Paid vs unpaid labour: key distinctions

There have been many assertions I have heard over the years in the private sector as to what rules apply where a worker is being hired, raising distinctions between permanent and casual labour, employment vs independent contractors, and when unpaid work is allowed. Many of those assertions - including ones made by fellow professional accountants - have turned out to be wrong. Here is an outline of what the true situation is for employers, at least as far as Ontario is concerned.

Where unpaid labour is allowed

I can only find the following circumstances where payment would not be allowed:

1. Where the work was undertaken as a volunteer, with no reasonable expectation of being paid (such circumstances would be rare in the private sector, but would more likely be able to occur in the public and non-profit sector);
2. For activity undertaken in the role of a director of a charity (but the Charities Accounting Act does allow for work by a director outside that role to be compensated upon the approval of a prescribed order); and
3. Training given by an employer, in restricted circumstances as specified in the Employment Standards Act, 2000.

There is no statutory definition of a volunteer under Ontario law,but a regulation under the Occupational Health and Safety Act does state that a "volunteer worker" is:

"a worker who performs work or supplies a service but who receives no monetary compensation for doing so other than an allowance for expenses or an honorarium." 

That is not a comprehensive definition in the matter, as it only aids in determining which workers are not counted for assessing whether a joint health and safety committee must be appointed for a workplace. There are few court cases that discuss the unique nature of a volunteer, but more recent ones stress that an organization's vicarious liability does extend to those persons' activities.

Training given by an employer can be unpaid only where it is:

• similar to that which is given in a vocational school,
• for the benefit of the individual, and
• the person providing the training derives little, if any, benefit from the activity of the individual while he or she is being trained,

 and the individual:

• does not displace employees of the person providing the training.
• is not accorded a right to become an employee of the person providing the training.
• is advised that he or she will receive no remuneration for the time that he or she spends in training.

All six of these criteria must be fulfilled, which effectively kills off most such schemes that had been in effect over the course of the last couple of decades. The Ministry of Labour is conducting blitzes of specific industries, such as with magazine publishing in 2014. As well, some managers have asserted that it was OK to give such participants an honorarium at the end of their work term, as the CRA only requires a T4 to be issued where a payment is greater than 500 dollars within a year, but the last criterion above effectively bars that from taking place.

Other statutes to watch out for include:

• the Workplace Safety and Insurance Act, 1997, which extends WSIB coverage to volunteer firefighters, ambulance workers and police auxiliary members;
• the Human Rights Code does apply to volunteer employment;
• OHSA's definition of "worker" includes those receiving no monetary compensation as a result of participating in a secondary school work experience, a program approved by a post-secondary institution, or in a training scheme as prescribed under the ESA, which effectively means that an employer has a statutory duty to provide them a safe workplace together with appropriate training.

"Casual labour" is still labour

Many managers have also asserted that "casual labour" does not have to be passed through payroll, but they conveniently forget the CRA notice outlined above. As long as it constitutes employment, a T4 must be issued. However, the University of Waterloo does have a nice little classification for the types of appointments that are available within its organization, which would be good for others to adopt as well (with necessary modifications). In it, they define "casual earnings staff" as those "employed for less than three months or on intermittent bases or who do not have regularly scheduled hours of work, or who are employed under an arrangement where they may elect to work or not when requested to do so." Note that a one-time engagement would qualify under this definition, and I doubt whether such work would be performed for 500 dollars or less. This definition is in contrast to those given for indefinite or definite-term appointments or for collective bargaining arrangements, but payments for all persons must be processed through payroll.

Employee or independent contractor?

Whether an engagement constitutes employment or a contract for services is highly fact-dependent, and has nothing to do with what an agreement might state. The relationship will depend upon certain factors as determined over the years through the courts, which include:

• control over how, what, where and when work will be done;
• who furnishes the tools and equipment required to perform the work;
• whether a person can subcontract the work or hire assistants to help out
• who bears the financial risk for performing the job;
• who is responsible for making the necessary capital investment and business decisions that can affect the profit or loss on the contract; and
• the opportunity to control proceeds and/or expenses in order to maximize profit.

Again, the University of Waterloo has an excellent matrix covering the various possibilities. It is noteworthy that certain payments will require the issuing of a T4A at year-end, while others need only be accounted for in the contractor's Statement of Business/Professional Income required to be filed with their annual income tax return.

Some companies have attempted to do an end run around by this by claiming that an arrangement is with a separate corporation, as opposed to being with the individual concerned. This can work, but it also problematical, and it raises concerns of liability as well as whether the arrangement is legitimate and not a "sham" transaction. UW's policy is a good framework to help assess whether your arrangements in that regard might hold up.

What can be a "sham" transaction? I've heard of several instances where this was ostensibly in effect, but the principals never bothered to even set up a bank account in the corporation's name to receive the payments, preferring to deposit the cheques into their own personal account. One person even requested that the cheques be made out into his own name! Now that was obvious!