FMPM 712 - Engaging Individuals as Service Providers Procedure

Policy Procedures Finance Procedures Expense Procedures - FMPM 700-799 FMPM 712 - Engaging Individuals as Service Providers Procedure

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Intent

James Cook University (JCU) frequently engages third party individuals to carry out a range of services across the University.  Depending on the nature of the engagement, these third parties may be engaged as an Employee or alternatively as an Independent Contractor.

This procedure outlines the process that JCU staff and students must follow when engaging third parties to undertake consultancies or provide services for JCU, and what action needs to be undertaken in order to ensure that JCU meets its legal obligations.

Scope

This procedure applies to all JCU staff and students conducting JCU business.

This procedure is to be read in conjunction with the following:

  • University Financial Management Practices Manual (FMPM);
  • Procurement Policy (FMPM 710);
  • Procurement Procedure (FMPM 711)
  • Recruitment, Selection and Appointment Policy; and
  • JCU Enterprise Agreement.

Compliance with this procedure is mandatory. It is expected that every effort will be made to ensure  standards of conduct outlined in this document are complied with in all Service Provider procurement activities conducted on behalf of JCU.

This procedure is designed to mitigate risks of non compliance with the relevant sections of the following legislation:

  • Superannuation Guarantee (Administration) Act 1992
  • Taxation Administration Assessment Act 1953
  • Payroll Tax Legislation applicable in each State and Territory in Queensland the relevant Act is the Payroll Tax Act 1971
  • Fair Work Act 2009

Background

There are legislative requirements that must be considered before engaging an individual third party to carry out services for JCU to ensure that JCU is compliant with all its obligations to the State and Federal Government as well as to the Service Providers. Wrongly classifying an individual Service Provider as an Independent Contractor where that person is really an Employee, is a legislative breach and may result in JCU paying significant fines and penalties.  The law determines whether a Service Provider is an Independent Contractor or an Employee, and the purpose of this procedure is to ensure that the Service Provider is given the correct classification by JCU at the time of engagement.

Definitions

Accounts Payable – the JCU Accounts Payable function within the Financial and Business Services Directorate’s Strategic Procure to Pay.

Company - the most common business structure adopted by small to medium businesses in Australia. Unlike a Partnership or Sole Trader, it is a separate legal entity and has its own assets (property etc) and liabilities. A Company has members (shareholders) who own it and directors who run it.

Contract - a legally enforceable promise to which all parties agree. It can also be called an ‘agreement’ that creates a mutual set of obligations to do certain things that the parties are bound, at law, to carry out.

Employee – an individual identified as an Employee after applying the requirements of the JCU Enterprise Agreement and legislation as referenced in this procedure.

FaBS – the JCU Financial and Business Services

FinanceOne - JCU’s corporate financial transaction and management system.

Financial Delegate – a member of JCU staff who is authorised under JCU Policy FMPM – Appendix A Delegation Policy and Delegations Register to approve the purchase of goods and/or services.

HR – the JCU Human Resources Directorate

HR Delegate – a member of JCU staff who is authorized under the HR Delegations Register to appoint staff.

Independent Contractor – a Sole Trader, Company, Partnership, Trust or other entity engaged to produce a particular result and for an agreed price.

JCU – James Cook University.

P2P – The JCU Strategic Procure to Pay Group.

Partnership - two or more persons (partners) engaging in business together with a view to making profit. The income, control and management of a Partnership is shared between the partners. The partners are jointly and individually liable for the debts and obligations of the Partnership.

Purchase Order - a written authorisation from JCU as the buyer to acquire goods or services from a Supplier. The document authorises a Supplier to deliver to JCU at the price, quality level, delivery date, and certain other terms specified in the order.

Service Provider – an individual or entity engaged by the University to deliver required services or to undertake consultancies.

Sole Trader - a person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses, and is also the Service Provider.

Treasury and Corporate Finance – the JCU Treasury and Corporate Finance Team.

Trust - is a business structure whereby a 'trustee' holds income, assets or property for the benefit of others, who are then referred to as 'beneficiaries'. A trustee could be an individual person, a number of people (Partnership) or a Company.

Use Code – JCU general ledger account code.

Vendor or Supplier - the supplier of goods or service to JCU.

