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Procurement Services - Consultants/ Independent Contractors


Policy and Procedure

Subject Area: Procurement Services
Policy Title: Consultants/ Independent Contractors
Policy / Procedure No: PUR013
Responsible Office: Procurement Services

PURPOSE: To properly classify workers as either employees or consultants/independent contractors.

POLICY: Massachusetts law concerning the use of independent contractors presumes that individuals providing services to Northeastern University are, unless demonstrated otherwise, university employees. Misclassifying an individual service provider as an independent contractor is a violation of Federal tax and wage law, exposes the university to financial penalties, and may involve individual staff liability.

Prior to engaging any person to perform any services for the University, it is important to carefully determine whether that person should properly be classified as an employee.

In order to engage an individual as an independent service provider, as opposed to some form of employee, each of the following three criteria must be satisfied:

In performing the services, the individual must:
1. Be free from the control and direction of University;
2. 2 Perform services that are outside the usual scope of the employer's business; and
3. 3 Be customarily engaged in an independent trade, occupation or business in the nature of the service provided.
Refer to the "Special Advisory" prepared by the Office of Legal Counsel for explanation of these criteria - Addendum A.

If the proposed service engagement does not meet the independent contractor criteria:
1. For vacancies and special projects typically filled by temporary office support and clerical staff, you may utilize Northeastern University's temporary help agency.
2. For short-term or part-time temporary positions which require specialized education, certification, experience or skills you may utilize the Temporary Non-Student Employee hiring process. Guidelines for this process can be found on the HRM website.
For assistance in evaluating these criteria and determining whether or not employee status is appropriate in any individual situation, please contact the Compensation Manager in HRM.

PROCEDURE:

To assure compliance with the new law, the Employee/Independent Contractor Certification Form (Addendum B) must be completed and submitted, along with a contract and a purchase requisition to Purchasing. The following administrative process will be utilized:


    1. Unit/department head completes the Employee/Independent Contractor Certification Form.
    2. 2 A contract to govern the relationship is prepared. The Northeastern University Professional Services Agreement template is available at the Office of University Counsel website (www.legal.neu.edu) and may be downloaded (can be found under Legal Links) to assist in the preparation of the contract. . All contracts must be reviewed and approved by the Counsel's Office and signed by an authorized Northeastern University official(see the Counsel's Office website for the Contract Approval Process).
    3. The completed Employee/Independent Contractor Certification Form and signed contract are submitted with a purchase requisition to the Procurement Services Department. A purchase order will not be issued without the completed Certification Form and a properly executed contract . A purchase order is required for all independent contractors, regardless of the value of the assignment.
    Questions regarding the application of the law should be directed to the Office of University Counsel (x2157).

ADDENDUM A

MAY 2005

SPECIAL ADVISORY

Provided by

NORTHEASTERN UNIVERSITY
OFFICE OF THE UNIVERSITY COUNSEL

Changes in Independent Contractor Law

There have been significant recent changes to Massachusetts law concerning independent contractors.

The new law defines an independent contractor quite narrowly. It is also significantly more limited than treatment of independent contractors under federal wage and tax laws1. In short, the law presumes that every worker is an employee unless each and every one of the following three criteria apply:

1. Freedom from Control. A worker must be free of Northeastern University's "control and direction". . An individual must perform his or her functions independently. Independent contractors perform their functions using an approach of their own choosing. They can determine when and where they work, and how much work is needed to perform the project for which they have been retained. In contrast, employees are subject to more control. For example, an employer determines the work methods and schedules of employees.
2. Work Outside the Usual Scope of Employer's Business. Independent contractors must provide services and/or perform functions which are outside the employer's usual sphere of business. An individual who performs functions which typically are performed by employees will be considered a Northeastern University employee, not an independent contractor. For example, if the University retains an individual to perform management functions or data entry, that person could be characterized as an employee under Massachusetts law. Both of these functions fall within the normal scope of the University's business.
3. Independent Trade, Occupation or Business. An independent contractor must hold him or herself out to the public as available to provide the same or similar services to a variety of employers. A true independent contractor has a financial investment in his/her contracting/consulting business. It is not enough merely to work outside an institution's place of business to meet the criteria of having one's own business. For example, the Attorney General's advisory on this topic cites real estate brokers who work for a brokerage firm or office as an example of workers who are likely to be considered employees under the new law. In this example, one is not an independent contractor simply because one can conduct much of his or her work from home or from sites outside the office base.

The Attorney General's office has stated that it considers these three factors as "rigid". In a change from previous practice, the Attorney General will not be flexible when considering a proposed contractor relationship, and will not balance different factors such as the work functions and work environment in question on a case by case basis.

Please note that an employer's failure to contribute to unemployment compensation insurance, provide worker's compensation insurance, or withhold payroll taxes is irrelevant to the question of whether an individual is an independent contractor or an employee. In fact, if the Commonwealth determines that a contractor actually was an employee, an employer could be ordered to pay retroactive taxes for benefits on the individual's behalf.

The other penalties for non-compliance are significant, including but not limited to fines of up to $50,000, criminal penalties including imprisonment, and debarment from contracting work. The law also provides for individual liability.

The Northeastern University Professional Services Agreement template has been updated. It is important that this agreement is used only in appropriate circumstances, those which meet the criteria described above.

Should you have any questions or need information concerning a specific situation or any of the content of this advisory, please contact the Office of the University Counsel, x2157.

ADDENDUM B

Employee/Independent Contractor Certification Form

I have read the three conditions below and certify that the engagement of services by the designated contractor satisfy all three conditions necessary to designate the service provider as an independent contractor/consultant.

Independent Contractor:

Certification:

__________________________________ _____________________

Department/Unit Head Date

  1. Freedom From Control
    The independent contractor:
    • performs functions independently
    • is free of Northeastern University's "control and direction"
    • perform functions using an approach of his/her own choosing
    • determines when and where to work
  2. Service Outside the Usual Scope of the Employer's Business
    The independent contractor:
    • must provide services and/or perform functions which are outside the employer's "usual sphere of business"
    • performs functions which typically are not performed by Northeastern University employees
  3. Independent Trade, Occupation or Business
    The independent contractor:
    • must hold him or herself out to the public as available to provide the same or similar services to a variety of employers
    • has a financial investment in his/her contracting/consulting business.