Independent Contractors and 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 $50,000, but may be used for services up to $150,000 at the discretion of the Western Colorado University Director of Procurement and Contracts.

Initiate a Personal Services Contract with the required Requisition and Purchase Order before services begin. Once budgetary approvals within Workday have been made, the contract process can be initiated. The length of the contract process depends on the accuracy of information and the acquiescence of the supplier to accept the State of Colorado’s minimum contract requirements. 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 $50,000 or more are subject to a bidding process and must be requested through Western Colorado University Business Service Director. Encumbrances of $5,000 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 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:

• Consultants
• Student teacher supervisors, intern mentors
• Extended Studies instructors
• Honorariums
• 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
• Photographers
• 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.

Professional services are as follows:

• 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 a performer or entertainer sponsored by Western Program Council) – Western Financial Aid and Western Finance and Administration must approve and process any contract with a student before any services are performed by a student.

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 a purchase order and One Card remain subject to review and approval by Western Human Resources. Services under $150,000 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’s Director of Procurement and Services, with approval from Western Human Resources, will determine when the use of a purchase order or One Card is most appropriate.

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 jeopardize 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 that are completely outside of their 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.

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.

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 principal 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’s 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 mnpera.org/retirees-recipients/working-after-retirement.

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.

The Personal Services Contract process requires a minimum of 20 working days from start to finish — assuming no delays in the process. The following synopsis illustrates the minimum process timeline.

• Department negotiates with contractor for services to be performed
• Department creates Encumbrance document
• Completed ENC moves to all required approval queues (approx. 24 hours depending on number and availability of approvers)
• Reviewed by Western Human Resources for compliance (if disapproved, returned to department for correction)
• Electronic approval of ENC is entered by Human Resources
• ENC information moves to Finance & Administration for contract generation (minimum of 24 hours – depending upon workload and complexity of negotiated terms)
• Contract and certification sent to affected agency for approval (except services with pre-approved waivers)
• Contract mailed to contractor for signature (up to 4 days for regular mail PLUS whatever additional time for the contractor to review and approve, PLUS up to four days for return by regular mail)
• If no corrections and required W-9 is complete and received, then contract is forwarded for President’s signature, which can take up to two days (only applies to contracts over $5000)
• Signed contract along with completed W-9, certification approval and any required insurance certificates to Western Business Services Director for signature (minimum 24 hours if all is in order)

Only after all signatures are obtained shall the contractor begin work or perform services.

Additional Process Requirements and Information:

• Insurance – 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. Contact Western Finance and Administration or Western Contract Administrator for current required coverage.
• Overnight Mailing – Contracts generated from ENCs received in Finance and Administration with fewer than three weeks before the scheduled start of services may be mailed to the contractor by Federal Express mail at the expense of the department that entered the encumbrance.
• Receipt of Signed Contracts – Most contractors return signed contracts within 12-20 days from Western’s mailed date; out-of-state contractors usually require an additional week.
• Payment – Accounts Payable will process payment on the Tuesday following advice of the completion of services for check processing the next day.
• PERA Retiree – If the requestor is aware that an independent contractor is a PERA retiree or is otherwise affiliated with a PERA retiree, include that information in the ENC text information. Once verified that employer PERA contributions are due, they will be deducted from the funds encumbered on the ENC.
• Non-Resident Aliens – Contracts for non-resident alien contractors require additional IRS forms and time to process a contract. Contact Western Human Resources for assistance.

An expedited process may be used for certain Personal Services Contracts under $5,000. The same State Fiscal Rule that allows a simplified process for certain prepayments under $5,000 without the use of a requisition/purchase order allows some flexibility in processing small dollar contracts for services. The requirement to generate a multi-page, hard-copy contract, in duplicate for mailing and obtaining signatures is eliminated. The simplified paperless process greatly reduces the processing timeline and costs. Services initiated under the paperless process remain subject to Human Resources review and approval. The Business Services Director reserves the right to require a written, bilateral contract for any service, regardless of the dollar amount, if deemed necessary to protect the interests of the University.

The following services will be processed as paperless contracts:

• Cooperating student teacher supervisors
• Athletic officials, referees
• Accompanists, choreographers, musical directors, costumers, art models
• Animal welfare consultant
• Most honorariums

The following services will be processed as paperless contracts UNLESS the requestor or responsible Western employee specifically requests a written, bilateral contract to bind the contractor to complete the services as negotiated:

• Guest lecturers or guest speakers
• Laboratory services or other technical analysis
• Academic program review consultant
• Photographic service
• Some local performers

Services under $5000 that will REQUIRE a written, bilateral contract include:

• Extended Studies instructors
• Performers and entertainers using an agent
• Consultants hired as result of a formal written proposal
• Contractors that require inclusion of additional terms and condition
• Services which pose a risk to employees, students or the public
• Services for which no waiver has been granted from the State Department of Personnel

