Overview of Personal Services Contracts
The Personal Services Contract is used to purchase services to be performed by an individual or company as an independent contractor. Use of the Personal Services Contract is most appropriate when purchasing the services of consultants, guest lecturers and speakers, artistic performers, entertainers, etc., usually one-time or short-term services, under $25,000, but may be used for services up to $100,000 at the discretion of the Western Colorado University Business Service Manager.
Initiate a Personal Services Contract with the required Banner form FGAENCB – Encumbrance/Reservations Maintenance (“ENC” or “Encumbrance”) before services begin. At least 20 working days are required for contract processing. The Personal Services Contract processes, approval and signatures are accomplished through Western Colorado University Finance and Administration with review and approval by Western Colorado University Human Resources. Services costing $25,000 or more are subject to a bidding process and must be requested through Western Colorado University Business Service Manager. Encumbrances of $5000 or more also require approval by Western Colorado University Procurement.
Personal Service: Furnishing of labor, time, or effort acquired for the benefit of the University or a third party; an individual or company performing personal services is an independent contractor and not an employee of the State.
Contract: An agreement between two or more parties that is enforceable at law; “contract” and “agreement” are used interchangeably and refer to State contracts, which are formal, legally binding documents between a state agency and another party, include any amendments to a contract or agreement, and do not include purchase orders. Different types of contracts are defined in State Fiscal Rule 3-1.
Prior Approval: A fully executed contract document (with all original signatures) must be received in Western Colorado University’s Business Services before any service performance begins. A person incurring an obligation on behalf of the State through an expenditure contract or other State-funded contract type without the approval and signature of the State Controller or delegate shall be personally liable, jointly and severally, for the obligation. CRS §24-30-202(3).
Colorado statutes, fiscal rules, Western Colorado University Board of Trustees and University policy require that contracts are signed prior to commencement of work. Except in an extreme emergency situation, good management and planning dictate that requests for contracts shall be submitted at least twenty (20) working days in advance of the date work is to commence to allow sufficient time for contract preparation and signatures. The University is subject to serious liability risk, Internal Revenue Service penalties, and State Controller’s Office review when persons are permitted to work without first having signed a contract. Individuals who knowingly allow work to commence without a signed contract may be held personally liable.
The state statute covering “Contracts for Personal Services” can be found at CRS §24-50-501 et seq. The Department of Personnel rules and administrative procedures for “Personnel Service Agreements” are found in Chapter 10 of 4 CCR 801 (copies available in Western Colorado University Human Resources or Savage Library).
Personal Services Contracts are written most commonly for single occurrence or short-term services usually requiring only a one-time payment. The Personal Services Contract is used for the following but not limited to:
- Student teacher supervisors, intern mentors
- Extended Studies instructors
- Guest lecturers’, speakers’ etc., fees and expenses
- Accompanists, choreographers, musical directors, costumers, art models
- Artistic performers, special performers or entertainers (including entertainment groups or individuals sponsored by Western Colorado University Program Council)
- Athletic officials, referees
- Services of a University’s employee’s business, unrelated to his/her employment duties; an employee’s business services are provided as those of any independent contractor with payments made outside of the regular payroll. Western Colorado University Human Resources will determine whether a supplemental employment contract or a Personal Services Contract will be processed.
Not Used For:
- Professional services as follows: architectural, engineering, land surveying, industrial hygienist, and landscape architect
- Services that will directly or indirectly result in the separation of State classified staff
- Services available within the State classified system
- Compensating employees on the University’s payroll performing services related to or similar to their job duties or duties performed under their employment contract
- Compensating any student for services (unless services are as performer or entertainer sponsored by Western Program Council) – Western Financial Aid and Western Finance and Administration must approve and process any contract to a student before any services are performed by a student.
Personal Services Contract or Purchase Order?
The University prefers to process most personal services on Personal Services Contracts; however, some routine, one-time or regularly recurring, low risk, low dollar services are more practically processed and paid by purchase order or procurement credit card. All services purchased on purchase order and PCard remain subject to review and approval by Western Human Resources. Services under $100,000 may be purchased using a purchase order if the purchase order terms and conditions adequately protect the interest of the State. A purchase order does not bear the signature of the contractor, so no agreement between the contractor and the University exists before services are performed. Western Procurement and the Western’s Business Manager with approval by Western Human Resources will determine when use of a purchase order or PCard is most appropriate.
Employee or Independent Contractor?
Mistakenly classifying a service provider as an independent contractor instead of as an employee can result in severe fines and penalties from the IRS and Colorado Department of Revenue, as well as jeopardizing qualified benefit plans for existing employees. A questionnaire for Independent Contractor Verification (MSWord fill-in form) may be required from the requestor for Western Human Resources to make a final determination of contractor status. This questionnaire is based on the factors used by the IRS to determine independent contractor status and is intended as a guide.
All current Western faculty or staff will be issued a supplemental employment contract to provide services which are completely outside of his/her existing job duties or scope of employment contract. A Personal Services Contract will not be used unless the employee can provide proof of independent contractor status which meets the IRS’ Employment Tax Regulations sections 31.3121(d)-1(c); 31.3306(i)-a; and 31.3401(c)-1. Proof must be provided before the Encumbrance can be approved. Employees must contact Western Human Resources directly.
All Western students must use an institutional work-study contract.
