Question Tag: Contract of Service

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  • 6 Marks

PT – May 2020 – L2 – Q3b – Scope and computation of income tax for individuals and partnerships.

Characteristics of a contract of service from a taxation perspective.

b) It is necessary to find out whether an activity carried out by an individual amounts to a profession (contract for service) or employment (contract of service). From a taxation point of view, there is the existence of employment where there is a contract of service.

Required:
What are the characteristics of a contract of service?
(6 marks)

Characteristics of a contract of service:

  • Control by the employer: The worker is controlled by their employer. They must perform the tasks they are instructed to by a line manager according to their job description. In a contract of service, the employer normally enjoys the power of control over the work of the servant and the servant is bound to obey the orders/instructions of the master. The matter of control by the employer over the employee has been emphasized by the Courts as being the important factor in deciding whether the relationship of employer and employee exists.
  • Specific working hours and location: The worker is expected to work at a specific place during specific hours on specific days. For contract for service (i.e. an independent contractor), on the other hand, undertakes to produce the required result, but in the actual execution of the job to produce the result, he is not under the order or control of the person for whom he executes that work. He is free to use his discretion. Do note that a contract of service only comes into effect when the employee turns up for work on the appointed starting date, as stipulated in the agreed terms of the contract.
  • Formal employment contract: A contract of service has a formal contract which defines the employer-employee relationship, including the terms and conditions of employment. The contract must include certain terms and essential clauses, such as hours of work and job scope. The agreement can be in writing, verbal, expressed or implied. It can be in the form of a letter of appointment or employment, or an apprenticeship agreement. However, to minimize disputes on the agreed terms and conditions, the contract should be in writing.
  • Statutory rights: Employees have statutory rights regarding how they can be asked to leave their employment. Employees have statutory rights to holiday pay, sick pay, maternity and paternity rights, and redundancy payments.
  • Economic considerations: Is the business carried out on the person’s own account, or is it for the employer? If it is for the employer, then there is a contract of service. Can the person share in profit or be liable to any risk of loss? If the person cannot share in the profits and risks of running the business, then there is contract of service. Where liability for any errors or defects in work completed for clients, is borne by the employee, and this may expand to personal liability (assuming the contractor is a director), then there is contract for service.

    • Termination clauses:

  • In a contract of service, there will be typically a clause that provides for situations where either the employer or employee can terminate the contract, and the applicable procedures for the termination of the contract. A contract of service may be terminated if the employee decides to resign, the employer dismisses the employee, or the contract terms have expired. A contract for service may be terminated if the performance of the service provider is not satisfactory, or if the performance of the project or service is disrupted due to unforeseen circumstances, or it becomes impossible to continue on a project that is already in progress.
  • In a contract of service, there will be typically a clause that provides for situations where either the employer or employee can terminate the contract, and the applicable procedures for the termination of the contract. A contract of service may be terminated if the employee decides to resign, the employer dismisses the employee, or the contract terms have expired. A contract for service may be terminated if the performance of the service provider is not satisfactory, or if the performance of the project or service is disrupted due to unforeseen circumstances, or it becomes impossible to continue on a project that is already in progress.
  • An individual’s employment status will affect their entitlement to certain social welfare benefits (e.g. social security contribution by employees, workers’ pension fund, old-age contributory pension and disability benefit, marriage responsibility allowance, child education benefits, etc.).

(Any 4 points @ 1.5 marks each = 6 marks)

  • 10 Marks

BCL – May 2019 – L1 – Q3c – Employment Law

Discusses employee rights and employer obligations regarding social security in employment contracts.

