independent contractor or casual employee? what is the aps form and pbs document?

Independent Contractor

or Casual Employee?

What is the APS form and PBS document?

http://www.utexas.edu/business/accounting/webhelp/pbs_info.html

Independent Contractor or Casual Employee?Office of Accounting

Cynthia Roberts, CPAFinance Manager • Travel• Independent Contractors• Scholarships

Lori MonsonSenior Administrative Associate• Independent Contractors

Class Objectives

1. When is a PBS/APS used as an authorization tool?

2. Determine when the PBS is required and when the paper APS form should be used.

3. Identify the essential elements within a PBS or an APS.

4. Know when a new PBS must be created if changes occur.

Class Objectives

5. Learn the classification criteria used to identify an individual as a casual employee or an independent contractor.

6. Learn how to use the Employee/Independent Contractor Classification Checklist to determine whether an individual will be paid on a VP2 or an OV7.

7. Practice Session – Different scenarios, different outcomes.

PBS document / APS Form

Required for one-time, short-term, or sporadic services provided by an individual or unincorporated sole proprietor (including DBA’s) for any vendor whose VID starts with a “2” and has the SSN embedded.

Continuing full-time appointments of two weeks or longer should be handled using standard HR procedures.

PBS document / APS Form

Continuing maintenance contracts or other recurring services or services subject to bidding requirements should be handled using standard purchase order procedures.

Contracts should be used when the payment is anticipated to total more than $25,000 in any one fiscal year period, or when special terms, such as first class travel or fee pre-payments, are required. Consulting services should only be authorized with a formal contract.

Consulting Services

Strict State Definition“A study conducted for a state agency or advice provided to a state agency under contract that does not involve the traditional relationship of employer and employee. The term does not include a routine service that is necessary for the functioning of a state agency’s programs.” A formal contract should be prepared instead of a PBS when authorizing consulting services.

Electronic PBS document

The required authorization document for all services procured after June 24, 2006 when possible.

Paper form “Employee/Independent Contractor Classification Checklist” (EICCC) is required in addition to either the paper APS or the electronic PBS.

Approved document is printed and signed after services have been performed, just like the APS, and sent with the EICCC to the Office of Accounting (VP2) or Payroll Services (OV7) based on the employee/independent contractor determination result determined by answers on the EICCC.

Paper APS form

Allowed for services authorized after June 24, 2006 if any of the four following conditions exist:

•A Contract & Grants (26) account must be used.

•Payment will be made to a foreign visitor (non-U.S. citizen) with no SSN or US taxpayer number (ITIN).

Paper APS form (cont.)

• Only direct billed travel expenses are authorized and no payment will be made directly to the traveler (Reminder: You should continue to use a VE5/VP5 to authorize expense reimbursements to an individual when no fee is to be paid).

• A blanket APS is needed or preferred for multiple individuals' fee payments, direct billing authorizations, or expense only reimbursements.

Paper APS form – Required for Taxable Travel

Spousal/family members’ travel – Travel reimbursements (or directly billed travel, such as centrally billed airfare, car rentals, and hotel or apartment charges) are authorized as a fee payment to the individual conducting business with the university or interviewing with the university, not to the spouse or other family member accompanying the university visitor.

Paper APS form – Required for Taxable Travel

Spousal and other family members’ travel is fully taxable, and an IRS form 1099-MISC will be issued to the university visitor if the total of all spousal/family members’ travel exceeds $600 during one calendar year. University employee spousal travel is prohibited, except as authorized by the UT System Business Procedures Memorandum 65-07-02.

Please see http://www.utsystem.edu/BPM/65.htm for more detail on this policy.

Paper APS form – Required for Taxable TravelMoving expense direct billings for new hires and their family members are authorized using the paper APS form for centrally billed airfare, car rentals, and directly billed apartments or other temporary lodging.

The paper APS is a substitute authorization that can be sent to the travel agency, car rental agency, hotel, etc., as a substitute for the offer letter. The offer letter is used to authorize reimbursements paid directly to the individual (the newly hired university faculty or staff member).

PBS document / APS Form

Identical information is required for either method.

