Procurement Procedures

Transcription

1 (Revised 07/18/08) Procurement Procedures Procurement Services (PS) 7.0 RESTRICTED PURCHASES 7.8 Paying for Services (Independent Contractors and Honorariums) The procurement of services requires an evaluation of the type of service to be provided, the review of the classification of the suppliers providing this service and the creation and execution of a contract establishing the mutually agreedupon terms and conditions of the transaction between the service provider and the University. The procurement of services, unlike the procurement of goods, requires an evaluation of whether the service provider should be classified as an employee or independent contractor. This procedure will provide you with the guidelines for the required assessment of the service provider s classification as an Independent Contractor. Carnegie Mellon must apply common standards in order to reduce risks and ensure cost-effective and equitable business practices. Procedure to Engage an Independent Contractor or Honoraria The steps to engage an Independent Contractor are provided in the flow chart titled Independent Contractor Flow Chart and available on the Procurement Services web site. Note: This procedure requires all payments to be processed against an approved University Purchase Order. In addition to the Purchase Order, an agreement must be prepare for all Independent Contractors receiving payments of $600 or more during a calendar year. This agreement must be executed by an authorized signatory for the University and forwarded to Accounts Payable with an invoice referencing the purchase order number when requesting payment for services. 1

2 Contract Terms and Conditions The University s standard terms and conditions have been written for the purchase of goods or products. The procurement of services requires the creation and execution of a contract or agreement establishing the mutually agreed-upon terms and conditions of the transaction between the service provider and the University. Procurement Services has standard agreements available on our website that can be used as templates when completed by the buyer prior to the submission of the agreement to service provider. The templates that are provided, at a minimum, include the following: Consultant Agreement (for professional consultants) Professional Services Agreement (tangible services) Professional Services Agreement for Software Programming Speakers Agreement 1 (no restriction on rights) Speakers Agreement 2 (some restrictions on rights) Speakers Agreement 3 (totally restricted on rights) Entertainment/Performance Contract Photography Agreement Hotel, Banquet and/or Conference Services T's & C's Honorarium Letter Independent Contractor Agreement Administrative Comment: Please carefully read and edit the Procurement Services templates to record the details of the required service and to identify the parties involved in the agreement. The department representative should provide two original agreements to your service provider for signature. After you have received the two executed agreements back from the supplier, please forward both originals to Procurement Services for final University Authorized Signature. Procurement Services will retain and keep on file one original and return the second original to the department representative s attention. The department representative should make two copies: one to retain for the department s records and the second to be forwarded to the Accounts Payable Department with the invoice from the service provider when requesting payment for the services. The second original should be forwarded to the supplier for their records. Caution: The sample templates may be utilized to procure services unless the agreement involves any of the contractual elements shown below. In these circumstances the Independent Contractor flowchart provided on the Procurement Services web site should be followed to direct your efforts to the appropriate business unit for additional support and direction. 2

3 Carnegie Mellon Employee or Student Intellectual Property Construction Copyrights or Patents Media creation: Photography and Video Production Transportation Website Design Tax The University must report payments to Independent Contractors of $600 or more during a calendar year on IRS Form 1099-MISC. By law, individuals who are paid as Independent Contractors are responsible for reporting all income earned and for paying the appropriate federal, state and city taxes, as well as self-employment taxes. Independent Contractor Review Board If further clarification beyond the guidelines contained within this procedure is needed, please review IRS 20 factor test for Independent Contractors available at the end of this procedure and consult with your Department s Human Resource Representative who will defer the decision to the Independent Contractor Review Board. The Independent Contractor Review Board consists of members from the following functional areas: Legal, Human Resources, Payroll and Procurement Services Definitions and Examples It is the responsibility of the Business Manager for the requesting department to determine if the service provider should be classified as an employee or independent contractor. This evaluation and classification must be performed before engaging an individual or entity to perform services, and before any services begin. It must be based upon IRS guidelines provided within this procedure and not on administrative ease or relative costs. There are costs and risks associated with each classification. For employees, there is the employer s share of FICA tax, employee benefits, workers compensation and other insurance coverage, overtime premiums, etc. For independent contractors, there are contract costs as well as potential penalties and interest from the IRS and other regulatory agencies if the agency, during its review, reclassifies the independent contractor as an employee. 3

