TERMS OF ENGAGEMENT
CATEGORIES OF EMPLOYMENT
nature of work in our society has changed from a situation predominated
by an employer-employee relationship to one where a wider variety
of commercial relationships are the norm. This relatively rapid
change in working relationships has ramifications extending beyond
the immediate parties involved to include tax authorities (taxation
issues), as well as the general public, insurers, and the courts
(issues of liability and the spreading of risk).
general, there are probably three work-related situations that APEGGA
members will find themselves in:
a traditional employer-employee relationship
· a "contract employee" situation where the member
dedicates most or all time and effort in the service of the employer
· a truly independent contractor situation, where work is
done for the client (employer) outside of any type of employer-employee
is important for the member to recognize the differences between
these three situations and the subtleties that result. Revenue Canada
will likely treat the contract employee in the same way as a traditional
employee from the point of view of withholdings (CPP, EI, WCB) and
may disallow income splitting or deductions from revenue for vehicles,
computer and office equipment, etc. that an independent contractor
would be entitled to make.
Canada and Alberta Labour provide regulations and checklists to
determine category of employment. The current issues of these documents
were referred to in developing this section of the guideline; however,
it is the responsibility of the individual to obtain and comply
with updated statutes and guidelines which most directly apply to
the specific nature of engagement. The terms and conditions set
forth by federal and provincial governments are currently in review
and revision, in response to the increasing percentage of the workforce
engaged in contract employment relationships. Appendix B provides
a checklist developed from industry and government documents, but
is to be used as a guideline only.
nature of the relationship between the client-employer and the contractor-employee
will also determine who should obtain and maintain Professional
Liability insurance for the member's actions. These issues can only
be resolved by determining the nature of the relationship and receiving
appropriate advice from legal and insurance specialists. The member
is advised to address these considerations when negotiating with
the client or employer.
following list identifies the common types or descriptions of employment
which are the basis for categorization using the Appendix B checklist
and the definitions in the above paragraphs.
a person, especially a specialist or firm that offers official or
professional advice to clients.
Involved in work that is intended for the mass market.
A person who works for a company in return for financial compensation,
but does not receive the same benefits (training, holiday pay, etc.)
as employee's (salaried, full time, hourly etc.).
A person who works for a company in return for financial and benefit
To put fee into a stable or unalterable form.
Employee paid by the hour as a unit.
Free from the influence, guidance, or control of another or others;
Concerning a particular person and his or her private business.
One who owns or owns and manages an unincorporated business.
The fee for engaging the services of a professional adviser for
an indeterminate period of time.
Fixed compensation for services, paid to a person on a regular basis.
To release from a regularly assigned position for temporary duty
with another unit or organization.
One who is devoted to a particular occupation or branch of study
Party Agency -
One other than the principals involved in a transaction.
3.2 BUSINESS OPERATION
section provides an introduction of employment and business terminology
and issues that will govern the responsibilities of the employer
and employee in areas of taxation, employment standards and Workers
Compensation coverage. The statutes are frequently in a state of
revision and members are strongly advised to reference current applicable
documents of Revenue Canada, Alberta Labour and Worker's Compensation.
3.2.1 Accounting, Tax and Legal
The APEGGA member should consult the services of professionals in
these disciplines to determine the specific needs for the particular
business and employment relationship. Starting with the right information
should preclude costly and time-consuming problems, in addition
to ensuring proper compliance with prevailing laws and practices.
Operation of a business practice requires proper systems and procedures
such as invoicing, payroll, cash-flow, Revenue Canada remittances
etc. which will also serve to determine classification by Revenue
Canada. Care and attention is prudent in setting up the structure
prior to engagement for professional services.
3.2.2 Revenue Canada
Canada looks at employment as Contract of Service or Contract for
Service under the Income Tax Act.
Contract of Service (employee, contract employee) is defined as
an individual who agrees to work for the employer for either a specified
or intermediate period of time, in return for a salary, and in the
case of employee, benefits.
· Contract for Service (Independent contractor) is defined
as an arrangement where specific work stipulated in the contract
is completed. There is usually a clearly defined task and the contracting
party may or may not do anything individually (i.e. the contractor
is free to sub-contract or hire others to do the work).
determining the type of contract, Revenue Canada looks at four basic
the degree of control exercised by the employer, especially with
respect to hiring/firing, setting pay scales, and determining how,
when, and where the work will be done. The control test is the single
most important test to be applied in determining employee or contractor
· ownership of the tools required to do the work
· the chance of profit and the risk of loss
· the extent to which the work done by the employee is integrated
into the employer's business.
Company contracting services may be at risk if Revenue Canada deems
the Independent Contractor or Contract Employee an Employee, as
the Company could be liable for payroll deductions (EI, & CPP).
Employment Standards Branch
Standards Branch (Alberta Labor) looks at several issues. They are:
Company may be held liable for vacation pay, overtime and minimum
severance pay if the independent contractor was found to be an employee.
Labor has published a useful checklist to determine whether a person
is likely working in the capacity of an employee or as a bona fide
Workers Compensation Board
protection available to a service user under the Workers' Compensation
Act may not be available where the person providing the service
is an independent contractor. Employees covered by the Workers'
Compensation Act cannot sue where compensation is available under
may stipulate that an Independent Contractor is required to maintain
his/her own Worker's Compensation Board Account. For individuals
who are a Director of a corporation of any size, it is strongly
advised that WCB be contacted to determine the extent of coverage
available to the Director, as it may be severely limited, thereby
necessitating procurement of independent coverage from other sources.
Canada Pension Plan
Independent Contractor is responsible for his/her own payment, or
the company using the services may be exposed for non-collection
of Canada Pension Plan payroll deductions.
Canada Employment and Immigration Commission may, pursuant to Section
18 of The Unemployment Insurance Regulations, deem him or her to
be an employee for the purposes of payment and deduction of unemployment
Liability And Indemnification
Other insurance such as Comprehensive General Liability coverage
is advisable in most circumstances. Responsibilities with respect
to payment of taxes and payroll taxes should be reviewed with qualified
legal and accounting personnel during setup of an employment relationship
not clearly viewed as a full-time employee.