Special Consultant vs. Independent Contractor

Overview

The objective of the Independent Contractor Information is to provide direction, clarification, and best practices for the engagement of independent contractors (IC) within the CSU, and SSU.

Sonoma State Universtiy must comply with State/Federal laws and CSU policies regarding the proper classification of employees and independent contractors. Misclassification of a worker as an independent contractor can result in serious wage and benefit obligations, financial penalties, tax consequences, and other liabilities.

Any person who works for the U.S. government, the State of California, a local city or county, or any other public employer, such as a school district or transportation agency (e.g., Bay Area Rapid Transit) is a government or “public sector” employee.

For more information, please view Technical Letter HR/Salary 2019-16

Independent Contractor Procedure Changes

Since the introduction of AB5 in January 2020, a change to the independent contractor process has occurred.  Effective immediately, all requests for independent contractors must go through Human Resources for review.  Human Resources Classification and Compensation Specialist will determine whether or not the worker can be categorized as an "independent contractor".  Note that AB5 assumes that all workers are considered "employees" until certified otherwise by the criteria outlined by the new regulation.

On April 30, 2018, the California Supreme Court adopted a single test for determining whether a person is an employee or independent contractor (See Dynamex Operations West, Inc. v. Superior Court decision). The test, which is now referenced as the “Dynamex Test”, requires significant changes to how SSU contracts with both independent contractors and companies (i.e. those hired through Purchasing). Below you will find the main changes that will impact departments.

Major Changes

The Dynamex Test must be applied to all independent contractor applicants prior to services rendered.
SSU may not contract with current or recently separated CSU employees.
Work that is regularly completed by campus employees are not eligible to perform work as an independent contractor. They would need to be hired as an SSU Employee and are subject to SSU hiring policies and applicable Collective Bargaining Agreements (CBA).

Independent Contractor Review Process

Human Resources, as delegated by the President, will have final approval authority for Independent Contractor Review requests. Each IC request is reviewed on a case-by-case basis.

HR will respond to the requesting Department/Division with a decision to all requests within 5-7 business days of receipt, pending additional information is not required.
Approved requests will include notification to use Procurement Services Process.
Work should not be performed on campus prior to final approval by Human Resources

Public Contract Code Restrictions for CSU Employees FAQs

Important: This FAQ addresses restrictions resulting from Senate Bill 41, IRS rules and CSU Conflict of Interest Code. Additional and outside employment opportunities for CSU employees also may be limited by restrictions in other state laws and collective bargaining agreements, not addressed in this document.

Restriction I

A CSU employee, except for those employees with teaching or research responsibilities, may not “contract on his or her individual behalf as an independent contractor with any California State University department to provide services or goods.” (PCC 10831)

How can a CSU employee provide a needed service to the CSU?

The CSU employee can be hired as an employee of the CSU (e.g., utilizing the “special consultant” classification), as long as the employment is not funded by a CSU contract with a vendor to perform services for or on behalf of the vendor).

Can a CSU employee be employed by and/or contract with a CSU foundation or auxiliary to provide a needed service or expertise?

CSU employees can be employed by or contract with the CSU foundation or an auxiliary, provided that the employees’ activities are not funded by a CSU contract between the CSU foundation or auxiliary and meet the definition of Independent Contractor.

Can a CSU employee receive a “stipend” or “honorarium” payment though Accounts Payable for services provided to another CSU campus?

No.

Can a CSU employee contract with a state agency other than the CSU to provide a needed service?

No, because the state agencies all make payments to employees as a single employer through the State Controller’s Office. The Internal Revenue Service (IRS) requires that all payments made by a single employer to an employee be reported on a W-2, not on Form 1099.

Can a CSU employee with a specialized skill or expertise contract with the CSU to provide a needed service?

No. This violates the CSU Conflict of Interest Code. Additionally, as noted above, the IRS would require that payment be reported to the individual as an employee on a W-2.

Are there any exceptions?

No.

Restriction II

A CSU employee, except for those employees with teaching or research responsibilities, may not engage in any employment or activity for which the employee receives compensation through or by a CSU contract, unless the employment or activity is within the course and scope of the employee’s regular CSU employment. (PCC 10831)

Can a CSU employee have his/her activities funded by a CSU contract?

No.

