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EMPLOYMENT VS. CONTRACTED SERVICES

The following document outlines the general guidelines that will be followed by the University of Regina in relation to payments for employment or contracted services.

It must be emphasized that the University of Regina, as an employer, is subject to requirements as specified under the Income Tax Act and must comply with the requirements or be subject to penalties.

Where there is an employee-employer relationship, income earned (employment income) may be subject to statutory deductions such as income tax, Canada Pension Plan (CPP) premiums, and Employment Insurance (EI) premiums.

Even if the University enters into an agreement with an individual that states that the individual is not to be considered an employee does not necessarily change the relationship if the particular circumstances are not consistent with this statement.

Employees of the University of Regina who do work outside their department for another department of the University of Regina (regardless if the work is the same or different than their normal duties), are considered doing the work for the same employer and therefore payment is made through payroll method regardless of whether there is a formal company with registration number(s).

DEFINITIONS

Contract of Service (employment)

Is an arrangement whereby an individual (employee) agrees to work on a full-time or part-time basis for the other party to the contract (employer) for either a specified or indeterminate period of time;
Under such a contract, one party serves another in return for a salary or some other form of remuneration.

Contract for Service (business/self-employment)

Is an arrangement whereby one party agrees to perform certain specific work stipulated in the contract for another party. It usually calls for the accomplishment of a clearly defined task, but does not normally require that the contracting party do anything himself.

T4 versus T4A treatment

Where the term "T4" is used, that means that the payment is subject to statutory deductions for income tax, Canada Pension Plan (CPP) premiums, and Employment Insurance (EI) premiums. Where the term "T4A" is used, that means that the payment is taxable and will be reported to the CCRA (Canada Customs and Revenue Agency) on a T4A slip, but that deductions are not applicable.

DETERMINATION OF EMPLOYMENT RELATIONSHIP

It is well established by CCRA that there are four (4) criteria which may be used to distinguish a contract of service from a contract for service. The four (4) criteria will not necessarily be given equal weighting in determining the type of contract.

1. CONTROL - If the worker is controlled with regard to where, when, and how the work is done, s/he is considered to be an employee. Sometimes there is clear evidence that control does not exist, as in a contract for a specified result. The contractor is producing a product that must meet predetermined specifications. How, when and where this is done is up to the contractor.

The authority to exercise control not only over what is done but also over the manner in which it is done;
An individual is employed under a contract of service (employment) if the person for whom s/he works is entitled to direct and control him with respect to the final result of the work and the method employed; for example, the time, place and manner of doing the work;
It should be noted that it is not necessary for control to be actually exercised; it is very important however, to determine whether the employer is entitled to exercise control;
Even if there is no direct control, the mere fact that there is a relationship of subordinate to superior may be sufficient to establish that a contract of service (employment) exists. A relationship of subordinate to superior exists when a person performing a service is subject to the will and authority of another;
The criterion of control has been broken down into a number of elements:

the authority to select the person hired;

the authority to pay a salary or remuneration;

the authority to determine the hours of work;

the authority to delegate;

the authority to determine the work methods used; and

the authority to lay off and dismiss employee(s).

The general right to supervise and reject unsatisfactory work does not in itself constitute sufficient control for purposes of establishing a "master-servant" relationship;
Giving instructions to someone does not constitute control over the manner in which the work is done;
The self-employed contract worker or independent contractor is required to produce a given result within a set period of time; the payor is not normally involved in the performance of the work, and therefore has no control over it;
An independent contractor is a person who undertakes to produce a given result in the manner which s/he deems most appropriate; while performing the work s/he is not under the orders or control of the person for whom s/he is doing the work, and s/he can use her/his own initiative in matters that are not specified or determined at the outset;
Under a contract for services (business), the person for whom the work is being done exercises general supervision. S/He can and should see that the work is completed in accordance with the agreement, but it is not up to him to give orders to the contractor regarding the manner in which the work is to be done.

2. OWNERSHIP OF TOOLS - If the worker owns the equipment and tools used in the work, s/he is more likely to be deemed to be an independent contractor. If not, s/he is more likely to be deemed to be an employee.

Ownership of tools is not in itself a determining factor, the fact that a person uses his/her own equipment when performing his/her work is not sufficient to conclude that s/he is self-employed;
It must be remembered that in certain occupations it is customary for employees to use their own tools;
The fact that the employer provides the tools, materials, and facilities simply means that s/he may exercise control over the worker.

