BEMIDJI STATE UNIVERSITY

CONSULTANT CONTRACT THRESHOLDS, RULES & PROCEDURES
 

 IMPORTANT NOTE:  If the consultant you wish to contract with is a “Non-Resident Alien” (a non-U.S. citizen or foreign consultant/speaker/performer or foreign company), you may not proceed without MnSCU approval.   Please refer to: Contracts with non-resident aliens and contact the Purchasing Office.

  SUMMARY TABLE OF BSU CONSULTANT CONTRACT THRESHOLDS AND LIMITS: 

CONSULTANT CONTRACT RULES & PROCEDURES

 To maintain compliance with IRS code, Minnesota state law, and MNSCU guidelines, Bemidji State University enforces the following consultant contract rules and procedures:

1.    Step-by-step instructions to guide you through the consultant contract process are detailed on the third page of this document. MNSCU consultant contracts forms must be used and are available at the following MnSCU website: http://www.finance.mnscu.edu/contracts-purchasing/contracts/forms/index.html   

2.    Consultant contracts must be completely signed and on file with the Purchasing Office AND a purchase order must be completed
        before the beginning date of the contract.    Consultants may not commence work until a completely signed copy of the approved contract
        is received back from the Purchasing Office.  Late contracts will be rejected and returned to the originating department for valid explanation
        and are subject to final approval by the Business Manager and/or the Vice President of Administrative Affairs.

3.    Consultants must be qualified professional independent contractors possessing credentials that support their qualification to fulfill the
        contract obligation.  

4.    Consultant contracts will be examined for compliance with the Internal Revenue Service definition of an independent contractor.  The 20 factors established by the IRS to identify independent contractors as opposed to employees are listed on page 2 of this document. Please read these factors carefully.  If the relationship with the consultant or the service provided by the consultant would cause the consultant to be considered an employee under any one of the 20 IRS factors, the contract may be rejected to protect BSU from employment tax liability and penalties.   

5.    Based upon the attached 20 IRS factors, the following are examples of consultant contracts that will be automatically rejected:  

¨          Contracts for credit generating instruction.

¨          Contracts with current state employees.

¨          Contracts with current Bemidji State University students.

¨          Contracts that create a continuing relationship with Bemidji State University, unless awarded as the result of a formal bid process.

¨          Contracts that create the appearance of a special relationship with Bemidji State University or any of its employees, unless awarded as the result of a formal bid process.

¨          Contracts that specify payment based upon hourly, weekly, bi-weekly, or monthly rates.  (Payment should be based upon completion of a project or completion of defined phases of a project.)

¨          Contracts for services that are an integral part of Bemidji State University operations.

¨          Contracts for performing duties of a vacant position or duties regularly assigned to faculty, counselors, librarians, MSUAASF members, managers, or classified employees. 

This list is by no means a complete list.  Remember, contracts will be examined for compliance with the Internal Revenue Service definition of an independent contractor based upon the attached 20 IRS factors.
 

INTERNAL REVENUE SERVICE FACTORS

 USED TO DETERMINE WHETHER AN INDIVIDUAL IS AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR   

Please read these factors carefully.  Remember, if the relationship with the consultant or the service provided by the consultant would cause the consultant to be considered an employee under any one of the 20 IRS factors, the contract may be rejected to protect BSU from employment tax liability and penalties.   

IRS Factor #1:         Instructions.  An employee must comply with instructions about when, where, and how to work.  Even if no instructions are given, the control factor is present if the employer has the right to give instructions. 

IRS Factor #2:        Training.  An employee is trained to perform services in a particular manner.  Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.   

IRS Factor #3:        Integration.  An employee’s services are integrated into the business operations because the services are important to the success or continuation of the business.  This shows that the employee is subject to direction and control. 

IRS Factor #4:         Services rendered personally.  An employee renders services personally.  This shows that the employer is interested in the methods as well as the results.   

IRS Factor #5:         Hiring assistants.  An employee works for an employer who hires, supervises, and pays assistants.  An independent contractor hires, supervises, and pays assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.  

IRS Factor #6:         Continuing relationship.  An employee normally has a continuing relationship with an employer.  A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.   

IRS Factor #7:         Set hours of work.  An employee has set hours of work established by an employer.  An independent contrator is the master of his or her own time.  

