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Contract Policy: Determining Whether the Service Provider is an Employee or Independent Contractor

Human Resources


Effective Date:

December 10, 2002

Authority:

Board of Regents

Purpose:

The policy is intended to ensure that the University complies with CCRA (formerly Revenue Canada) guidelines with respect to the determination of whether a contractual arrangement is one of employment or independent contractor status for purposes of Employment Insurance, the Canada Pension Plan and statutory income tax deductions.

Scope:

This policy applies to all contractual arrangements made on behalf of The University of Winnipeg.

Responsibility:

The Vice-President (Finance and Administration) shall be responsible for administering the policy, and for periodically updating the associated procedures to reflect the most current CCRA guidance. University officials who create contractual obligations on behalf of the University are responsible for ensuring that the appropriate means of engagement is undertaken, consistent with this policy. The official creating the contractual obligation should consult with either Human Resources or Financial Services prior to entering into an agreement on behalf of the University.

Background:

The determination of the nature of the relationship between the University and a person requires the consideration of the particular facts of each contractual agreement. The individual and the University cannot make the determination simply by entering into an agreement stating that the individual is not an employee. Nor is it sufficient that the person supplying the services to the University is a sole proprietor with a registered trade name. As each service-provider's situation is specific to them, a CCRA ruling on one contractual agreement cannot be assumed to extend to other seemingly similar situations. The establishment of independent contractor status in one case cannot be extended automatically to whole groups of individuals. Each situation has to be examined based on its individual circumstances.

Policy:

The University will consider that an employer/employee relationship exists where a person providing a service to or for the University is deemed by the University, for CCRA purposes, to be an employee of the University. The University is required by law to provide statutory benefits and make specific source deductions from payments to employees. The University will apply, to the best of its ability, the most current CCRA guidelines for determining whether or not an employer-employee relationship exists.

Where an assessment of the proposed form of engagement is arguable as to whether an employee relationship exists, the University will treat the relationship as that of an employee and the individual who is affected will have recourse to CCRA for a specific ruling on their particular circumstance. Where an individual who is already an employee of the University is engaged for additional services beyond their regular responsibilities and the additional work does not result from a tendering or other competitive process that members of the public could participate in, the appropriate treatment of the engagement is arguable. The University will consider this kind of engagement to be that of employment regardless of whether the engagement is with a non-incorporated business entity or with the individual directly. A University employee who is affected by this decision has recourse to CCRA for a specific ruling on their individual circumstance.

At the time of implementing this policy, the most current guidelines are set out in an online resource available from CCRA as indicated below: http://www.ccra-adrc.gc.ca/E/pub/tg/rc4110/README.html

In the event of a disagreement between the University and any individual performing the services regarding the determination of the service engagement as either employment or self-employment, the individual may request a ruling from CCRA. The form designated for use, CPT1, is available either from the Human Resources Department, or CCRA, or it can be found online at:  http://www.ccra-adrc.gc.ca/E/pbg/tf/cpt1/README.html

Until a ruling to the contrary is received, the University will process payments in accordance with the procedures for this policy, as they may be updated from time to time under the authority of the Vice-President (Finance and Administration).

Should the individual receive a ruling that determines that the payment was self-employment in nature, all contributions for Canada Pension, Employment Insurance and income tax deducted at source will be refunded. The University will consider the arrangement to be with an independent contractor, until such time as the contractor's status is again reviewed by the University and found to be that of an employment situation.

Where it is determined that the contract agreement is between the University and an independent contractor, the contract will be set out in the standard form--an Independent Contractor Agreement template available from Financial Services. Payments will be processed through Accounts Payable.

Where it is determined that the contract agreement is between the University and an employee, for purposes of Employment Insurance and Canada Pension Plan, the standard stipend form and/or assistance in developing a Letter of Engagement is available from Human Resources. Payments will be processed through Human Resources (Payroll). The standard entitlements for Canada Pension and Employment Insurance will apply and income tax will be deducted at source in accordance with federal and provincial legislation.