Identifying Employees and Independent Contractors

  1. When a third party is being considered to carry out services or undertake consultancies for JCU, an assessment must be performed to identify whether individuals who may be the Service Provider, or perform work on behalf of an entity that is a Service Provider, will be treated as an Employee or an Independent Contractor. Different legislative requirements apply depending on whether JCU engages an entity or an individual to carry out services and the nature of the services themselves.
  2. If JCU engages a Company, Trust, Partnership or other body with more than one employee then that entity and the people working for it is more likely to be identified as an Independent Contractor.
  3. If JCU engages a Sole Trader being a single person responsible for the business that person is more likely to be deemed to be an Employee.
  4. Typical attributes of an Employee is a person who:
    • is paid  for providing labour as distinct from a specified outcome or deliverable;
    • must perform the duties of the position and cannot delegate their responsibilities;
    • is not required to provide any equipment or materials to carry out their position;
    • is recognised as being part of the business and does not take on commercial risks; and
    • has set work hours and is entitled to receive paid leave e.g. annual leave, sick leave and long service leave.
  5. Typical attributes of an Independent Contractor is a person who:
    • is paid to achieve a particular result or deliverable;
    • can subcontract or transfer their responsibilities;
    • supplies equipment or materials to enable that person to carry out the services; and
    • takes on commercial risks.
  6. These factors are indicative rather than definitive. Further guidance as to the distinction between the above categories can be found at the Australian Taxation Office’s website by clicking on the following link:  https://www.ato.gov.au/business/employee-or-contractor/how-to-work-it-out--employee-or-contractor/
  1. Identified as an employee
    1. If a person is determined to be an Employee in the context of this Procedure then JCU may become obligated to do all or some of the following:
      • pay superannuation to a complying superannuation fund;
      • accrue leave liabilities such as annual, sick and long service leave;
      • withhold Pay as You Go Tax to the Australian Taxation Office;
      • include payments in the total salary and wages used to determine JCU’s workers’ compensation insurance premiums;
      • pay payroll tax to the relevant state or Territory Office of State Revenue; and
      • pay any other entitlements provided for by the JCU Enterprise Agreement.
    2. It is important that the full financial impact of these obligations is appropriately considered when making decisions to engage Service Providers.
    3. Service providers identified as employees will be subject to the requirements of the HR Recruitment and Selection Policy and associated procedures.
  2. Identified as a contractor
    1. Where an arrangement is deemed to be with an Independent Contractor, JCU is liable only to pay the rates or fixed fee as defined in the relevant contract. Unless specified in that contract, JCU has no further obligation to pay superannuation directly to the individual’s fund, accrue entitlements or remit to the Office of State Revenue or Australian Taxation Office.
    2. Appropriate staff within each Division are responsible for determining the scope of work to be undertaken and the requirements of the Service Provider. Staff within the Divisions may utilize the services of HR and / or P2P to document the requirements in a position description or scoping document and identify Service Providers to meet the scope of work in accordance with applicable procurement and HR policies and procedures.
    3. Once a decision is made as to what services are required and possibly but not necessarily which party to engage, Divisional staff are advised to consult with HR and / or P2P to determine if the arrangement is likely to result in an Employee or Independent Contractor arrangement. This will enable the Division to identify whether FMPM 711 or the Recruitment, Selection and Appointment Policy should be applied.
    4. For each Independent Contractor identified, a Contractor or Consultant Assessment Form must be completed by both the relevant Financial Delegate and the third party, and submitted to P2P for consideration.
    5. The P2P representative will then review the form and confirm using the final scope of works and contractor details whether the third party should be classed as an Independent Contractor. If at this point the assessment identifies that the third party should be classified as an Employee, the P2P representative will engage with the Divisional representative and a HR Consultant in relation to the way forward having regard to relevant JCU Human Resources’ policies and procedures.
    6. Written confirmation of a Service Provider as an Independent Contractor must be obtained from P2P BEFORE services are engaged.
    7. Independent Contractors must be paid via Accounts Payable on supply of an appropriate invoice.
    8. After completion of the assessment, the engagement of Service Providers will be subject to JCU’s policies and procedures as relates to their determined status:
      • Independent Contractors – Procurement Policy and Procedures; or
      • Employees – Human Resources’ Recruitment and Selection Policy.

Related policy instruments

FMPM 710 – Procurement Policy

FMPM 711 –Procurement Procedure

JCU’s Code of Conduct

Competition and Consumer Act 2010 (Cwlth)

JCU Corporate Procurement Plan

Crime and Corruption Act 2001 (Qld)

JCU Critical Incident Policy

Financial Accountability Act 2009 (Qld)

Financial and Performance Management Standard 2009 (Qld)

Financial Management Practices Manual (FMPM)

FMPM Appendix A - Financial Delegations Policy

Financial Delegations Register

Integrity Act 2009 (Qld)

James Cook University Act 1997 (Qld)

JCU Enterprise Agreement 2013/2016

Public Sector Ethics Act 1994 (Qld)

Queensland Procurement Policy 2013

Right to Information Act 2009 (Qld)

Workplace Health & Safety Act 2011 (Qld)

Administration

Approval Details

Policy Sponsor and approver of procedure

Deputy Vice Chancellor, Services and Resources

Version no

17-1

Date for next review

21/04/2020

Revision History

Version

Approval date

Implementation date

Details

Author

17-1

21/04/2017

21/04/2017

Procedure established

Manager Strategic Procure to Pay

Keywords

Contractor, Tax, Human Resources, Procurement