Northern Michigan University often supplements the current work force by hiring individuals to provide services to NMU via personal services contracts. Though hiring an independent contractor is a great way to obtain special expertise or knowledge for various projects or programs, it’s important to know that the hiring process for independent contractors is presided over by IRS guidance as prescribed in IRS Publication 15-A. This publication can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/p15a.pdf. The publication provides meticulous guidelines about how and when to hire an independent contractor.
In addition to the guidance outline in IRS Publication 15-A, NMU also has to meet its notification obligations as described in the various union master agreements.
To assist in determining whether you are hiring an employee or an independent contractor, the following will provide important information and timelines to assist you in submitting a personal services contract request.
The first step is to determine if an independent contractor should be hired. This step should begin when determining whether or not the services you are considering are available on campus. Example, it you are having an event which requires food, you must coordinate with Dining Services for such support. If you are developing a new webpage, you may have a clerical staff member in your operation that is already trained to accomplish this task or you may obtain some support from other departments on campus like AdIT or Communications. On the other hand, if you have a need to have a program evaluated, you may consider hiring a consult via the Personal Services Contract request. If you are not sure whether or not you are hiring an employee or an independent contractor, please feel free to contact Sandy Haavisto (1077), Jim Bradley (2745) or Julane Cappo (1493) for assistance.
The next consideration should be when are the services required? The IRS requires that all independent contractor requests be approved prior to services being rendered to the organization. Failure to approve such requests in advance may result in a fine levied against NMU for each contract approved after the fact. It is imperative that when considering hiring an independent contractor, sufficient time prior to the start of services be included for submitting, processing, and approving such requests. Please note that each request requires the signature of the requestor as well as the signature of the contractor. Depending on the location of the contractor, the request may have to be mailed to and from the contractor for signature prior to submitting the request. Therefore, when planning for the use of an independent contractor, provide yourself sufficient time for processing such requests. Once a request has been submitted to Risk Management, it normally takes 1-3 days for the request to process through Risk Management, Human Resources, and to Vendors Payable. As an example, you may want to initiate your Personal Services Contract at least 45 days prior to the services being rendered to NMU. This should give you ample time to initiate/finalize the document, obtain the appropriate signatures on the document including mailing the document to the contractor and then submitting the document for processing. Finally, situation do occur where short-term notice arrangements have to be made. If this situation occurs, immediately contact Jim Bradley (2745) or Julane Cappo (1493) for assistance.
Once it has been decided to hire an independent contractor, the next step is to complete the required documents. NMU has two documents that must be complete which are available through Printing Services. The first is the Transmittal Form and the other is the Limited Personal Service Contract. Both documents are fairly easy to complete however, it is important that these documents include the dates of the entire period in which services will be rendered to NMU, and the type of services to be provided must also be included on the document. Also a point to remember is when completing the compensation portion on the Limited Personal Service Contract, there can be only a single dollar amount listed on the document. This amount must encompass all cost for the entire project or program. Reimbursable amounts cannot be listed separately on these forms.
Once the form has been completed and signed by all parties, the completed document should be sent to Risk Management to begin processing the request. Risk Management, upon receiving and reviewing the document, will then forward the request to the Human Resources Department. The Human Resources Department ensures that the request complies with IRS guidance and if necessary ensures NMU meets its notification obligation to the various labor organizations on campus. (Please note that not all Personal Services Requests are sent to H.R. for processing). Should the request meet the IRS guidance, the Human Resources Department will return the document back to Risk Management for final processing. After final processing, the approved document will be sent to Vendors Payable where they will log in the request and prepare to make payment to the contractor when requested. A yellow copy of the approved document should return back to the department which is your clue that your request has been processed and approved and that the contractor can now render services to NMU.
Upon completion of services to NMU, the contractor should advise the requestor. Upon verifying that the requested services have been accomplished, the requestor should contact Vendor Payable who will prepare and forward the agreed upon payment to the contractor.
Hiring an independent contractor via the Personal Services Contract request is a great way to obtain services that otherwise would not be available on campus. Utilizing the guidance above in determining the need and submitting a request for an independent contractor will ensure the University meets its obligation per IRS guidance and the various master agreements as well as minimizing liability for improperly hiring an independent contractor. Should you have questions reference the above information or the Personal Services Contract process, Jim Bradley (2745) and Julane Cappo (1493) are available to assist you with your questions.