Payments to Individuals for Services – (G forms replacement) – Process Improvement Project

Project UpdateJoint Financial/HRMS UL

MeetingDecember 15, 2006

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Agenda

Overview Project charge and team Accomplishments to date Proposed implementation

approach Next steps Discussion / questions

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Overview ‘G forms’ (G/G1/G2/GQ) are currently used

to process special payments to individuals See appendix I

Approximately 16,000 payments totaling over $25 million in FY 2006

Central approval and processing performed by HR, Payroll and Office of Contract Administration (OCA)

Payments made from Payroll and AP systems

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What’s Wrong with the Current ‘G Forms’ Process for Non-Employees?

Units can select to pay non-employees through either purchase order process or through ‘G Forms’ resulting in:Inconsistent controls depending on process that user selects to pay non-employee individuals for services

‘G Forms’ process generally bypasses the following controls:o Conflict of interest requirementso High dollar value (> $5000) competitive bid processing requirements OR sole source justifications

requirementso Personal services contract requirementso W-9 vendor certification form requirements

Purchasing process bypasses the following controls:o Verification of working relationship status (form GQ type information not currently used in

purchasing)o Check for non-resident alien status and proper withholding treatment

Confusing to users as to appropriate pay approach Process and form names not intuitive to end users Unclear to some end users which payment option to choose Process inefficiencies exist (ie. OCA review of G2 requests)

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What’s Wrong with Current ‘G Forms’ Process for Employees

Units can select to pay employees for additional services performed through either an additional appointment or through ‘G Forms’ if they are exempt employees resulting in:

Possible misuse of employee employment arrangements Used to bypass obligation to pay retirement contribution No pre-approval of salary payments by department, other

employing unit,… Makes it difficult to track total effort and total pay of individuals

Confusing to users as to appropriate pay approach Process and form names not intuitive to end users Unclear to some end users which payment option to choose Process inefficiencies exist (ie. OCA review of G2 requests)

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Project Charge and Team Charge

Eliminate various ‘G Form’ uses by integrating into existing processes to pay individuals for services and incorporate full set of controls in new integrated process.

Team began meeting in March, 2006 on a bi-weekly basis Team members:

Lori Burger - College of Engineering Brent Dickman – Law School Deborah Erskine – College of LSA Janet Finfrock – School of Public Health Jeanette Frost – Procurement Debra Komorowski – School of Medicine Eric Kruse – Chair – Financial Operations Susan MacDavitt – HRRIS, HR/AA Jennifer Mitts – Compensation/Classification, HR/AA Jim Murdock / Shane Fortune– School of Business Jim Ollar – University Audits Dorothy Russell / Kurt Rigg – Institute for Social Research Norel Tullier – Financial Operations Payroll Office

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Accomplishments to Date Developed a plan to simplify the payment

process for individuals by replacing the G forms/processes with a web-based tool focused on types of transactions

Reviewed current processes and gaps Assessed current system capabilities and options Develop proposed future processes and system

requirements Identified procedure and policy considerations Drafted redesigned forms to support new

processes Drafted revised employee / independent

contractor criteria (form GQ replacement) Developed proposed implementation approach

and plan

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Proposed Implementation Approach Phase 1

Develop a web based “Wizard” application to guide users to the appropriate method for all payments to individuals

o Single consistent process with appropriate controlso “G forms” replaced by specific information and support requirements for specific

payment purposeso Includes updated employee / independent contractor relationships criteria (form GQ

replacement) to increase compliance with IRS guidelineso (see attached process flow document)

Change to payment processingo Payments for non-employee relationship payments to US citizens processed in

purchasing department / systemo Payments for employee relationship payments and non-US citizens processed in payroll

department / systemo Utilize Additional Pay functionality within the HRMS system for payments to employees

Use a phased roll-out approach that will allow for initial testing/tweaking of new system and processes with a smaller user group before full university wide roll-out

o Initial roll-out currently targeted for June 2007 Phase 2

Identify opportunities for further process/policy changes and integration with appropriate workflow, HRMS and Financials systems (reduce need for paper forms and routing)

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WIZARD – All Types of Payments to IndividualsDRAFT 12/6/06

Individual accesses Wizard when making a payment to an individual. For payments for services, Wizard routes individual through a series of questions to determine employee vs. non-employee. For other types of payments, Wizard routes individual to appropriate form.

The forms in the yellow boxes can be accessed directly on a central office web site. The Wizard does not have to be used. The forms in the pink boxes must be accessed via the Wizard. The answers to the questions in the Wizard are printed as a cover sheet for the appropriate form.All forms are routed for signatures. Other documents are sometimes needed and are explained on each form.

