Because the Internal Revenue Service issued findings against UM in a recent audit regarding the payment of individuals as consultants rather than employees (temporary), special consideration must be taken in the appointment of consultants. Please consider the following when budgeting:
- UM personnel cannot be paid as consultants on UM payroll
- A consultant lends their expertise and advice in their given field without actually "working" on the project
- A consultant does not conduct independent research
- Intellectual property or publishing rights are not anticipated
- A consultant is neither affiliated with UM nor using its facilities
- Consultant costs should not be budgeted under UM personnel costs but rather in the "Consultant" or "Contractual" category
- Honoraria are budgeted under consultant costs
- When possible, identify the proposed consultant by name, indicate the number of days/weeks charged to the grant and provide daily or weekly rate. Do not guesstimate; please confer with the potential consultant and verify their rates.
- Include consultant's curriculum vitae and their letter of support in the proposal
The following guidelines are provided to assist in the determination of consultant status:
Establishing control: To determine whether a worker is an employee or a consultant, you should apply the common law test of control. Under this test, if you have the right to control and direct what a worker does and how he or she does it, a relationship between you and the employee exists. In the absence of such control, a worker may be classified as a consultant.
To determine whether control exists in an employer-employee relationship, the IRS uses the following 20 common law factors:
- Required compliance with employer’s instructions
- Training of worker by employer
- Integration of worker’s services into employer’s operations
- Services required to be rendered personally
- Hiring, supervising, and paying worker’s assistants
- Continuing relationship
- Set hours of work
- Full time work required
- Working on the employer’s premises
- Set order of sequence of work
- Required oral or written reports
- Payment by hour, week or month
- Payment of business expenses and/or travel expenses
- Furnishing of tools and materials
- Significant investment by the worker
- Realization of profit or loss
- Working for more than one firm or company at a time
- Making services available to the general public
- Right of employer to discharge
- Right of worker to terminate
If the individual does not qualify as a consultant, see Temporary Employee
If the collaborator's facilities (Industry or University) will be used preponderantly for that part of the research s/he is responsible for, the vehicle for funding is not a consultant’s contract but rather a subcontract. (see Subcontract)
If the transaction is for a fixed service at a set fee, such as published "per analysis" costs, the procurement may qualify as a so-called Fee for Service in place of consultant appointments or subcontracts.
If you are unsure as to how the worker should be classified, contact Human Resources for a ruling. All Contracts for Services are screened by Procurement prior to further processing. Questionable contracts are referred back to the requesting departments
Maximum federal rate
As of 2006 there no limitations on the maximum federal rate for consultants set by NSF and therefore considered a good rule to follow for other federal agencies. Payments, however, should be comparable to the normal or customary fees charged and received by the consultant for comparable services, especially on non-government contracts and grants. See this and other information regarding consultants at Payments to Consultants under NSF Awards.
A consultant’s fee should be consistent with the rate s/he charges other organizations for the same or similar services.