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Exactly what does and does not constitute a consultant
agreement can be extremely tricky to determine. In general, an
independent contractor should work with minimal direction, at
his own time, and in his own way. The more you direct or lay constraints
and restrictions on an individual, the less likely that individual
is to be judged a consultant rather than an employee. Research
Foundation
IRS Twenty Factors of the Common Law Test, Independent Contractor
vs. Employee, is used to help you to determine if what you are
proposing is a consultancy. If you have to answer "no"
to more than one or two of these questions, then the individual
you plan to hire most likely belongs on the Research Foundation
payroll and should not be hired as a consultant.
Bear in mind that classifying a worker as an independent contractor
rather than as an employee may appear to result in financial savings
and less paperwork. However, if the employee is misclassified
as an independent contractor, these perceived advantages are offset
by the potential penalties that could be assessed by the Internal
Revenue Service. Therefore, to claim an individual or firm as
a consultant, thus avoiding the withholding process, is a very
questionable practice which we must prevent.
Definitions
Definitions of the most frequently used categories of independent
contractors follow. However, the overall definition of an independent
contractor is "a worker subject to the control and direction
of the organization for which services are performed only as to
the RESULT of the work and not as to the MEANS."
- Consultant/independent contractor is an individual
or firm possessing expertise in a particular field that is engaged
to give advice or perform a specific task in return for an established
fee.
- Incidental Lecturer: an individual having specialized
knowledge on a particular subject who is engaged to convey this
knowledge by delivering a lecture on a specific area of expertise.
The individual must be classified as an independent contractor.
It should also be noted that a lecturer with an ongoing working
relationship may be considered an employee.
- Technical Service: an individual or firm rendering
technical and professional service for a fee. Note: in general,
individuals, as opposed to corporations, rendering technical services
are employees.
Selection Process
Selection of consultants and
determination of appropriate fees are the responsibility of the
project personnel who must consider the policies of the Sponsor,
the Internal Revenue Service, the Research Foundation, and the
College. All of the following requirements must be met.
- Documentary evidence that the services to
be performed are essential and cannot be provided by persons receiving
salary support or other compensation under the grant for their
services. Note: an individual who is already on Research Foundation
Payroll, regardless of the account from which they are paid, is
not eligible to perform services as an independent contractor.
- Evidence that a selection process was employed
resulting in the selection of the most qualified consultant. The
selection process must fall within these guidelines and limits
set forth for the procurement of services, sponsor regulations
and funds available.
- The Project Director may NOT enter into
any agreements with consultants that are motivated by potential
gain or which give even the appearance of an apparent conflict
of interest. A copy of the Research Foundation Conflict
of Interest Policy should be provided to each potential consultant
during the selection process.
- Documentation that the charge to the sponsored
program is reasonable, taking into consideration the qualifications
of the consultant, the level of fees charged by other consultants
in the specific area of expertise, and the nature of services
rendered. The policies are subject to sponsor regulations.
- Evidence that the independent contractor
has been correctly classified, that the IRS regulations have been
applied, and that the independent contractor's status should not
be that of an employee, vendor contract, or sub recipient.
- Travel expenses, including lodging or subsistence
costs provided under the agreement with the consultant, may be
reimbursed. Such travel expenses may be included as part of the
consultant fee or paid separately if substantiated by receipts.
- When the sponsor is an agency of the Federal
government, consultant fees may not be paid to Federal employees
without prior written sponsor approval.
Services of SUNY Faculty
and Staff
Payments to academic and professional employees
of SUNY for services performed as an independent contractor are
permitted, only if all of the following criteria are met.
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Such services fall within the
definition of independent contractors as previously stated.
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The proposed independent contractor
or lecturer is not a member of the Project Director's own department.
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The work to be performed will
be in addition to the employee's normal obligation.
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Such an engagement is allowable
and conforms to any limitations that may be imposed by sponsor
policy.
-
The processes for selection of
external consultants are followed and rates of reimbursement
are consistent with those charged by other recognized independent
contractors in the field.
-
Determine if
the intended services are actually best performed by an independent
contractor or, based on recent IRS guidelines, if the individual
should be placed on payroll. Refer to the IRS
Twenty Factors of the Common Law Test. This test may be
required by Research Foundation personnel if it cannot be readily
ascertained from the "Independent Contractor Services Form”
that the services conform to the IRS guidelines.
- Determine if the services are to be provided
by a SUNY faculty or staff member, or an outside consultant, and
submit the appropriate form. Be sure to attach the "Independent
Contractor vs. Employee Test Form," and IRS
Twenty Factors of the Common Law Test, if required. Make sure
that a complete description of the intended services, the qualifications,
and the selection process of the intended independent contractor
are provided. A resume of the contractor should also be attached.
- Be sure that the individual's Federal Identification
or Social Security number is indicated, as the payment for the
services cannot be generated without it.
- Research Foundation Operations Manager (or
designee) will review the request, and if appropriate, generate
a purchase order for the services. Since an independent contractor
or lecturer arrangement does not involve an employee/employer
relationship, a Working
Relationship Form which clarifies the individual’s non-employee
status or a formal written agreement will be generated by Research
Foundation Personnel. The Working Relationship Form or contract
is mailed to the consultant along with the copy of the purchase
order, or if directly paid after the services have been rendered,
it is up to the project director to give the independent contractor
the Working Relationship Form.
Payments in Excess of
$10,000.00
Contract Requirements
A contract is required for independent contractor charges of $10,000.00
or more. It is preferable that the contract be fully executed
PRIOR to the services actually being rendered.
To generate this contract, the project director should submit
the
Independent Contractor Agreement Instructions Form to the
Campus Research Foundation Office. Research Foundation will process
the contract and mail along with the purchase order to the contractor
for signature. When the fully executed contract is received from
the consultant, Research Foundation will sign and forward a copy
to the project director and back to the contractor.
In some instances, sponsor approval is also required. When this
is the case, documentation of sponsor approval should be provided
before the contract is fully executed.
Lead Time
It usually takes about two to three weeks for the
Research Foundation to approve the consultancy, generate the purchase
order, and fully execute the contract. Therefore, we recommend
that requests for procurement of consultant services be submitted
at least fifteen working days prior to the date that the services
are needed.
Bid Requirements
Research Foundation procurement policy requires
that when the amount of the goods and services to be provided
by the independent contractor are between $10,000.00 and $25,000.00
that three verbal or written price quotes be obtained. For payments
to independent contractors in excess of $25,000.00 three written
bids are required.
Payment Documentation and Requirements
Payments to independent contractors are made through
the vendor payment process. Requests for payments must be supported
by an appropriate invoice for services performed. The Project
Director must approve the payment and certify that the services
were satisfactorily rendered. Signing and returning the gold copy
of the purchase order provides this certification. Partial payments
to Independent Contractor may be made with an invoice approved
by the Project Director.
Incidental Lecturer Services
If it is determined that a person or sole proprietor
will be providing incidental lecturers (as defined by the IRS),
then the project director can hire the individual, filling out
the correct paperwork, which would include the Independent
Contractor Form, a Working
Relationship Form and an invoice. A detailed description of
the services that were rendered and the dates the services were
performed is also necessary. The social security number, as well
as the citizenship of the individual, MUST be indicated. Payments
are through the vendor payment process.
Sub Recipients and Vendor Contracts
Often it is necessary to enter into subcontracts
with private businesses, governmental agencies or other academic
institutions, to carry out particular program elements of an award.
The mechanism for doing this is a vendor contract or sub recipient
agreement.
Definitions:
Sub recipient: - Research Foundation defines a sub recipient as
an "entity receiving government financial assistance when
the assistance is initially received by another entity that distributes
the assistance for the government program that created and provided
the assistance."
Vendor - Research Foundation defines a vendor as "an organization
providing goods or services that are related to the administrative
support of the federal assistance program."
When making the determination, the substance of
the relationship is more important than the form of the agreement.
However, the relationship can be difficult to determine. The Research
Foundation office should be contacted for guidance in making this
determination.
Vendor Contract Procurement Requirements
Vendor contracts are subject to the policies of
the sponsor, the Research Foundation and the College, which involve
the following:
- Documentation that the selection process
of the vendor falls within the guidelines and limits set forth
in the Research Foundation Procurement Policy. A minimum of three
verbal quotations are required for payments between $10,000.00
and $25,000.00. Three written bids are required for payments to
a vendor when the contracted goods or services amount is in excess
of $25,000.00.
- Sponsor regulations are followed, and if
required, sponsor approval of the contract has been obtained.
- Funds for the contract have been budgeted
in the grant, and are available.
- The correct determination has been made
in classifying the vendor contract, and the relationship is NOT
one of a sub recipient.
- The agreement with the vendor is not motivated
by potential gain, or even has the appearance of an apparent conflict
of interest, on the part of the project director.
Submitting the
Forms
The Office of Sponsored Programs Purchasing Department is responsible
for generating vendor contracts.
Project Directors are cautioned not to receive the goods or services
to be provided by the vendor until the contract with the vendor
has been fully executed. Follow the procedures
outlined below:
- Submit the
Purchase Requisition Form to Research Foundation. The requisition
should include a complete description as to the goods and/or services
to be provided, including an itemized listing of the cost of the
major items to be procured or the work scope to be provided. The
beginning and ending dates of the agreement must also be included
on the purchase requisition.