4 The distinction between employee and independent contractor is important for purposes of withholding income taxes, provision of employee benefits, and other legal requirements. The term consultant has special applicability to sponsored projects, and these standards for the identification of consultants and payment of their fees are set to satisfy federal government requirements for such standards. A consultant is generally an independent contractor. Employee. An employee depends on an employer for income on a continuing basis and is subject in the assigned work to the supervision and control of the employer. A regular employee is hired by the University for continuing employment, and a temporary employee is hired for sporadic or casual employment. Full-time or part-time faculty and staff members who are eligible for University employee benefits are generally considered regular employees. If an individual has been paid on the University payroll within the previous twelve months, the individual is treated as an employee on any payments for work performed, even if the relationship might otherwise qualify as that of an independent contractor. Examples of Employee(s): 1. Payments to professors, faculty associates or instructors including executive education programs or summer session teaching. This is due to the fact that the major function of the University is academics and instruction. 2. Payments to administrative personnel. 3. Payments to an off-campus specialist facilitating research in an academic department whereby the department would have the expertise and resources to provide the service itself. 4. Payments to faculty member for serving as guest speaker to another department. 5. Payments to guest speaker providing instruction which the University already maintains substantially the ability to provide. 6. Payments to an individual for designing a computerized system for use by a department or the University, whereby that individual is already employed by the University in the capacity of a programmer or systems analyst. Due to the nature of IRS regulations and interpretation of these regulations, the above examples are subject to change. Independent Contractor. An entity or an individual not employed by the University who performs the required task or tasks according to the contractor's own manner and method, outside of the direction or control of the University, is an independent contractor. The independent contractor's activities are not controlled or directed by the University or subject to the University s right to control or direct the task or tasks to be performed. Examples of Independent Contractors or External Consultants with no affiliation with the University: 1. Payments to officials/referees at sporting events. 4

5 2. Payments to an off-campus specialist facilitating research in the Biology Department whereby the department could not reasonably be expected to have the specialized resources to provide the service itself. 3. Payments to area expert providing report of a specialist nature, whereby the University could not reasonably be expected to have that expertise. 4. Payments to off-campus persons providing specialized publishing or printing services whereby the University could not reasonably be expected to provide the service itself. 5. Payments to a non-employee for designing a computerized statistical package for use by an academic department for research or instructional purposes whereby the department could not reasonably be expected to have the resources to provide the service itself. 6. Payments to an individual (or the entity if a group of individuals are involved) for playing music at an event whereby the individual(s) has total control over musical arrangements or to an individual for accompanying another individual in a recital whereby that individual plays an instrument of such a specialized nature that the Music Department could not reasonably be expected to have that expertise. Please note: frequency of service can change the status of the above examples. Consultant. An entity or individual who provides advice or recommendations based upon expert or professional analysis on a short-term basis is a consultant. Individuals already on the University payroll and performing such consulting services are paid for those services as employees and not as independent contractors. Students cannot perform services in a consultant role for purposes of this policy. Honorarium. A payment to an individual to confer distinction or to symbolize respect, esteem, or admiration for the recipient. Honoraria are often given in lieu of reimbursing expenses. This should be a one-time event and not an employee of the University. If payment is set by the recipient or has been negotiated with the recipient and is given in return for services provided, this should be considered an independent contractor service and not an honorarium. Examples of Honorariums: 1. Giving a special lecture or performance 2. Speaking at a commencement exercise or other similar function. Independent Contractor vs. Employee This procedure will provide guidance to assist you in clearly understanding the differences between and an Independent Contractor and an Employee. The Internal Revenue Service and other government agencies assess significant penalties for misclassification of employees as independent contractors. 5