Independent contractors will be required to complete a W-9 (sent with the contract), if a current W-9 is not on file in Western Accounting. According to IRS guidelines, a form 1099 will be annually provided only to those contractors who are paid $600 or more during the calendar year. Under federal law, non-resident aliens (as determined by US residency rules) are subject to withholding taxes of up to 30 percent of the total contract amount. If the country of origin has a signed tax treaty with the United States, a Form 8233 must also be completed and returned to the Western Finance & Administration for any full or partial exemptions from the tax withholding requirement.
Statewide Approval Waivers
The State Personnel Rules require that all contracts for services are reviewed for impact to the state classified personnel system and that written certification of that review is required. Waiver of certification is granted to agencies with HR staff that is trained for certification review. Waiver has not been granted to individual agencies for services offered by other state agencies or employees and, therefore, impact the classified personnel system. Before a Personal Services Contract for any of these services can be issued, Western Human Resources must obtain a written waiver from the affected agency and Encumbrances will not be approved until the waiver has been received. Be aware that additional time to approve a Personal Services Contract for these services will be required.
- Staff Training Services
- Collection Services
- Communication Services (Telecom)
- Data Entry Services
- Legal Services
- Moving Services, Flags & Signs
State Fiscal Rule prohibits advance payment for goods or services, with exceptions for circumstances of established industry standard practice. Vendors and independent contractors of the State are expected to have adequate resources or working capital to provide goods and/or services to the State. Advance payment requires issuing a state warrant and account for the advance payment which incurs additional costs for the State. Advance payment results in loss of interest earnings for the State and risk of loss of the advanced funds in the event of vendor nonperformance. Should an advance payment be made, the State has not the leverage to withhold payment for resolution of inadequate performance from a vendor.
Limited exception is granted to agencies’ State Controller delegate for entering into an agreement that requires an advance payment. In these instances, the Western Vice President for Finance & Administration or Director of Accounting shall determine whether the situation complies with the Fiscal Rule and requirement.
Written Personal Services Contracts shall require independent contractors and their subcontractors to provide, at their own expense, and maintain for the duration of the contract, insurance coverage required by the State. Certificates of Insurance shall be provided to the University prior to commencement of work. Types and terms of required insurance coverage may include but not be limited to the list below. Contact Western Finance and Administration or Western Contract Administrator for current required coverage.
- Worker’s Compensation Insurance as required by State statute
- Employer’s Liability Insurance
- Commercial General Liability Insurance
- Automobile Liability Insurance
- Western Colorado University and the State shall be named as additional insured on all Commercial General Liability and Automobile Liability Insurance
- Coverage required of Contractor and subcontractor shall be primary over any insurance or self-insurance program carried by Contractor or the State
- Insurance policies shall include provisions preventing cancellation or non-renewal without at least 30 days prior notice to Contractor and the State by certified mail.
- All insurance policies maintained by Contractor or its subcontractors as required herein shall include clauses stating that each carrier shall waive all rights of recovery, under subrogation or otherwise, against Contractor or the State, its agencies, institutions, organizations, officers, agents, employees, and volunteers.
Colorado PERA Retirees
State statutes state that all state agencies are required to pay employer contributions for services performed by PERA retirees in an individual capacity or of any entity owned or operated by a PERA retiree or affiliated party. This includes work performed as an employee or contract employee, a consultant, independent contractor or through any other arrangement.
If the independent contractor is retired from the Colorado Public Employees Retirement Association, or an entity owned or operated by a Colorado PERA retiree or affiliated party, the subject employee or principle who is a Colorado PERA retiree will be required to complete a “Retiree Returning to Work for a PERA Employer” form. This form will be sent to the independent contractor once the retiree SSN is verified from the Colorado PERA member/retiree database.
If a PERA retiree works as an employee or as a private contractor for a PERA-covered employer during their first month of retirement, this will result in a reduction of their monthly PERA pension amount. It is the retiree’s responsibility to ensure that he/she complies with all PERA retirement requirements as set out in the PERA “Working After Retirement” information brochure available in Western Human Resources, in his/her retirement information packet, or on the web at: http://www.copera.org/pera/retiree/workingafter.htm
Performers, guest speakers/lecturers, consultants, etc., who are not residents of the United States will be required to complete the appropriate IRS form W-8 which indicates this status. Residency is determined by U.S. residency rules and the independent contractor should inform the requestor of his/her status early in the negotiation process. The University is required to withhold 30 percent of the total contract amount for taxes and forward it to the IRS. The contractor may be required to complete additional tax forms and should consult IRS publication 515 – Withholding of Tax on Nonresident Aliens and IRS publication 519 – US Tax Guide for Aliens. Other tax forms may also be necessary.
If the non-resident alien’s country of origin has signed a tax treaty with the US (see IRS publication 901 – US Tax Treaties) the withholding may be fully or partially waived from this tax requirement. The alien must complete IRS form 8233 – Exemption from Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual and submit it to the Western Human Resources office. The College is required to file this form with the IRS and there is a mandatory 10-day waiting period before any payment can be made to the contractor. Expiration of the 10 days does not constitute absolute acceptance, and requestors should be aware that the University (and specifically the requestor’s budget) may still be liable for taxes and penalties even though the non-resident alien contractor has been paid the full amount. Be advised that reference may be made to other US universities’ processes that did not require these IRS forms and recognize that other entities’ processes are not necessarily correct or legal. Western Colorado University will require compliance with federal and state laws. Questions or concerns should be directed to Western Human Resources.