Individual is determined to be a non-employee for

whom the services must be taxed as an employee. Wizard cover sheet is printed & hyperlink to

“Payment to Non-employee for Taxable Services” form .

Wizard asks a set of questions to determine whether the individual is a non-employee or whether the individual should be taxed as an employee. Questions are presented in the following categories:1, Teacher – credit course2. Teacher – non-credit course3. Researcher4. GSI/GSRA5. Honorarium6. Proctors/graders7. Editors/writers8. Consultants9. All other categories of services

WIZARD: Payment for Services?

Yes

No

YesWIZARD:

Moving Exp Reimb?

Hyperlink to “Moving Expense

Reimbursement” form. Also give link to “Moving

Advance Promissory Note”.

WIZARD: Royalty?

No

Yes

Yes

WIZARD: Award, gift or

prize?

No

Hyperlink to “Royalty Payment” form.

No

Hyperlink to “Award, Gift or Prize” form.

Individual is determined to be an employee. Process

Change Form for Additional Pay. If individual does not

have an active JOB, process use “Payment of Special Compensation to Faculty and Staff” form.

WIZARD:Indi a non-employee?

No

YesWIZARD:

Subject Fee Payment

Hyperlink to either employee or non-

employee Subject Fee Payment Forms.

WIZARD: Indi an employee currently or

within 12 months?

WIZARD: Indi a non-exempt employee?

WIZARD: Non-exempt Services

(FLSA)?

Yes

Hyperlink to “Special Payment Form”. Hire

as temporary employee, if necessary.

Yes

No

Yes

No

No

YesIndividual is determined to

be a non-employee. Wizard cover sheet is printed & hyperlink to

“Payment to Non-employee for Services” form.

WIZARD: Payment for

Goods?

No

Use Procurement Process

Yes

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Next Steps Finalize implementation approach and

timeline, and identify appropriate resources Secure decisions on identified policy and

procedure items Finalize detailed designs for business logic,

application, processes and forms Develop change management plan Build and test new application and

processes Conduct phased roll-out

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Policy and Procedure Items for Consideration Include… Types of payments are allowed to be exempt

from retirement contributions including retirement contributions for Continuing Education instructors

Conflict of interest rules and procedures for payments to individuals

Sole source/non-competitive bid requirements and process

E.g. $5,000 threshold for requiring bid or sole source justification

Rules for employee vs. non-employee classification criteria (form GQ replacement)

E.g. employee status for teaching non-credit courses

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Operational Considerations – Earnings Codes and GL Account Values

Earnings Code Description

GL Account Value Status System

AWE Prize/Award - Employee 502300 Continue Payroll

FGE Form G Employee 500300 Change Payroll

MVN Moving Expense-Non-taxable 502500 Continue Payroll

MVT Moving Expense-Taxable 502600 Continue Payroll

RYN Royalty - Non-resident Aliens 586000 Continue Payroll

SFE Subject Fee - Employee 582200 Continue Payroll

Prize/Award - Non-employee 581600 Continue Procurement

Form G - Non-employee 580400 Collapse to one Procurement

Form G-2 - Non-employee 580600 Collapse to one Procurement

Subject Fee - Non-employee 582000 Continue Procurement

Royalty - U.S. Citizens 584400 Continue Procurement

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Feedback Needed Review new draft forms and provide input to

Norel (norel@umich.edu) – (sent as email attachments)

Preferences for GL account codes Use one of the existing codes for non-employee

payments, or Create a new code

Preferences for Earnings Code Continue to use one code (replacing FGE), or Create several new codes based on type of payment

Volunteers for departments to participate in initial rollout (currently planned for June ’07)

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Discussion / Questions

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AppendixCurrent ‘G Forms’ and Uses Form G – Used for special compensation provided by eligible staff and

non-staff for a nonrecurring service they have performed for a department. It is also used to reimburse moving expenses, royalty payments category II Risk payments, awards and honoraria. This form is not used for businesses or persons using a tax I.D. number. See SPG 201.85 for details.

Form G2 – Used for payment to non-university employees engaged as independent consultants and is handled by the office of Contract Administration. Used for recurring payments. For individuals who are not U.S. citizens, payments must be requested on either the form G or the Form G-2. See SPG 201.86 for details

Form GQ – Used in conjunction with a Form G-2 or a Form G, when paying a non-employee and not submitting an I-9. This form assists the University in determining whether the individual performing the services will be classified for federal, state and FICA tax purposes as an employee of the University or as an independent contractor

Form G1 – Used to facilitate request for payment to multiple individuals, all of whom must be US citizens and not members of the University staff of faculty. See SPG 201.85 for details.