6 Misclassification can also create other potential liabilities and affect service performance and employee morale. Please review IRS special Topic 762 shown below for a review of the difference between an Independent Contractor and an employee. To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes: The extent to which the worker has unreimbursed business expenses, The extent of the worker's investment in the facilities used in performing services, The extent to which the worker makes his or her services available to the relevant market, How the business pays the worker, and The extent to which the worker can realize a profit or incur a loss. Type of Relationship covers facts that show how the parties perceive their relationship. This includes: Written contracts describing the relationship the parties intended to create, The extent to which the worker is available to perform services for other, similar businesses, Whether the business provides the worker with employee type benefits, such as insurance, a pension plan, vacation pay, or sick pay, The permanency of the relationship, and The extent to which services performed by the worker are a key aspect of the regular business of the company. Requirements to Engage an Independent Contractor 6

7 Persons other than regular employees of the University may be used as independent contractors, and University funds may be charged for their activities only if all of the following conditions are met: Employee unavailable. The services are needed and cannot be met by using a regular University employee within the scope of his or her employment within the University. Selection process. A selection process has been used and documented to secure the most qualified person available, considering the nature and extent of services required. Appropriate fee. The fee is appropriate considering the qualification of the person to be used, his or her normal charge, and the nature of the services to be rendered. When the fee is charged to a sponsored project, it must conform to any limitations established by the award and funding agency. Not already on payroll. The person has not been paid as a regular employee or temporary employee of the University within the twelve months preceding his or her work as an independent contractor. Specified single period of engagement. The arrangement will last for a specified period and it is understood that no employment arrangement or repeated or extended arrangement will result. Engaging Foreign National as Independent Contractors Tax regulations for non-resident aliens vary significantly from those applying to U.S. residents and U. S. citizens. To assure compliance with tax law, the University must determine the residency status of an independent contractor before engaging the contractor. Please ask the Independent Contractor to complete a Foreign National Information Form and contact Payroll Services for additional information and support relating to work authorization. As outlined in the Independent Contractor Flow Chart, the following additional forms are required for non-resident aliens in this process: W-8 (IRS Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) Foreign National Information Form Office of Sponsored Projects 7

8 The Office of Sponsored Projects has been delegated the responsibility for approval of sponsored project consultants and subcontracts. This delegation of responsibility applies only to the service providers with highly specialized expertise directly related to the science or scope of the sponsored project and whose fees are charged to the sponsored project. Conflict of Interest If you are aware that an Independent Contractor may have a financial interest, relationship or transaction that could reasonably create, a real, apparent or potential conflict of interest contrary to the spirit or general principles set forth in the University's Conflict of Interest/Commitment Policy (e.g., a proposed University transaction with a nephew, even though a nephew is not included in the definition of "Related Person"), a Conflict of Interest/Commitment Disclosure Form available on the Procurement Services web site should be executed and attached to the agreement provided for signature on behalf of the University. Insurance Carnegie Mellon University has specific insurance requirements, which must be satisfied and adhered to in the performance of any work connected with any contract or agreement with external contractors. No contract should be entered into without evidence of compliance with these requirements. It is only after such evidence has been provided and accepted that a contract can be signed. If an occasion shall arise where it is believed that these requirements need to be adjusted to fit a particular situation, approval must be obtained through the Risk Management Office. Benefits Independent Contractors are not employees of the University and are not entitled to University employee benefits while rendering services. References: Tax Topic 762 Basic Information To determine whether a worker is an independent contractor or an employee, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself. Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) 8

9 Section 530 provides businesses with relief from Federal employment tax obligations if certain requirements are met. IRS Internal Training: Employee/Independent Contractor (PDF) This manual provides you with the tools to make correct determinations of worker classifications. It discusses facts that may indicate the existence of an independent contractor or an employer-employee relationship. This training manual is a guide and is not legally binding. If you would like the IRS to make the determination of worker status, please file IRS Form SS-8. Publication 15-A The Employer's Supplemental Tax Guide has detailed guidance including information for specific industries. Publication 15-B The Employer s Tax Guide to Fringe Benefits supplements Circular E (Pub. 15), Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide. It contains specialized and detailed information on the employment tax treatment of fringe benefits. 9

