewed