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OP 65.04 Ver. 09/08/98

MISSISSIPPI STATE UNIVERSITY
SECURING AND PAYING FOR CONSULTANTS
AND INDEPENDENT CONTRACTORS
POLICY AND PROCEDURE

I. PURPOSE:

The primary purpose of this policy and procedure statement is to guide the institution in three areas:  (1) To properly classify employees, consultants and independent contractors; (2) To properly establish, maintain and execute consulting arrangements with non-MSU individuals/organizations; (3) To properly establish and execute intra-institutional consulting arrangements.

All MSU policies and procedure guides inconsistent with the policy and procedures contained herein are hereby rescinded.

II. POLICY:

1. Definitions:

An individual is considered an employee when the department or unit for which services are performed has the authority to control and direct the individual who performs the services.  This includes the results to be accomplished as well as the details and means by which they are to be accomplished. The employer does not have to actually direct the manner in which the services are provided; having the right to do so is sufficient (Treasure Reg. Section 31.3401(c)-1 (b)). Employee status is also characterized by the furnishing of equipment or supplies, providing a place to work, and having authority to discharge (Treasury Reg. Section 31.3121(d)-1(c)).  Regularity, continuity and exclusivity also help to determine whether the relationship is that of an independent contractor or employee.

The IRS defines an independent contractor or consultant as someone who gives professional advice or services.  Generally, they are individuals who are in business for themselves, offer their services to the public, and have an investment in facilities. An independent contractor may be subject to the control or direction of another individual with respect to work objectives, but not with respect to the means and methods for accomplishing these objectives (Treasury Reg. Section 31.3121(d)-1(c)).

Internal Revenue Code Section 3121(c) states that if 50% or more of the services performed by an individual during any pay period are services performed as an employee, then all funds for services must be treated as employee compensation, regardless of the type of services performed.  It is also the position of the IRS that if two individuals have the same job description and one is considered an employee, then both are classified as employees.  Typically, the IRS leans heavily toward the classification of an individual as an employee rather than as an independent contractor.

2. Procedures for distinguishing between employees and independent contractors

It is the University's policy that an individual may not act both as an employee and an independent contractor for the institution.

Revenue Ruling 87-41 has identified twenty common-law factors to aid in determining whether or not an employer/employee relationship exists for a particular individual.  These factors are identified in Attachment B.  The importance of each factor varies depending on the occupation and the context in which the services are performed.

To simplify the decision making process, the Classification Checklist has been developed to aid departments/units in making the proper determination, HRM-323 (Attachment A, 2 of 2).  This checklist must be completed prior to the individual performing any services for the University.  Upon completion, the Classification Checklist must be forwarded to Human Resources Management for review and final determination of classification.

For retirees of the Public Employees Retirement System (PERS) of Mississippi, the system checklist should be substituted for the HRM-323.  Contact HRM if the proposed consultant is a PERS participant/retiree.

In the event that HRM determines the individual to be an employee, a copy of the checklist will be forwarded back to the department for initiation of the appropriate employment paperwork.  If the individual is deemed to be an independent contractor, a copy of the checklist will be routed back to the department.  The department will then follow the procedures for obtaining appropriate institutional approvals to engage a consultant or independent contractor as outlined below.

3. Procedures for obtaining appropriate institutional approvals to engage a fee-based, external consultant or independent contractor

Engaging consultants requires approval by the Vice President responsible for the department/unit requiring such services.  Approval will be based on completion of the following:

1. The MSU investigator must certify by signing the HRM-322 that there are no qualified individuals at the University who are able and willing to perform the work or provide the assistance that is to be procured from the consultant.

2. If the daily rate charged by the consultant exceeds that of a GS-18 federal employee (for consulting services procured from sponsored agreements), prior approval must be obtained from the sponsoring agency's grant/contract officer.  The daily rate for GS-18 federal employees may be obtained by contacting Sponsored Programs Administration.

3. Certification must be obtained from the consultant that the proposed daily rate is not in excess of his/her usual rate for comparable services.  If the proposed rate does exceed the usual rate, a written justification must be submitted by the requester for review by the appropriate Vice President and by Sponsored Programs Administration for consulting services procured under a sponsored agreement.

4. Certification must be obtained from the consultant that he/she is not precluded from employment as a former Department of Defense employee who has retired and has not been debarred or suspended from receiving federal funds for consulting services procured from sponsored agreements.
    