3. CHANCE OF PROFIT AND RISK OF LOSS - If the worker is taking financial risks in relation to the contract, s/he is more likely to be seen to be in business for himself. If s/he is not taking any financial risks, s/he is more likely to be seen to be an employee.

An employee's earnings are not usually contingent, as s/he does not assume any risk of loss or benefit from any chance of profit arising from the work s/he performs;
An employee hired under a contract of service normally shares in neither the profits realized in a successful business nor the losses incurred in an unsuccessful business;
Under a contract for services (business), an independent contractor or self-employed worker assumes the chance of profit and risk of loss by agreeing, before s/he's engaged, to establish the overall cost of the work s/he is to do. Since s/he owns the tools and instruments and is solely responsible for the manner in which the work is done, the self-employed contractor assumes all risks of loss resulting from events that occur during the course of the work which were not, or could not be, foreseen when the contract was negotiated. If, on the other hand, the work is completed sooner or more easily than expected, the contractor's profit will be greater.

4. INTEGRATION - This criterion relates to whether the worker is in business for him/herself. A self-employed person integrates the work for a particular contract into all the other work s/he does. S/He sets his/her priorities and schedules his/her time and activities in a manner that meets the needs of all his/her clients. An employee, on the other hand, is required to set his/her priorities and schedule his/her time and activities in a manner that meets the needs of one particular client, his/her employer. S/He integrates him/herself into the work of the employer.

Under a contract of service (employment), a person is employed as part of the business. The services performed by him/her are an indispensable and integral part of that business;
Integration is a secondary criterion that can be used to determine whether a contract of service (employment) exists in cases where some element of control is present.
It is imprudent to consider integration an essential factor, as many subcontractors perform work that is an integral part of the activities of the contractor who pays them;
In summary, this criterion is not in itself a conclusive or determining factor, it should be applied only in cases where there is an element of control but owing to the absence of certain other factors, it is difficult to conclude that a contract of service exists.

In an effort to determine whether a contract of service (employment) or a contract for service (self-employment) exists, the following questions can be used. If the majority of the answers are yes, then it would favour self-employment:

Do you have other sources of income and are you able to work for other companies?
Can you hire employees or subcontractors to assist you in this project?
Have you accepted any risks or liabilities?
Does this project have a foreseeable end rather than an indefinite term?
Do you provide your own supplies and equipment?
Are you ineligible for employment benefits provided to employees of the payor?
Can the payor survive without your services because you are not an integral part of the business?
Do you issue invoices to the company, charge GST if applicable, and pay expenses such as Workers' Compensation?
Do you control when, where and how you do your work?

SUMMARY CHART OF TREATMENT OF PAYMENTS

a. ACADEMIC APPOINTMENTS

all individuals appointed under the collective agreement are considered employees of the U of R including sessionals, overloads, and admin stipends
Type of Payment: Payroll T4
in the case where an individual is seconded from another educational institution or government entity and where the contract is with the other institution
Type of Payment: Accounts Payable

b. NON-CREDIT SHORT COURSES AND SPECIAL SEMINARS/WORKSHOPS

when the course is recurring or intended to be recurring and is related to the regular academic programs i.e. skills workshops
Type of Payment: Payroll T4
for full-time employees of the U of R and others, where the course is not related to the regular academic programs but where the service is all instructional i.e. CCE non-credit course instruction
Type of Payment: Payroll T4
where the course is not related to the regular academic programs and a business entity (non U of R employee) invoices the U of R
Type of Payment: Accounts Payable

c. GUEST LECTURER/SPEAKER

Factors to distinguish a guest lecturer from a part-time lecturer include the following:

No ongoing responsibility to the participants or students attending
No marking or grading responsibility
Lectures infrequent, usually non-credit and in most cases not part of a regular course
Fee charged to those attending
No appointment with the university
No office facilities or support staff provided
University has little control over the content of the lecture other than with respect to the topic
Lecturer is paid a single fee for giving the lecture and payment made at that time
Lecture or lecture series of limited duration

Part-time instructors: in most of the tax cases, the courts do not distinguish between a part-time and a full-time lecturer. The fact that the individual might be self-employed elsewhere has little influence in regard to whether the individual is an employee or not. The difference that does distinguish between a contract and an employee is the nature of the part-time teaching rather than the status of the individual as employed or self-employed.

