Contract of Employment or
Fee-for-Service Contract

Contract of Employment Versus Fee-for-Service Contract
Determining the Type of Employment Relationship
Related Information

This directive describes the difference between a contract of employment and a fee-for-service contract. It describes how to differentiate between these two types of contracts.

Contract of Employment Versus Fee-for-Service Contract

A contract of employment is entered into under Section 28 of the Public Service Act and Regulation governing contracts of employment. An employer/employee relationship exists. The Crown is liable for payments such as income tax, employment insurance, and Canada Pension Plan deductions.

A fee-for-service contract is used when the Crown retains an individual or company to provide a specific service. An employer/independent contractor relationship exists.

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Determining the Type of Employment Relationship

Arbitrators have used the following tests to determine the kind of employment relationship set out by a contract:

Control Test – How is the employee told to perform the work? Is the employee directed how, when, and what work to do?

Entrepreneur Test – Who owns and controls the business and the tools used? Who bears the risk?

Organization or Integration Test – Is the person part of the organization or only an accessory?

Statutory Purpose Test – Does the statute determine whether or not the person is an employee? Understanding the purpose of a statute is a necessary part of interpreting it.

Consider the factors set out below when determining whether to enter a contract of employment with an employee or a fee-for-service contract with an independent contractor.

Contract of Employment – The following factors may indicate that a person is an employee:

• the employer:

  • has the right to direct the employee’s work

  • has the right to control the method of doing the work

  • has the right to suspend or dismiss the employee performing the work

  • owns the tools and equipment for the work

  • designates, directs, and can alter the times in which the employee’s duties are to be performed

  • can specify rules and regulations about the employee’s performance

  • is liable for the acts, neglect, and defaults of the employee

  • pays wages or other remuneration, appropriately withholding lawful deductions

  • normally provides office space and clerical support

• the employee’s responsibilities are an integral part of the business or activities of the employer and not merely accessory

• terms and conditions of employment are identified

Not all of the above criteria need to be satisfied for the relationship to be classified as employer/employee.

Fee-for-Service Contract – The following factors may indicate that a person is an independent contractor:

• the independent contractor:

  • is paid a contract price

  • is paid when a periodic report or accounting is submitted to the department

  • has an identifiable business, incorporated or not, that provides or has provided services to other organizations

  • is to produce a given result and is not under the department’s supervision, orders, or control

  • may use discretion in areas not specified

  • works with considerable freedom, and has some latitude with the time put into the work

  • is not part of the department’s organizational structure

  • is responsible for all payments and contributions as required by law (for example, income tax and federally legislated benefit plans) and does not receive additional remuneration to pay them

  • is not paid for vacation, sick leave, or overtime

• the contract contains commencement and termination dates and a clause addressing default by either party

• the department is not liable for an independent contractor’s collateral negligence

In fee-for-service contracts, standard language is used to address the Alberta Public Service Code of Conduct and Ethics.

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Related Information

For information on the administration of a contract of employment, see directive Administration of Contracts of Employment Overview. For information on the terms of a contract of employment, see directive Contract of Employment Salary, Length, and Benefits.

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About this Directive

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