Can a faculty member use his discretionary funds to pay an employee?

A faculty member has endowed chair discretionary funds. He needed to hire a graduate student yesterday, and wants to pay the graduate student with personal funds, and get reimbursed when the student is put on payroll retroactively. The faculty member feels that since he has the discretionary funds, he should be able to use the money how he wants. Is this ok?

Although these funds are “discretionary,” these funds are still the property of the UC Regents and fall under university policies and guidelines. As such, there are a number of issues surrounding payroll and hiring an employee, regardless of the funding source.

It is not ok to pay an employee with personal funds prior to the employee being hired in the Payroll Personnel System (PPS) for a number of reasons:

1) Upon hiring an employee for the university, certain forms are required to be completed prior to employment, such as the I-9, and the State Oath and Patent Agreement. The department and the university can be held liable if these forms are not completed.

2) Liability – What would happen if the employee is injured during the time he/she is not in the official payroll system? The employee would not be covered under the University’s Workers’ Compensation policy. The faculty member would then be liable for any injuries resulting to the employee or even potentially a 3rd party.

3) Benefits – If the graduate student is eligible for Graduate Student Fee Remission, this benefit would not be calculated correctly, resulting in the student having to pay all of their fees. In addition, if a graduate student is going to work over 50%, they will need to have an exception approved by the department.

4) Tax Reporting – The appropriate amount of taxes may not be withheld and/or reported.

5) Funding Source – What if the student has work study funds? His/her efforts would not be reported correctly under the federal work study program and could jeopardize the program for the entire campus.

If in fact, the professor needs to hire someone before the disbursement of money (such as a contract, grant, or other funds that won’t be disbursed right away), the professor can use the OR Form 203, “Request for Approval to Spend Funds” (RAS). In addition, certain gift funds may only be distributed once or twice a year, so depending on the time of year, the professor could be waiting a long time for reimbursement.

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