Electronic PBS has additional features:• Specific accounts can be identified for fee,

centrally-billed airfare, other travel, etc. and amounts can be split among accounts.

• Electronic approval via electronic routing (similar to RTA by appointment and/or account).

Electronic PBS has additional features:

• Electronic Dean/VP routing (replaces DFA manual signature).

• Audits for prior payments during current fiscal year period.

• Audits for current employment.

PBS document / APS Form

Guidelines: Period of Appointment

A separate authorization document for each unique fiscal year is required for either the paper APS or the electronic PBS.

Example: If services are provided 7/1/08 to 6/30/09, two forms (first ending on 8/31/08) are required.

Guidelines: Compensation

Limited to $15,000 for services.

Travel/Business Expenses may be allowed in addition to the $25,000 for services.

No limit for service fees paid to Non-US Citizens performing services outside the US. (Object code 1326 must be used).

Guidelines: Current Employee

A PBS or APS may be appropriate when the following applies:

• Duties outside regular employment.

• Within same department for continuing education or dissimilar services only.

• Across departmental lines, unless normal job duties routinely cross departmental lines.

Guidelines: Current Employee

Approval of Chairman/Director of Employee’s appointing department is required. The APS requires a manual signature; the PBS will route for electronic approval from the appointment account.

Compensation to full-time university employees from federal grants or contracts requires specific authorization in the grant or written approval by the sponsoring agency.

Note: The paper APS is required when using 26-accounts.

Guidelines: Former Employee

Former employees will always be paid through payroll if:

• They were employed during the prior 12 months or current calendar year. State vs. Local funds.

• A continuing relationship with employer exists.

• They have been paid through Payroll during the calendar year.

• Exceptions granted on a case-by-case basis when services are not similar to those performed while an employee at the university.

Procedures for Authorization of Professional Services

Complete APS Form or Complete PBS Document

and

Complete Independent Contractor/Employee Classification Checklist

Completing the APS or PBS

• Name and Address• UT EID or VID• Nature of Services• Description of Services• Qualifications• Employment Status:

• University Employee• Other State Agency Employee

• Nepotism Statement

Completing the APS or PBS

Proposed Payment

• Lump Sum Vs. Daily Rate (Federal projects)

• Transportation & Other Expenses

• Estimated Totals

Completing the APS or PBS

• Period of Appointment• Account Information• Requesting Department (on paper

form only)• Form preparer with phone number

(on paper form only) or document creator

Completing the APS or PBS:ApprovalApproved PRIOR to services being performed

Paper APS requires:

• Signature of the Principle Investigator on 26-accounts.

• Signature of the Chairman/Director

• Signature of the Dean or DFA

Completing the APS or PBS:ApprovalApproved PRIOR to services being performed

Electronic PBS requires:

• Electronic signature from appointment account

• Electronic signature from each account signer

• Electronic signature from Dean/VP

PBS Changes

The following changes are possible by adding notes to the PBS:

•Changes to a vendor address •Changes to nepotism statement •Payment amount increase of less than 10 percent of the original authorized total amount

Signature of Contractor

After services are performed, the contractor signs and dates at the bottom of the paper APS form or an approved copy of the PBS doc.

The signature must be dated on or after the date services were actually performed.

The VP2 service dates must be within the dates authorized on the APS or PBS with a signature dated on or after the VP2 or OV7 ending service date.

Worker Classification

• Common Law Test

• Right to Direct or Control

• 20 Questions

• Behavioral control, financial risk, relationship of parties

Worker Classification• Behavioral Control

• Students• Supervision

• Financial Risk• Usually not an issue with the university• Flat rate vs. hourly rate

• Relationship of parties• Prior employment• Exclusive relationship (sole customer)

Independent Contractor/Employee Classification Checklist

• Who should complete the checklist?

• When should the checklist be used?

• When is a signature required in the Terms & Conditions for Federally Sponsored Projects box? Who signs in this box? When should the signature be obtained?

Completing the Checklist, Part I

Relationship with The UniversityPart I of the checklist should always be completed.

• Does this individual currently work for the university as an employee?

• Has an offer of employment been extended to this individual?

• Did this individual work as an employee of the university during the 12 months prior to the date of this contract?