- The Research Foundation Operations Manager
or alternate will review the request and, if appropriate, generate
the vendor contract and the purchase order. The contract will
be mailed to the project director along with the purchase order.
A copy of the contract, when it is fully executed, will be forwarded
to the project director as well as the vendor.
Lead Time
As with consultant contracts, two to three weeks should be allowed
to give Research Foundation time to approve the procurement
and obtain a fully executed vendor contract.
Payment and Documentation
Requirements
Payments against vendor contracts are made through the vendor
payment process. Payments will be made upon receipt of an original
invoice and an authorization from the project director that the
services have been received.
Sub Recipient Procurement Requirements
All sub recipients are drawn under an agreement
between The Research Foundation of State University of New York
and the sub recipient. All sub recipient agreements must be written
up either as fixed price or on a cost-reimbursable basis, and
are subject to the following policies of the Research Foundation
and the requirements of the Sponsor.
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Documentation
that the selection process falls within the guidelines and limits
set by the Research Foundation Procurement Policy. Specifically,
sub recipient contracts between $10,000.00 and $25,000.00 should
include three verbal quotations, and payments in excess of $25,000.00
require three written bids.
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Sponsor regulations
should be followed, and documentation of sponsor approval, where
appropriate, should be attached. Sponsor approval is required
on all sub recipients sponsored by the New York Department of
Social Services, and on all sponsors for sub recipient contracts
over $25,000.00. Consult your sponsor guidelines or RFSOP Grants
Management Unit.
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Funds for the
sub recipient contract have been budgeted in the grant and are
available.
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The correct
determination has been made in classifying the sub recipient,
and that the individual or firm could not be processed as an
independent contractor, vendor contract, or employee.
-
The agreement
with the sub recipient is not motivated by potential gain, or
even has the appearance of an apparent conflict of interest
on the part of the project director.
Submitting the Forms
When a subcontract is required, the Project Director should
supply the Research Foundation Office of Sponsored Programs Purchasing
Unit with the following:
-
-
Documentation of sponsor approval
and competitive bidding, if required.
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A completed Sub recipient Agreement
Instruction Form must include all of the following:
a. The exact name and address of the subcontractor and
the state
of incorporation, if the subcontractor is a corporation.
b. A concise statement setting forth the specific work
expected under the subcontract,
c. An agreed-upon budget and payment schedule,
d. A time schedule for performance of the subcontract,
including a start date and termination date,
e. A list of any special or technical requirements necessary,
f. A list of key personnel employed by the subcontractor,
if these individuals must work on the subcontract to ensure
adequate results or if the Project Director desires their
specific input.
The Research Foundation purchasing
unit prepares the purchase order which encumbers the funds from
the award. The sub recipient agreement is prepared by the RF Office
of Pre-Award and Contract Services. The actual agreement with the
subcontractor will be binding only upon the execution of a formal
contract between the Research Foundation and the subcontractor.
The subcontract must be signed by a representative of the subcontractor
who has the authority to execute such contracts, and by the Research
Foundation Operations Manager.
Lead Time
It should be noted that generally more time is required to generate
a fully executed contract for a sub recipient than for either
a vendor or independent contractor contract. This occurs, in part,
because extensive negotiation must sometimes take place in order
for the Research Foundation and the sub-recipient to come to terms.
Therefore, project directors should allow at least four weeks
for the contract with the sub recipient to be fully executed.
Payment Documentation Requirements
Payments against sub contracts are made through
the vendor payment process. Initial payments are authorized as
stipulated in the subcontract. Partial payments can be generated
upon receipt of an invoice from the subcontractor which documents
how the funds were expended, and approval of the project director
that the services to date were satisfactorily performed. Final
payment will be made after the approval of the project director
and the submission of a financial report detailing the organizations
total expenses under the contract.
Changes to Independent Contractors, vendor
contracts and sub recipient agreements
Independent contractors and lecturers: For services
under $10,000.00, submit a completed Purchase
Order Change Notice to increase, decrease or cancel the purchase
order with the consultant. For payments in excess of $10,000.00
when a formal agreement is in place, changes to the original agreement
can only be processed after an amendment to the contract has been
executed.
Vendor Contracts: Changes to vendor contracts regardless
of the amount are processed upon receipt of a completed purchase
order change notice.
Sub recipients: Changes to sub recipient agreements, regardless
of the amount of the agreement, will be processed upon receipt
of a fully executed amendment to the contract.
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