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Establishing Employee / Employer Relationships Policy

I.    Purpose

1.    To provide standards for distinguishing between employee, special non employee statuses and independent contractor status and safeguard Toronto Metropolitan University (the "University") and its employees from potential liability related to incorrect classification.

2.    To indicate procedures and methods for payment of employees, non employees and independent contractors.

II.    Introduction

Canada Revenue Agency presumes that all individuals who provide a service are employees unless there is evidence to support classification of the individual as an independent contractor. Therefore, if the University engages an individual as an independent contractor to provide a service, it must be able to support this position.

Note: Payment for products or goods is not considered employment income and, therefore, must be processed as a payment to a business.

Determining independent contractor status is driven by fact and circumstance. The facts and circumstances that make one individual an independent contractor may differ from those that make another individual an independent contractor. In broad terms the two areas to consider are:

1.    The relationship between the person providing the service and the person using it; and

2.    The relationship between the service provided and the user’s business.

There are numerous court cases related to this topic. An Independent Contractor Form(ICON form) has been developed to help in the determination process. As a general rule, University employees may not be treated as independent contractors when providing services to the University, even if the services are outside of the normal duties of their position. Separate employment contracts should be established in these circumstances. The applicable vice president may approve exceptions.

There are also a few specific non employee statuses where payments can be made for services without deducting taxes at source, but the individuals are not considered to be either employees or independent contractors. Generally, such situations involve token payments for services provided over a very short period of time. These include payments to guest lecturers and other honorarium payments (see definitions below). If you are hiring a non-resident of Canada to perform work, please consult your Human Resources consultant for special regulations. It should be noted that even if taxes are not deducted at source, they may be taxable, and payees should be informed that they will be responsible for any taxes owing.

In any situation where the University does business with an employee either as a company providing a product, or in exceptional circumstances where an employee is paid as an independent contractor, faculties and departments must ensure that decisions and actions are consistent with the University's Conflict of Interest policy.

The procedures set out the various service relationships that the University enters into. Any questions should be directed to your department’s Human Resources Consultant.

III.    Policy

1.    If the department cannot provide sufficient evidence to support the classification of an individual providing a service as an independent contractor, the individual must be employed in accordance with the University’s hiring practices. In certain limited circumstances, payments may be made that are classified as non employee payments (see below).

Note: It is the department’s responsibility to ensure that appropriate evidence has been gathered to support the position that the University has engaged an independent contractor or is making a non employee payment.  Any penalties that may result from the failure to withhold statutory deductions will be charged to the department. 

2.    The terms and conditions of the University’s collective agreements together with the nature of the University’s business dictates that individuals who teach a course from which students may receive academic credit will always be classified as employees.

3.    Arrangements to engage a business entity must be made with a purchase requisition before commencement of the work. A competitive process may be required before a purchase order can be issued and payment made. All services purchases will require the execution of an Independent Contractor Agreement before work starts. Please see Purchasing policy or contact Financial Services – Purchasing and Payment for complete details.

IV.    Definitions

"Employee:"  An individual who performs services for an employer under a contract of services.

"Independent Contractor:" A business entity or unincorporated business providing products or services under a contract for services. The ICON form is used to verify independent contractor status for unincorporated businesses.

"Business Entity:" (i) a company which is incorporated and has limited liability.  The name of the company ends with Limited, Incorporated or Corporation; or (ii) an unincorporated business. Generally, professional business entities cannot be incorporated: e.g. partnerships with personal liability (accountants, lawyers, doctors).

"Unincorporated Business:" Businesses registered with the Ministry of Government and Consumer Services. They do not have limited liability and are not recognized as a separate legal entity by Canada Revenue Agency and the Income Tax.

"Employment Income: "Payments made under an employee/employer relationship. Employment income is subject to income tax deduction at source, as well as deductions for Canada Pension Plan (CPP) and Employment Insurance (EI). Income is reported on a T4 form.

"Business Income:" Payments made to an independent contractor. Normally, GST is calculated and paid based on the payment amount, unless the individual qualifies as a Small Supplier.

"Honorarium Payments:" Token payments of nominal sums (usually no more than $500.00) not reflective of value of work done – usually as a thank you. Income is reported on a T4A form. Honorarium payments are not provided to University employees. Any token payments to employees would be considered to be a gift or award and would, therefore, be considered taxable employment income.

"Graduate Student Stipends:" Payments to graduate students to assist in furthering his/her education. Income is reported on a T4A form.

"Guest Lecturers:"  Professionals usually engaged by departments to speak on academic and research topics to a specific audience. Income is reported on a T4A form. Examples: visiting professionals or specialists, and seminar presenters.  It is important to ensure that an individual is not a part-time lecturer since they are considered to be employees. Some factors that may indicate that an individual is a guest lecturer are:

a.    no ongoing responsibility to attendees

b.    no marking or grading responsibility

c.     no appointment with the University

d.    no office facilities or support staff provided

e.    lecturer paid a single fee

f.    lecture or lecture series of limited duration (usually no more than two sessions).

"Performing Artists:" Persons engaged to perform; for example, musicians, actors, comedians or other performing artists. Professional speakers may be included in this category but are differentiated from guest lecturers in that they generally perform for a broad or general audience.

"Non Resident Payments:" Payments made to foreign national (not an independent contractor) who provides services in Canada, but does not establish residential ties. More details can be obtained from the Canada Revenue Agency. Income is reported on a T4ANR form.

V.    Jurisdiction

This policy and its procedure, fall under the jurisdiction of the Vice President, Administration and Finance. The interpretation and application of this policy is the responsibility of the Executive Director, Human Resources.