​​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.

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 l​anguage (PDF, 12 KB) is used to address the Alberta Public Service Code of Conduct and Ethics.

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.

About this directive

Authority: Public Service Act
Application: Organizations under the Public Service Act
Effective Date: June 1, 1999
Contact: Alberta Public Service Commission:
Labour and Employment Practices; Classification, Compensation and Benefit Services

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