10 IRS 20-Factor Test for Independent Contractors The following guidelines are provided by the IRS and are called the 20-factor-test for determining the proper status of independent contractor versus employee. A service provider is generally, with some exceptions, an Independent Contractor, if the provider answers NO to most of the questions below. 1) Does Carnegie Mellon tell the Provider where, when and how to perform the work? 2) Does the Provider receive training from Carnegie Mellon (i.e., work alongside a fully trained employee)? 3) Does Carnegie Mellon s operation depend for its existence and success upon the Provider s work? 4) Does the Provider personally perform the services? 5) Does the Provider hire, supervise, fire and pay employees on behalf of Carnegie Mellon? 6) Does the Provider have any kind of continuing service relationship with Carnegie Mellon? 7) Must the Provider follow specific working hours set by Carnegie Mellon? 8) Does Provider expect that more than 50% of his/her annual income will be derived from Carnegie Mellon? 9) Is Carnegie Mellon providing the Provider with an office or other services provided to employees (e.g., secretarial services, computing equipment, telephone, etc.)? 10) Must the Provider follow a work sequence set by Carnegie Mellon? 11) Must the Provider submit regular oral or written reports describing the work to be done to Carnegie Mellon? 12) Does the Provider receive regular payments in like amounts at set intervals from Carnegie Mellon? Is recurring work contemplated in the future? If yes, for what period of time? 13) Does the Provider receive from Carnegie Mellon reimbursement for business and/or travel expenses? 14) Does Carnegie Mellon furnish tools, materials or technical support for the Provider? 15) Does the Provider have any investment in the facilities, premises or tools used to perform the services? 10

11 16) Is the Provider shielded by Carnegie Mellon from making a profit or suffering a loss from provision of the services? 17) Does the Provider currently have other clients or has the Provider had other clients in the past? 18) Does the Provider currently offer similar services to the general public? Has the Provider ever been an employee of Carnegie Mellon? 19) May the Provider be fired by Carnegie Mellon (as opposed to contract termination)? 20) If the Provider quits the work, will he or she suffer any losses other than discontinuation of payment? 11

12 (Revised 07/18/08) Procurement Procedures Procurement Services (PS) 7.0 RESTRICTED PURCHASES 7.8 Paying for Services (Independent Contractors and Honorariums) The procurement of services requires an evaluation of the type of service to be provided, the review of the classification of the suppliers providing this service and the creation and execution of a contract establishing the mutually agreedupon terms and conditions of the transaction between the service provider and the University. The procurement of services, unlike the procurement of goods, requires an evaluation of whether the service provider should be classified as an employee or independent contractor. This procedure will provide you with the guidelines for the required assessment of the service provider s classification as an Independent Contractor. Carnegie Mellon must apply common standards in order to reduce risks and ensure cost-effective and equitable business practices. Procedure to Engage an Independent Contractor or Honoraria The steps to engage an Independent Contractor are provided in the flow chart titled Independent Contractor Flow Chart and available on the Procurement Services web site. Note: This procedure requires all payments to be processed against an approved University Purchase Order. In addition to the Purchase Order, an agreement must be prepare for all Independent Contractors receiving payments of $600 or more during a calendar year. This agreement must be executed by an authorized signatory for the University and forwarded to Accounts Payable with an invoice referencing the purchase order number when requesting payment for services. 1

13 Contract Terms and Conditions The University s standard terms and conditions have been written for the purchase of goods or products. The procurement of services requires the creation and execution of a contract or agreement establishing the mutually agreed-upon terms and conditions of the transaction between the service provider and the University. Procurement Services has standard agreements available on our website that can be used as templates when completed by the buyer prior to the submission of the agreement to service provider. The templates that are provided, at a minimum, include the following: Consultant Agreement (for professional consultants) Professional Services Agreement (tangible services) Professional Services Agreement for Software Programming Speakers Agreement 1 (no restriction on rights) Speakers Agreement 2 (some restrictions on rights) Speakers Agreement 3 (totally restricted on rights) Entertainment/Performance Contract Photography Agreement Hotel, Banquet and/or Conference Services T's & C's Honorarium Letter Independent Contractor Agreement Administrative Comment: Please carefully read and edit the Procurement Services templates to record the details of the required service and to identify the parties involved in the agreement. The department representative should provide two original agreements to your service provider for signature. After you have received the two executed agreements back from the supplier, please forward both originals to Procurement Services for final University Authorized Signature. Procurement Services will retain and keep on file one original and return the second original to the department representative s attention. The department representative should make two copies: one to retain for the department s records and the second to be forwarded to the Accounts Payable Department with the invoice from the service provider when requesting payment for the services. The second original should be forwarded to the supplier for their records. Caution: The sample templates may be utilized to procure services unless the agreement involves any of the contractual elements shown below. In these circumstances the Independent Contractor flowchart provided on the Procurement Services web site should be followed to direct your efforts to the appropriate business unit for additional support and direction. 2