• Requestor creates and completes an Encumbrance document FGAENCB (ENC) in Banner.
• Provide a full description of services in the ENC FOATEXT screen or send the description in a separate document to Finance and Administration. (See “How to Describe Services” below.) Send all documents provided by the contractor to Finance and Administration.
• PERA Retiree – If the requestor is aware that an independent contractor is a PERA retiree or is otherwise affiliated with a PERA retiree, provide that information in the ENC text information. Once verified that employer PERA contributions are due, they will be deducted from the funds encumbered on the ENC.
• Non-Resident Aliens – Use of the paperless process for services performed by non-resident aliens will be determined on a case-by-case basis. Contracts for non-resident alien contractors require additional IRS forms and time to process a contract. Contact Western Human Resources for assistance.
• On the last line of FOATEXT, type “PAPERLESS”.
• If a written contract is preferred in any instance when a paperless process normally would be used, type “WRITTEN REQUESTED” on the last line of FOATEXT to override the paperless process. Otherwise, the above “paperless” guidelines will be followed.
• After all approvals have posted, Business Services generates and sends the contractor a transmittal letter which briefly identifies the services being provided and explains that payment will be generated without a written contract. The contractor is given the option to request a written contract. A Form W-9 and Indepent Contractor certification (IC letter), required from the contractor before payment will be made, is included with the transmittal letter if the contractor’s W-9 and IC letter are not already on file in Western Accounting.
• When the W-9 and IC letter is received, a hardcopy “receiving” document is sent to the requestor. The receiving document has a printout of the requestor’s encumbrance text (FOATEXT screen) and a section for approving and “receiving” satisfactory completion of the services. Finance and Administration will have signed off on the W-9.
• Services may commence upon receipt of the W-9 and other applicable required forms or on the date the transmittal letter is signed if the W-9 is on file and all applicable forms are received by that date.
• Upon satisfactory completion of the services, the responsible Western employee must sign, date, and send the receiving document directly to Accounts Payable (Western Accounting). Any invoices received in the department or by the responsible Western employee should be attached to the receiving document.

• WHO – The full, legal name of the company, entity or individual with whom the University is contracting; provide the name to whom the check will be paid, including complete address. If the contractor currently works or recently worked for the University, any other Colorado state agency, local government or school district, provide the employer and employment dates. If contractor is a PERA retiree, provide that information and retiree’s SSN.
• WHAT – Detailed description of service to be provided; required results; what the contractor is expected to do; what are the deliverables? What does the fee include; what expenses are to be reimbursed? What is the University expected to provide, if anything (e.g. make arrangements for lodging via University PCard or purchase order; reimburse contractor upon submission of an invoice for meal expenses according to the State’s per diem, etc.)?
• WHEN – What is the term or duration of the contract (starting and ending dates)? When is service to be performed and completed? Are there required milestones and deadlines?
• WHERE – Location where service is to be performed, if a location is required by the University.
• WHY – Why are the services being contracted? What is the benefit to the University?
• HOW – “How” is not always an essential element, but if how services are to be performed is an essential part of the agreement, it must be stated in the contract.
• HOW OFTEN – Frequency of service to be performed.
• HOW MUCH – Payment – how much, at what rate, when is payment to be made? Give special handling instructions of payment.

The Banner system generates automatic reminder emails weekly to those requestors who have incomplete or unapproved Encumbrances. It is the requestor’s responsibility to follow up on these unfinished ENCs.

• Contact the Business Services Director if the listed ENC is “NSF” and make arrangements for a budget adjustment or an NSF override.
• If there is no “Complete” indicator by the listed ENC and the requestor is finished with the ENC, the requestor needs to go back into FGAENCB and complete the document.
• If the listed ENC shows a “Complete” indicator, then either:
  • The budget approver for the ENC budget(s) has not yet approved the document in Banner;
    • Requestor contacts and follows up with budget approver(s) to get the ENC approval in Banner (FOAUAPP).
    • See FOAAINP to view pending approvals.
  • Human Resources has not approved the document (E000 Human Resources queue).
    • Complete paperwork or information has not been provided by the department

See Banner link to forms instructions below for approving and checking the status of an ENC document.

• Encumbrance: The amount on an ENC document can be increased or decreased before the ENC is fully paid. Send an email with details for the adjustment to Business Service Director.
• Contract: If significant changes need to be made to the scope of work of a written Personal Services Contract, a written amendment to the contract will be issued and signatures of the contractor and University will be obtained. Submit the details for contract amendment in an email to Business Service Director.

Services which have commenced or have been completed without the full execution of a Personal Services Contract -i.e., signed by the contractor, Western President and Western Controller delegate – are unauthorized or after-the-fact commitments (ATF) and are in violation of State statute when liabilities are incurred or payments made on the State’s behalf without prior approval of a purchase order or a State contract when required under Fiscal Rule 2-2. Western Controller signing authority delegation does not include the authority to approve commitment vouchers when a disbursement has been made in violation of CRS 24-30-202(2) or an obligation incurred in violation of CRS 24-30-202(3). Entry of a Banner Encumbrance document alone is insufficient to meet the statutory requirements. Individuals who knowingly allow work to commence without a signed contract may be held personally liable.

State Controller Ratification Required: Complete details and full explanation of the circumstances of an ATF contract are required to be submitted by Western’s Vice President for Finance and Administration to the Deputy State Controller for ratification of a commitment that violates state statute according to the requirements of the State Controller’s Policy for “Processing Commitment Vouchers that Violate State Statute”. The approval of an ATF ENC and completion of the contract or payment process will be withheld until the University’s ratification request is approved by the Deputy State Controller.

ATF Process: If services have commenced or have been completed, the following items are required:

• Completed Banner ENC document
• “After-the-Fact (ATF) Report” form completed by the person responsible for the ATF and sent to Business Service Director
• Receipt in Western Business Service of a completed W-9 and IC letter, any required certificates of insurance, and any required supplemental IRS forms from the contractor

Services Costing Under $5,000

Services costing under $5,000 which have commenced or have been completed without the full execution of a Personal Services Contract or before a paperless transmittal letter is signed by the University are also unauthorized ATFs. The same ATF process above is required except that the Deputy State Controller’s approval is not required. After the Business Service Director’s approval of the ATF Report and HR approval of the ATF ENC, the written or paperless contract and payment processes can be completed.