Guidelines for Applying CCRA Tests in a University Environment CCRA looks to the facts of the engagement to determine whether an arrangement between the University and a person is a business relationship, or an employer-employee relationship. If provided the opportunity to make a ruling, either by invitation or by audit, CCRA examines the facts of the relationship between the provider of the service, and the user of the service and the user's business.

The tests applied by CCRA in determining the nature of a relationship are discussed in detail, below. In their totality, the tests provide for a determination of whether an employer/employee relationship exists.

1. Facts of Control

Does the University have the right to control the work relationship and work methods?

In an employer-employee relationship, an employer has the right to control the employee's method of doing the work. It does not matter whether the employer exercises the right to control, only that they have it. By contrast, in a self-employment situation, the work to be done is controlled by setting out a specific deliverable, but the manner by which the work is to be done to achieve the deliverable is less controlled.

Is the individual subject to many of the same control features that apply to employees?

If a number of the control features the University exercises over regular employees exist, then the University would generally be found to be acting in the role of an employer, and the individual in the role of an employee. The criterion includes who establishes starting and ending work times, defined meal and coffee breaks, and the mechanisms regarding sick leave or other absences. However, even the provision of some latitude to the individual in determining hours of work, such as takes place with flexible working arrangements, does not negate an employer/employee relationship being found.

Does the University specify how contracted services are to be performed?

The more rigidly structured the contract for services, the more apparent control it exercises over the individual or firm. The University may well be considered exercising the control of an employer when it determines class size, eligibility to attend, and prerequisites. Other criteria establishing an employer-employee relationship include whether the University registers students, determines fees, and collects and receipts fees.

Does the University control the methodologies used to perform the task?

Where the University specifies the task to be performed and allows the individual or firm to select the methodologies by which the contract is to be fulfilled, then there may be a business relationship.

Does the University control the choice of person to perform the task?

Where the University contracts with a firm for a specific task, but does not require a particular individual or individuals to complete the task, the relationship is more likely to be found a business relationship. Notwithstanding this, the University is generally able to suggest or recommend a specific individual from the firm to perform the duties for which it is contracting, without that relationship being certain to be deemed one of employer-employee.

Does the University control the time and place of services to be performed and set the remuneration?

The more that the University controls the work relationship, the more likely an employer-employee relationship is to be determined.

2. Facts of Ownership of Tools

Is the individual required to provide the necessary tools to perform the task?

Where the University provides the equipment, tools, support services, space and materials to provide the service, then an employer-employee relationship generally exists. Where there is a significant cost to the individual who must provide these materials and tools, and therefore a possibility for loss should the costs for these tools not be covered, then there is the potential for a business rather than employment relationship.

3. Facts on Chance of Profit/ Risk of Loss

Is there an opportunity for profit (or loss) and is that opportunity/risk borne by the University or the individual?

The absence of chance of profit or risk of loss may indicate an employer-employee relationship. An example is the situation where a fixed salary is paid regardless of outcomes, and there are few expenses not reimbursed by the contractor.

This test is more difficult to apply in the case of an individual who operates a sole proprietorship out of his or her own home, and is given a contract to teach a course at the University subject to sufficient enrolments. A business relationship is more likely to exist in the case where the University contracts with a firm which has more than one employee in addition to the individual teaching the course or otherwise contracted. This is particularly the case when the contract is with the firm and not the individual, and the firm derives much of its total revenues from other than one source such as the University.

Who assumes the primary responsibility for the performance of the work?

Where the University has the primary responsibility, an employer-employee relationship is more probable.

4. Facts on Integration

Is the work to be done an integral part of the University's activities?

Where the work is an integral part of the University's activities, the individual is usually regarded as an employee.

What is the business of the service provider?

If an individual is hired from a firm to teach a course in accounting, and this individual is an employee of a professional accounting firm in public practice, then it is likely fair to say that it is not normally the business of the service provider. When the assignment is not integrated into the ordinary activities of that provider, it is easier to establish a business arrangement exists. However, in such cases, the individual cannot rely solely on their normal business affiliation to nullify an employer-employee relationship with respect to services provided to the University.

Is the work to be done by an individual who is already employed within the University?

If the work is similar in nature to work that the employee already performs for the University, the relationship is most likely to be found to be that of an employer-employee.

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