14 Carnegie Mellon Employee or Student Intellectual Property Construction Copyrights or Patents Media creation: Photography and Video Production Transportation Website Design Tax The University must report payments to Independent Contractors of $600 or more during a calendar year on IRS Form 1099-MISC. By law, individuals who are paid as Independent Contractors are responsible for reporting all income earned and for paying the appropriate federal, state and city taxes, as well as self-employment taxes. Independent Contractor Review Board If further clarification beyond the guidelines contained within this procedure is needed, please review IRS 20 factor test for Independent Contractors available at the end of this procedure and consult with your Department s Human Resource Representative who will defer the decision to the Independent Contractor Review Board. The Independent Contractor Review Board consists of members from the following functional areas: Legal, Human Resources, Payroll and Procurement Services Definitions and Examples It is the responsibility of the Business Manager for the requesting department to determine if the service provider should be classified as an employee or independent contractor. This evaluation and classification must be performed before engaging an individual or entity to perform services, and before any services begin. It must be based upon IRS guidelines provided within this procedure and not on administrative ease or relative costs. There are costs and risks associated with each classification. For employees, there is the employer s share of FICA tax, employee benefits, workers compensation and other insurance coverage, overtime premiums, etc. For independent contractors, there are contract costs as well as potential penalties and interest from the IRS and other regulatory agencies if the agency, during its review, reclassifies the independent contractor as an employee. 3

15 The distinction between employee and independent contractor is important for purposes of withholding income taxes, provision of employee benefits, and other legal requirements. The term consultant has special applicability to sponsored projects, and these standards for the identification of consultants and payment of their fees are set to satisfy federal government requirements for such standards. A consultant is generally an independent contractor. Employee. An employee depends on an employer for income on a continuing basis and is subject in the assigned work to the supervision and control of the employer. A regular employee is hired by the University for continuing employment, and a temporary employee is hired for sporadic or casual employment. Full-time or part-time faculty and staff members who are eligible for University employee benefits are generally considered regular employees. If an individual has been paid on the University payroll within the previous twelve months, the individual is treated as an employee on any payments for work performed, even if the relationship might otherwise qualify as that of an independent contractor. Examples of Employee(s): 1. Payments to professors, faculty associates or instructors including executive education programs or summer session teaching. This is due to the fact that the major function of the University is academics and instruction. 2. Payments to administrative personnel. 3. Payments to an off-campus specialist facilitating research in an academic department whereby the department would have the expertise and resources to provide the service itself. 4. Payments to faculty member for serving as guest speaker to another department. 5. Payments to guest speaker providing instruction which the University already maintains substantially the ability to provide. 6. Payments to an individual for designing a computerized system for use by a department or the University, whereby that individual is already employed by the University in the capacity of a programmer or systems analyst. Due to the nature of IRS regulations and interpretation of these regulations, the above examples are subject to change. Independent Contractor. An entity or an individual not employed by the University who performs the required task or tasks according to the contractor's own manner and method, outside of the direction or control of the University, is an independent contractor. The independent contractor's activities are not controlled or directed by the University or subject to the University s right to control or direct the task or tasks to be performed. Examples of Independent Contractors or External Consultants with no affiliation with the University: 1. Payments to officials/referees at sporting events. 4