Can a CSU employee provide a needed service or expertise to the CSU if the employee is hired by a private sector entity to do work that is funded by a CSU contract?

No.

Does this restriction apply to employee contracts with a CSU auxiliary, where the auxiliary has contracted to perform a service for CSU?

Yes.

What determines if an employee’s work on an activity funded by a CSU contract is within the course and scope of the employee’s regular CSU employment?

A CSU employee's position description or employment agreement may identify activities that the employee might be required to perform on an activity funded by a CSU contract. However, it may be that an activity is only an occasional part of the employee’s job, and not specifically identified in the position description, but is within the course and scope of the employee’s regular employment. The CSU, as the employer (not the employee), appropriately determines whether the activity is within the course and scope of the employee’s regular CSU employment. If the CSU appropriately designates the activity as within the course and scope of employment, the employee can be compensated as an employee.

Restriction III

For two years following retirement or separation from CSU employment, no former employee may enter into a contract “in which he or she engaged in any of the negotiations, transactions, planning, arrangements, or any part of the decision-making process relevant to the contract while employed in any capacity by any CSU department.” (PCC 10832 (a))

Can a separated/retired employee be hired as an employee by the selected vendor to assist in meeting the contract obligations?

No.

Do “negotiations, transactions, planning, arrangements, or any part of the decision-making process relevant to the contract” include technical support?

If the separated employee provided limited technical support to the planning or procurement process as requested, but did not participate in planning or decision-making, the restriction does not apply.

Can a separated/retired employee be rehired by the CSU as an employee to provide a service related to the selected vendor’s contract?

Yes. However, the timing of the hire must not conflict with CalPERS re-employment restrictions.

Can a separated/retired employee who participated in the planning or procurement process contract with the CSU to provide a service related to the selected vendor’s contract?

Yes.

Can a CSU employee who participated in the planning or procurement process relevant to a proposed contract enter into that same contract after he/she retires or is otherwise separated from CSU employment?

No.

Can a separated/retired employee who participated in the planning or procurement process contract with the selected vendor to assist the vendor in meeting its CSU contract obligations?

Yes.

Restriction IV

For 12 months following retirement or separation from the CSU, no former employee may contract with the CSU if he or she was employed by the CSU “in a policymaking position in the same general subject area as the proposed contract within the 12-month period prior to his or her retirement…or separation.” Exempted are contracts for expert witness services and contracts to continue attorney services. (PCC 10832 (b))

What is a policymaking position?

An employee in a policymaking position sets or recommends CSU policy. Management Personnel Plan administrators are in policymaking positions. Network analysts generally are not in policymaking positions. Each campus must review a separated/retired employee’s prior position to determine its policymaking impact.

What does “in the same general subject area” mean?

This language should be interpreted broadly. If an employee specialized in one area of, for example, human resources, that employee would be subject to the 12-month restriction from all areas of human resources. If a campus academic administrator managed the Business school, s/he could not contract for work developing a business curriculum.

Can a CSU employee in a policymaking position who retires/separates provide services in his/her subject area on a contract basis to the CSU within 12 months of separation?

No. There are two limited exceptions: Contracts for expert witness services and contracts to provide continuing attorney services.

Can a separated/retired employee in a policymaking position contract with a different CSU campus to provide services in the same general subject area?

No. Even though CSU campuses and the Chancellor’s Office are separate employers, for the purpose of this restriction, a systemwide preclusion applies.

How can CSU secure needed expert services or skills of former employees?

CSU can hire former employees as continuing CSU employees. This restriction does not prohibit the rehire of former employees or retirees. However, the timing of the retiree hire must not conflict with CalPERS re-employment restrictions.

Can a CSU employee in a policymaking position who separated/retired provide contract services to another state agency other than the CSU within 12 months of separation in any area of expertise?

Yes. This restriction applies only to CSU contracts.

Can a former employee in a policymaking position be employed by or contract with a foundation or other auxiliary to provide services to CSU in his/her subject area?

Yes. However, if the former employee is retired, the timing of the retiree hire and work to be performed must not conflict with CalPERS re-employment restrictions.

Can a former employee in a policymaking position provide needed service or expertise to another state agency, if that agency has a contract with the state?

Yes. However, if the former employee is retired, the timing of the retiree hire and work to be performed must not conflict with CalPERS re-employment restrictions.