Personal Services Contract Protocol Addressed

Northern is making a diligent effort to educate the campus community about the correct protocol for personal services contracts. The goal is to ensure university compliance with Internal Revenue Service guidelines and union master agreements.

“If personal services contracts aren’t done right, the university could be placed in a liability situation with the IRS,” said Art Pickering (Human Resources, pictured). “If an audit uncovered an infraction, we could be fined. And once that happens, the auditors could look back at previous records up to three years old and levy fines for other violations. It could put Northern at great risk financially with the IRS, so we’re trying to explain the process to avoid potential problems.”

PSCs are not an isolated occurrence – NMU faculty and staff drew up more than 620 contracts last year. They are intended for work that is normally not performed by employees. This could cover consultants, speakers, performers and athletic officials.

Pickering encourages employees who perceive a need for outside help to discuss it with him or Jim Bradley (Risk and Insurance) before they begin the paperwork to make sure it doesn’t constitute temporary labor or an employer-employee relationship.

“Independent contractors should be paid in one lump sum as opposed to an employer-employee relationship, which ties payment to a unit of time, such as so much per hour,” Pickering said. “Even if it’s a case of the need for an independent contractor surfacing very quickly and having no time to file the paperwork in advance, they should at least send us an e-mail that it’s coming so we can spot any potential conflicts.”

Examples of violations include hiring people to create Web pages or cater events on campus. Because both duties are performed by NMU employees, efforts to obtain support internally must be fully exhausted before looking to contract help off campus.

The distinction of independent contractors, according to university counsel, is that an employer has a right to control the result of their services, but not the means by which the results are achieved. Independent contractors typically are hired to perform a specific, insular task. They may set their own hours, direct their own work product, use their own equipment, facilities and supplies, and are free to work simultaneously for multiple entities.

In contrast, employers typically control not only what employees do, but how it is done – from setting hours to providing supplies to directing when, where and how a work product should be generated. Pickering said NMU employees cannot be independent contractors. If they perform duties for the university that fall outside the spectrum of their job description, it is considered an “additional assignment” and paid accordingly.

“There are a lot of issues to consider when it comes to determining whether a personal services contract is the right course of action,” Pickering added. “Because employees prepare them fairly infrequently, it can be tough to remember all of the guidelines and procedures. That’s why we ask that they check with us first. Once we talk it out, we can direct them on the process.”

Pickering said the universities is developing an online system that will make it more efficient to complete and process PSCs.


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Updated: April 19, 2006

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