16 2. Payments to an off-campus specialist facilitating research in the Biology Department whereby the department could not reasonably be expected to have the specialized resources to provide the service itself. 3. Payments to area expert providing report of a specialist nature, whereby the University could not reasonably be expected to have that expertise. 4. Payments to off-campus persons providing specialized publishing or printing services whereby the University could not reasonably be expected to provide the service itself. 5. Payments to a non-employee for designing a computerized statistical package for use by an academic department for research or instructional purposes whereby the department could not reasonably be expected to have the resources to provide the service itself. 6. Payments to an individual (or the entity if a group of individuals are involved) for playing music at an event whereby the individual(s) has total control over musical arrangements or to an individual for accompanying another individual in a recital whereby that individual plays an instrument of such a specialized nature that the Music Department could not reasonably be expected to have that expertise. Please note: frequency of service can change the status of the above examples. Consultant. An entity or individual who provides advice or recommendations based upon expert or professional analysis on a short-term basis is a consultant. Individuals already on the University payroll and performing such consulting services are paid for those services as employees and not as independent contractors. Students cannot perform services in a consultant role for purposes of this policy. Honorarium. A payment to an individual to confer distinction or to symbolize respect, esteem, or admiration for the recipient. Honoraria are often given in lieu of reimbursing expenses. This should be a one-time event and not an employee of the University. If payment is set by the recipient or has been negotiated with the recipient and is given in return for services provided, this should be considered an independent contractor service and not an honorarium. Examples of Honorariums: 1. Giving a special lecture or performance 2. Speaking at a commencement exercise or other similar function. Independent Contractor vs. Employee This procedure will provide guidance to assist you in clearly understanding the differences between and an Independent Contractor and an Employee. The Internal Revenue Service and other government agencies assess significant penalties for misclassification of employees as independent contractors. 5

17 Misclassification can also create other potential liabilities and affect service performance and employee morale. Please review IRS special Topic 762 shown below for a review of the difference between an Independent Contractor and an employee. To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes: The extent to which the worker has unreimbursed business expenses, The extent of the worker's investment in the facilities used in performing services, The extent to which the worker makes his or her services available to the relevant market, How the business pays the worker, and The extent to which the worker can realize a profit or incur a loss. Type of Relationship covers facts that show how the parties perceive their relationship. This includes: Written contracts describing the relationship the parties intended to create, The extent to which the worker is available to perform services for other, similar businesses, Whether the business provides the worker with employee type benefits, such as insurance, a pension plan, vacation pay, or sick pay, The permanency of the relationship, and The extent to which services performed by the worker are a key aspect of the regular business of the company. Requirements to Engage an Independent Contractor 6

18 Persons other than regular employees of the University may be used as independent contractors, and University funds may be charged for their activities only if all of the following conditions are met: Employee unavailable. The services are needed and cannot be met by using a regular University employee within the scope of his or her employment within the University. Selection process. A selection process has been used and documented to secure the most qualified person available, considering the nature and extent of services required. Appropriate fee. The fee is appropriate considering the qualification of the person to be used, his or her normal charge, and the nature of the services to be rendered. When the fee is charged to a sponsored project, it must conform to any limitations established by the award and funding agency. Not already on payroll. The person has not been paid as a regular employee or temporary employee of the University within the twelve months preceding his or her work as an independent contractor. Specified single period of engagement. The arrangement will last for a specified period and it is understood that no employment arrangement or repeated or extended arrangement will result. Engaging Foreign National as Independent Contractors Tax regulations for non-resident aliens vary significantly from those applying to U.S. residents and U. S. citizens. To assure compliance with tax law, the University must determine the residency status of an independent contractor before engaging the contractor. Please ask the Independent Contractor to complete a Foreign National Information Form and contact Payroll Services for additional information and support relating to work authorization. As outlined in the Independent Contractor Flow Chart, the following additional forms are required for non-resident aliens in this process: W-8 (IRS Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) Foreign National Information Form Office of Sponsored Projects 7