4. Procuring Fee-Based Independent Contractor Services from E&G or Designated Funds

Refer to Section B for procedures on distinguishing  between employees and independent contractors prior to following the instructions outlined in this section.

After the assurances/certifications listed have been secured, a consulting agreement will be initiated by the Department and Procurement and Contracts via the following steps:

1. The originating department or unit will complete the Consulting Services Cover Sheet, HRM-322 and attach the general consulting terms and conditions (Attachment E) and any special terms and conditions (note the general consulting terms and conditions may not be altered).  This package constitutes the Consulting Agreement.
2. The department or unit shall secure approval and signature from the appropriate Vice President on the completed HRM-322.
3. The department or unit will mail a copy of the Consulting Agreement to the consultant requesting the return of a fully executed (signed) agreement.
4. Upon receipt of a fully executed Consulting Agreement, the department will maintain an original copy at the departmental level for reference in evaluating invoices and approving and processing payments through Procurement and Contracts as outlined in section II.F of this policy.
    

5. Procuring Fee-Based Independent Contractor Services from Restricted Funding

Refer to Section B for procedures on distinguishing  between employees and independent contractors prior to following the instructions outlined in this section.

After the assurances/certifications listed above have been secured, a consulting agreement will be initiated by the Department and Sponsored Programs Administration via the following steps:

1. The originating department/unit will complete the Consulting Services Cover Sheet, HRM-322.
2. The department/unit will forward the completed HRM-322 to Sponsored Programs Administration, along with a description of the scope of work as well as any special terms and conditions.
3. Sponsored Programs Administration will obtain the appropriate Vice President's Signature.
4. Sponsored Programs Administration will attach the General Consulting Terms and Conditions, scope of work, and special terms and conditions to the Consulting Cover Sheet, send the signed agreement to the consultant at the address on the Consulting Cover Sheet, and  request that a copy be returned once signed by the consultant.
5. Once Sponsored Programs Administration obtains a fully executed agreement, the original will be forwarded to Sponsored Programs Accounting for maintenance. A courtesy copy will be routed back to the department/unit.  The department shall maintain their copy for reference in evaluating invoices and approving and processing payments through Procurement and Contracts as outlined in section II.F of this policy.

6. Processing Payments for Fee-Based Independent Contractor/Consultant Services

The Consultant shall submit a Statement of Services and expenses to the Department.  The department shall attach the documentation from the  Consultant along with a copy of the Consulting Services Cover Sheet (form HRM-322)  and the Classification Checklist (form HRM-323) or the PERS check list if the consultant is a PERS retiree to the APDP form or the A-06 form and submit to Accounts Payable for processing.  Payments in excess of the value of the consulting agreement are unallowable unless the consulting agreement is formally amended.

7. Special Exempt Services (and related payment processing procedures)

Refer to Section B for procedures on distinguishing  between employees and independent contractors prior to following the instructions outlined in this section.

There are certain types of services that do not require the use of a formal consulting agreement.  For non-MSU employees, these services may be procured using the MSU A-06 (on-line departments/units may use APDP), Attachment C and, as necessary, the MSU form A-08, Attachment D.  The following Exempt Services may be transacted in this manner:

Speakers
No-Fee Based, Non-MSU Personnel Travel
Project/Subject Participants
Outside Catering Fees
Employee Applicants (reimbursement for actual expenses only)
Public Accounting, Real Estate and other services as approved

Further procedures for approval of exempt services may be required by the responsible division.  Refer to your division procedures for further guidance in this matter.

Review

This policy will be reviewed by the Director, Office of Sponsored Programs Administration by May of each even-numbered year.

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ATTACHMENTS
_____________________________________________________________

Attachment - A
Consulting Services Cover Sheet (HRM-322) and
      Classification Checklist (HRM-323)(PDF file)
NEW!
(This form can be filled out on-line before printing out for signatures and other further processing).

Attachment - B
Employee vs. Independent Contractor
    Twenty Common-Law Factors of Employee Status 

Attachment - C
Voucher for Payment (MSU Form A-06) (PDF file)

Attachment - D
Authorization for Other Official Expenses (MSU Form A-08) (PDF file)
NEW!
(This form can be filled out on-line before printing out for signatures and other further processing).

Attachment - E
General Consulting Terms and Conditions

 For information about this policy, contact the reviewing department.