a guest lecturer/speaker is an individual brought in from outside the university to lecture on a specific topic within a course. This individual would not normally deliver more than five lectures. The guest lecturer must be engaged specifically for that individual's expertise on a particular topic rather than as a substitute for a regular instructor.

where the guest lecturer is a Canadian resident
Type of Payment: Payroll as honorarium T4A - no tax withheld
where the guest lecturer is a non-resident
Type of Payment: Payroll T4A-NR - tax withheld - non-resident unless the recipient obtains a waiver from the CCRA as explained at http://www.ccra-adrc.gc.ca/E/pub/tg/t4061eq/t4061eq-07.html#P438_39413

d. CONSULTING
Consulting is the provision of professional or expert advice. It does not include teaching.

1. U of R employee hired as a consultant:

for additional services which are of the type of service provided in the normal course of duties under the existing employment contract (even if a different department)

Type of Payment: Payroll T4

where the type of service is clearly beyond the terms of the existing contract but where an employee/employer relationship is deemed to exist

Type of Payment: Payroll T4

where the type of service is clearly beyond the terms of the existing employment contract but a contract for services exists
Type of Payment: Payroll T4A

2. Non-employees who deal at arm's length

individuals where an employee/employer relationship exists
Type of Payment: Payroll T4
individuals where an employee/employer relationship does not exist
Type of Payment: Payroll T4A
business ( limited company, incorporated company, professional corporation)
Type of Payment: Accounts Payable

e. ARTISTIC PERFORMANCES

individual performers where the university determines the nature of the performance
Type of Payment: Payroll T4
individual performers where the university does not determine the nature of the performance
Type of Payment: Payroll T4A
groups where the individuals are part of an arm's length performing group and payment is made to that group rather than to the individuals
Type of Payment: Accounts Payable

f. PARTNERS OF FIRMS

where the contract is between the university and the partnership and the course subject matter is directly related to the business of the partnership. The partnership would invoice and payment is made directly to the partnership. Eg. Accounting courses taught by a partner in an accounting partnership or ethics courses taught by a partner in a legal partnership
Type of Payment: Accounts Payable
where the contract is between the individual and the University, the course subject is not related to the partnership and the payment is made directly with the individual

Type of Payment: Payroll T4

g. PROPRIETORS

where the proprietorship has a number of professional or highly trained employees and the contract is between the firm and the university and the course matter is related to the business of the firm, and the invoice is from the proprietorship
Type of Payment: Accounts Payable
where the proprietorship has only one professional or highly trained individual, the status of the individual should be the determining factor.
Type of Payment: Payroll T4A
where the proprietorship is registered for GST purposes.
Type of Payment: Accounts Payable

h. EMPLOYEES OF A FIRM (BUSINESS ENTITY)

where the contract is with the employee
Type of Payment: Payroll T4
where the contract is with the firm and the firm invoices the university.
Type of Payment: Accounts Payable

i. RESEARCH

research forming part of the faculty's regular academic appointment with the university.
Type of Payment: Payroll T4
sabbatical leave research grants
Type of Payment: Payroll T4A

j. MISCELLANEOUS

university employees where service is of the type of service provided in the normal course of duties under the existing employment contract.
Type of Payment: Payroll T4
where only an individual's time is purchased and specific tasks are assigned.
Type of Payment: Payroll T4
full-time staff where the fee is predicated upon quantity produced i.e. number of interviews completed, pages typed, assignments graded, writing lectures, appearances on television or radio.
Type of Payment: Payroll T4A if an individual; Accounts Payable if a Business (limited company, incorporated company, professional corporation)
if the work is done away from the university, the person is expected to pay own expenses, was free to use the services of others and was simply required to produce a completed product.
Type of Payment: Payroll T4A if an individual; Accounts Payable if a Business (limited company, incorporated company, professional corporation)
individuals operating as professional businesses, such as health care, accounting or legal professionals, who invoice the university; includes professionals who normally bill for their services i.e. dentists, chartered accountants, lawyers (normally called Professional Corporations or Professional Partnerships).
Type of Payment: Accounts Payable
royalties – eg. CPRC publishing royalties
Type of Payment: Payroll T4A

Types of Payment through Payroll must be done through a payroll change form.

Types of Payment through Accounts Payable must be done by submitting an invoice to Accounts Payable in Financial Services.