19 The Office of Sponsored Projects has been delegated the responsibility for approval of sponsored project consultants and subcontracts. This delegation of responsibility applies only to the service providers with highly specialized expertise directly related to the science or scope of the sponsored project and whose fees are charged to the sponsored project. Conflict of Interest If you are aware that an Independent Contractor may have a financial interest, relationship or transaction that could reasonably create, a real, apparent or potential conflict of interest contrary to the spirit or general principles set forth in the University's Conflict of Interest/Commitment Policy (e.g., a proposed University transaction with a nephew, even though a nephew is not included in the definition of "Related Person"), a Conflict of Interest/Commitment Disclosure Form available on the Procurement Services web site should be executed and attached to the agreement provided for signature on behalf of the University. Insurance Carnegie Mellon University has specific insurance requirements, which must be satisfied and adhered to in the performance of any work connected with any contract or agreement with external contractors. No contract should be entered into without evidence of compliance with these requirements. It is only after such evidence has been provided and accepted that a contract can be signed. If an occasion shall arise where it is believed that these requirements need to be adjusted to fit a particular situation, approval must be obtained through the Risk Management Office. Benefits Independent Contractors are not employees of the University and are not entitled to University employee benefits while rendering services. References: Tax Topic 762 Basic Information To determine whether a worker is an independent contractor or an employee, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories Behavioral Control, Financial Control, and the Type of Relationship itself. Publication 1976, Section 530 Employment Tax Relief Requirements (PDF) 8

20 Section 530 provides businesses with relief from Federal employment tax obligations if certain requirements are met. IRS Internal Training: Employee/Independent Contractor (PDF) This manual provides you with the tools to make correct determinations of worker classifications. It discusses facts that may indicate the existence of an independent contractor or an employer-employee relationship. This training manual is a guide and is not legally binding. If you would like the IRS to make the determination of worker status, please file IRS Form SS-8. Publication 15-A The Employer's Supplemental Tax Guide has detailed guidance including information for specific industries. Publication 15-B The Employer s Tax Guide to Fringe Benefits supplements Circular E (Pub. 15), Employer's Tax Guide, and Publication 15-A, Employer's Supplemental Tax Guide. It contains specialized and detailed information on the employment tax treatment of fringe benefits. 9

21 IRS 20-Factor Test for Independent Contractors The following guidelines are provided by the IRS and are called the 20-factor-test for determining the proper status of independent contractor versus employee. A service provider is generally, with some exceptions, an Independent Contractor, if the provider answers NO to most of the questions below. 1) Does Carnegie Mellon tell the Provider where, when and how to perform the work? 2) Does the Provider receive training from Carnegie Mellon (i.e., work alongside a fully trained employee)? 3) Does Carnegie Mellon s operation depend for its existence and success upon the Provider s work? 4) Does the Provider personally perform the services? 5) Does the Provider hire, supervise, fire and pay employees on behalf of Carnegie Mellon? 6) Does the Provider have any kind of continuing service relationship with Carnegie Mellon? 7) Must the Provider follow specific working hours set by Carnegie Mellon? 8) Does Provider expect that more than 50% of his/her annual income will be derived from Carnegie Mellon? 9) Is Carnegie Mellon providing the Provider with an office or other services provided to employees (e.g., secretarial services, computing equipment, telephone, etc.)? 10) Must the Provider follow a work sequence set by Carnegie Mellon? 11) Must the Provider submit regular oral or written reports describing the work to be done to Carnegie Mellon? 12) Does the Provider receive regular payments in like amounts at set intervals from Carnegie Mellon? Is recurring work contemplated in the future? If yes, for what period of time? 13) Does the Provider receive from Carnegie Mellon reimbursement for business and/or travel expenses? 14) Does Carnegie Mellon furnish tools, materials or technical support for the Provider? 15) Does the Provider have any investment in the facilities, premises or tools used to perform the services? 10

22 16) Is the Provider shielded by Carnegie Mellon from making a profit or suffering a loss from provision of the services? 17) Does the Provider currently have other clients or has the Provider had other clients in the past? 18) Does the Provider currently offer similar services to the general public? Has the Provider ever been an employee of Carnegie Mellon? 19) May the Provider be fired by Carnegie Mellon (as opposed to contract termination)? 20) If the Provider quits the work, will he or she suffer any losses other than discontinuation of payment? 11