Completing the Checklist, Part I

If the answer to any of the questions in Part I is “Yes,” STOP! The individual is classified as an employee.

If you answered no to all of the questions, you must proceed to Part II.

Completing the Checklist, Part II

Complete only

• Section A or B or C

• But not more than one, based on the nature of the services performed.

Part II: Section A, Teacher / Lecturer / Instructor

1. Is the individual an invited guest lecturer (includes seminar, colloquium, class, etc.)?

2. Has the individual been at the institution in this capacity fewer than four times in the past 12 months?

If the answer to both questions is “Yes,” STOP. Treat the individual as an independent contractor.

If the answer to either question is “No,” proceed to Question 3.

Part II: Section A (cont.)

3. Is the individual teaching in a course for which students will receive credit toward a university degree?

If the answer is “Yes,” STOP. The individual is classified as an employee.

If the answer is “No,” proceed to Question 4.

Part II: Section A (cont.)

4. Has the individual provided the same or similar services as an ongoing business to other unrelated entities in the past 12 months?

5. Does the university have any control over course materials that are used by the individual?

If the answer to Question 4 is “Yes” and the answer to Question 5 is “No,” treat the individual as an independent contractor. Otherwise, treat the individual as an employee.

Part II: Section B, Researcher

1. Will the individual perform research under the supervision of a university professor or employee?

If the answer to Question 1 is “Yes,” treat the individual as an employee.

Part II: Section B (cont.)

2. Will the individual serve in an advisory or consulting (collaborative) capacity with a university professor or employee?

If the answer to Question 2 is “Yes,” treat the individual as an independent contractor.

Part II: Section C, Individuals not covered Under A or B

1. Has the individual provided the same or similar services to other unrelated entities or to the general public as a trade or business during the last 12 months?

Part II: Section C (cont.)

2. Will the department provide the individual with specific instructions regarding performance of the required work rather than rely on the individual’s expertise?

Part II: Section C (cont.)

3. Can the university set the number of hours and/or days of the week that the individual is required to work, as opposed to allowing the individual to set his/her own work schedule?

If the answer to Question 2 or 3 is “Yes,” treat the individual as an employee.

Federally Sponsored Projects

The individual providing the service to the university is required to sign the Terms and Conditions for Federally Sponsored Projects attesting to his/her acceptance of the provisions set forth in the agreement. This signature must be obtained before the individual begins the work described on the APS form.

Documents Required for Payment

Casual Employee• APS Form or approved PBS document• Classification Checklist with employee

determination• PSEI form• I-9• Payment Request Form (NRAs)• Form 8233 & Attachment (NRAs)• Submit to Payroll on OV7 (Main 134)

Documents Required for Payment

Independent Contractor• APS Form or Approved PBS document

• Classification Checklist with Independent Contractor determination

• Submit VP2 with supporting documents (signed APS or PBS and checklist) to Independent Contractor Desk in the Office of Accounting Main 132 (K5300)

Payments to Nonresident Aliens

Note: Payments to nonresidents will typically require additional steps and paperwork; please check with the online resources or the Office of Accounting before proceeding with payments to nonresidents. •US Sourcing Rules•SSN/ITIN•Visa Requirements:

• J1 • B1/B2 • WB/WT

•30 Percent Withholding Requirement•Tax Treaty Benefits

Summary of Class Objectives Objective 1

When is a PBS/APS used as an authorization tool?• One-time, short-term or sporadic

services • “2” VID • No special travel (first class, entourage)

requirements • No product/property is delivered

Summary of Class Objectives Objective 1

When is a formal contract used as an authorization tool?• Fiscal year payments exceed $25,000 or

special terms (such as first class travel arrangements or fee prepayments) are required

• Consulting services (strict state definition) are obtained

Summary of Class Objectives Objective 1When is a purchase order used as an authorization tool?

• Recurring services, such as maintenance• Individual service payments are made to a “1” VID

(company)• Product is received• Bidding is required

When is an HR appointment necessary?Recurring services, or a continuous service period of

two weeks or more.

Summary of Class ObjectivesObjective 2When is an electronic PBS generally required?

Whenever possible after June 24, 2006.