IRS Factor #8:         Full-time work.  An employee normally works full time for an employer.  An independent contractor can work when and for whom he or she chooses.   

IRS Factor #9:         Work done on premises.  An employee works on the premises of an employer, or works on a route or at a location designated by an employer.   

IRS Factor #10:       Order or sequence set.  An employee must perform services in the order or sequence set by an employer.   This shows that the employee is subject to direction and control.  

IRS Factor #11:       Reports.  An employee submits reports to an employer.  This shows that the employer must account to the employer for his or her actions.   

IRS Factor #12:      Payments.  An employee is paid by the hour, week, or month.  An independent contractor is paid by the job or on a straight commission.  

IRS Factor #13:      Expenses.  An employee’s business expenses and travel expenses are paid by an employer.  This shows that the employee is subject to regulation and control.

IRS Factor #14:       Tools and materials.  An employee is furnished significant tools, materials, and other equipment by an employer. 

IRS Factor #15:      Investment.  An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.   

IRS Factor #16:       Profit or loss.  An independent contractor can make a profit or suffer a loss. 

IRS Factor #17:      Works for more than one person or firm.  An independent contractor gives his or her services to two or more unrelated persons or firms at the same time. 

IRS Factor #18:       Offers services to general public.  An independent contractor makes his or her services available to the general public. 

IRS Factor #19:      Right to fire.  An employee can be fired by an employer.  An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract. 

IRS Factor #20:       Right to quit.  An employee can quit his or her job at any time without incurring liability.  An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete it.

INSTRUCTIONS FOR COMPLETING A CONSULTANT CONTRACT

Note:  Consultant Contracts must be completely signed and on file with the Purchasing Office and a purchase order must be completed before the beginning date of the contract.  Consultants may not commence work until the contract originator receives a completely signed copy of the approved contract from the Purchasing Office.   

Late contracts will be returned to the originating department for valid explanation of the violation of MN Statute 16A15, Subd. 3.  The explanation is subject to review and approval by the Business Manager or the Vice President of Administrative Affairs before the late contract can be processed.    

Step 1               Department determines need for services or project and consults the 20 IRS Factors to determine if the need is best met by hiring a consultant (independent contractor) or an employee.  If the need can only be met by an independent contractor as defined by the 20 IRS Factors, the department proceeds to Step 2. 

Step 2               Originator of contract, acting as the state’s authorized agent, determines if funds are available and appropriate account is established with campus budget officer. 

Step 3               Originator negotiates terms of contract and completes the appropriate Data disclosure Form and Professional/Technical Services Contract form from the MnSCU website.  A minimum of 2 originals should be printed and routed for signature so BSU and vendor each get a signed contract.  A purchase order encumbering funds for the contract should also be entered at this time (remember to use appropriate object codes for fees and expenses). 

Step 4                Originator obtains required information and signature from consultant on two (or more) originals.

Step 5                Originator signs the two (or more) contract originals and routes for all required signatures. 

                            Note:  MnSCU forms have generic signature blocks.  The approval signatures required by Bemidji State University in this order are:
                        Contractor
                        State's Authorized Representative
                        Person responsible for encumbering funds for the contract
                        Appropriate Dean or Director
                        Appropriate Vice President
                        Director of Logistical Services

Since there will usually not be enough signature spaces on the MnSCU form, the Dean/Director and the Vice President may sign in adjacent blank areas of the signature block section.                                       

Step 6               The Purchasing Office reviews the contract for compliance with state and federal laws, MNSCU guidelines, and BSU rules and procedures.  If not in compliance, the contract will be rejected and returned to the originator.  If in compliance, the contract will be approved and a complete copy sent back to the originator with an invoice form for the consultant. 

Step 7                Upon receipt of a copy of the approved and fully-signed contract from the Purchasing Office, the originator notifies the consultant to commence the project.   

Step 8                Upon completion, the consultant submits invoice(s) for payment to contract originator.   (Note: Expenses must be submitted on a separate invoice from fees and an expense report must be completed and attached.)  

Step 9                Originator submits completed invoice(s) and any supporting paperwork to Accounts Payable, Deputy 201. 

Step 10              Accounts Payable processes payment.