When is a paper APS allowed?• “Blanket” authorizations for an event with multiple

individuals receiving fee payments and/or travel expenses

• Only direct billed travel expenses are authorized.

Summary of Class ObjectivesObjective 2When is a paper APS required?• 26 contracts & grants account is used• Payment to foreign visitor without an SSN (3 or

4 VID)• Taxable Travel is authorized:

• Moving expenses or house-hunting trips for newly hired faculty

• Spousal/family members’ travel (e.g., recruiting faculty or high-profile speakers).

Summary of Class Objectives Objective 3

What are the essential elements required within a PBS or an APS?•Name and address •UT EID or VID•Nature of services/description of services•Qualifications•Employment status •Authorization of additional employment for any other state agency employee/university employee•Nepotism statement•Period of appointment•Account information

Summary of Class Objectives Objective 3What are the essential elements required within a PBS or an APS? (cont.)•Amount Information•Requesting Department (on paper form only)•Form Preparer with phone number (on paper form only) or document creator

and approvals

•Electronic approvals (PBS) or manual signature authorizations (APS)

Summary of Class Objectives Objective 4How do I know when a new PBS document must be created if changes occur?

Just add notes for:• Address changes• Nepotism answer changes• Total payment amount won’t exceed 10 percent of the

original amount authorized on the PBS

All other changes must be authorized on a new PBS.

Summary of Class Objectives Objective 4How do I know when a new PBS document must be created if changes occur? (cont.)

Add notes to the original PBS to ensure it is no longer used:• “This document has been cancelled”• “See replacement document” (include new PBS

document ID number)

Also add notes to the new (replacement) PBS document:“Replaces original document” (include old PBS document

ID number)

Summary of Class Objectives Objective 5

What are the classification criteria used to identify an individual as a casual employee or an independent contractor?

Behavioral Control• How to do the work vs. stating required result• Control of class materials• Supervision – students, low pay rate, low qualifications

Summary of Class Objectives Objective 5

What are the classification criteria used to identify an individual as a casual employee or an independent contractor? (cont.)

Financial RiskFixed rate or lump sum vs. hourly rate

Summary of Class Objectives Objective 5What are the classification criteria used to identify an individual as a casual employee or an independent contractor? (cont.)

Relationship between the parties• Current, former, or future university employee

performing similar duties• The university is the sole customer• Work involves the university’s core mission – teaching a

course for university credit toward a degree program

Summary of Class Objectives Objective 6How does the Employee/Independent Contractor Classification Checklist work to determine whether an individual will be paid on a VP2 as an independent contractor or on an OV7 as a casual employee?

Section I – Relationship issues Current, past, or future employment

Section II – Relationship issuesWork involves the university’s core mission – determined by frequency (four lectures or less) or importance (teaching a course for university credit toward a degree program)

Summary of Class Objectives Objective 6How does the Employee/Independent Contractor Classification Checklist work to determine whether an individual will be paid on a VP2 as an independent contractor or on an OV7 as a casual employee?

Section II – Behavioral Control issues• The university controls the content of class materials used• Work involves supervision—the researcher is under a university

professor’s supervision or acting as a collaborator• The university is the sole customer, provides training, or

determines the exact work schedule

Class Objectives

1. When is a PBS/APS used as an authorization tool?

2. Determine when the PBS is required and when the APS is allowed or required

3. Identify the essential elements required within a PBS or an APS

4. Know when a new PBS must be created if changes occur.

Class Objectives

5. Learn the classification criteria used to identify an individual as a a casual employee or an independent contractor

6. See how the Employee/Independent Contractor Classification Checklist works to determine whether an individual will be paid on a VP2 or an OV7

Thank you for viewing this presentation

Call or email anytime with questions. We are always happy to assist you!

• Cynthia Roberts, 512-475-7144• Lori Monson, lorimonson@austin.utexas.edu

•User Services Helpline: 512-471-8802•AskUS: https://austin-utexas.custhelp.com

Thank you for viewing this presentation.

For more information, contact:

User ServicesFinancial Information Systems

512-471-8802oa.askme@austin.utexas.edu

For more information, contact:

User Services

Financial Information Systems

512-471-8802

oa.askme@austin.utexas.edu