ABA Venture was set up recently and John is an independent electrical contractor working for ABA Ventures for the past 3 months under a contract that requires him to ensure that all electrical facilities are well maintained. Abena is a fresh graduate who has also completed level one of the ICAG professional programme and has been given a one-year contract as a Cashier of ABA Ventures. Your firm is designing the conditions of service for ABA Ventures.

i) List the FOUR (4) rights of employees.
(4 marks)

ii) Indicate whether ABA Ventures will have obligations to pay Social Security on behalf of John and Abena who are both working at ABA.
(6 marks)

 

i) Rights of Employees:

  • Right to work under satisfactory, safe, and healthy conditions.
  • Right to receive equal pay for equal work without distinction of any kind.
  • Right to have rest, leisure, and reasonable limitation of working hours, and a period of holiday with pay as well as remuneration for public holidays.
  • Right to form or join a trade union.
  • Right to be trained and retrained for the development of skills.
  • Right to receive information relevant to the work of the worker.

(4 points for 4 marks)

ii) Obligation to Pay Social Security:

Abena’s Engagement:

  • ABA Ventures has an obligation to pay Abena’s social security because she is an employee by her working situation. Abena’s employment constitutes a contract of service, making her eligible for social security contributions. The employer controls her work, regular salaries are paid, income taxes are deducted at the source, and social security contributions are made on her behalf.

John’s Engagement:

  • John’s engagement is under a contract for services, meaning he is an independent contractor. In this situation, John is responsible for his own social security payments, as well as other tax obligations. He is not an employee, thus ABA Ventures is not obliged to pay social security on his behalf.

(3 marks for Abena’s engagement, 3 marks for John’s engagement = 6 marks)

  • 8 Marks

BCL – May 2018 – L1 – Q4a – Employment Law

Explain the difference between a Contract of Service and a Contract for Services.

a) Explain the following terms related to employment law: “Contract of Service” and “Contract for Services.” (8 marks)

Contract of Service
The Labour Act, 2003 ACT 651 defines “Contract of Employment” to include a Contract of Service, whether express or implied, and if express, whether oral or in writing. A Contract of Service relates to a working situation where one is an employee or a worker working for an institution in which that worker or employee is either told what to do and how to do it, or the institution employs a skilled professional worker or employee into its service. The employee/worker has certain advantages such as being paid a salary, taxes are deducted from the source, and the employer will be liable for the employee’s tort arising from the normal course of duty. (4 marks)

Contract for Services
A Contract for Services relates to a working situation where a person works on his own, runs his own business, and will work for a person who requires his services. Such a person pays his taxes on his own, files his taxes, and is liable for his own tort and provision of his own tools. (4 marks)

  • 10 Marks

BCL – Dec2022 – Q3a – Employment law

Discuss the classification of employment types and the rights and duties of both employers and employees.

Arko Kumi was contracted for the delivery of chippings to Ashville Estates. The contract identified him as an “independent contractor” with agreed wages and expenses. Arko Kumi was to use his own vehicle, yet with a requirement that the vehicle be sprayed in the company colors of Ashville Estates. He was to drive the vehicle himself but under compliance with certain company rules including, the nature of vehicle repairs and maintenance.

Required:
i) Describe the type of employment Arko Kumi is engaged in. (2 marks)
ii) State TWO (2) terms and essential clauses that can be used to differentiate the various types of employment. (2 marks)
iii) Explain TWO (2) rights and duties of both the employer and the employee. (6 marks)

i) Type of Employment: Although the contract took the form of Arko Kumi being under the control of a company because his vehicle was sprayed in company colors, and he had to comply with certain company rules, the fact that he was to use his own vehicle does not place him completely under the control of the company. Mr. Arko Kumi is therefore, an independent contractor. (2 marks)

ii) Terms and Clauses to Differentiate Types of Employment:

  • Contract of Service:
    The worker (employee) is under the control of the employer: the employer tells him what to do, how to do it, and when to do it; and/or the skill of the worker/employee is an integral part of the business or work.
  • Contract for Services:
    The worker works on his own account; he is in his own person in business.

Clauses to Differentiate the Type of Employment:

  • Contract of Service:
    In a Contract of Service, (i) the income tax of the worker is deducted at source, (ii) social security deductions are made at source, (iii) the worker is entitled to benefits such as sick leave, sick pay, medical refunds, maternity leave, etc., (iv) the worker can make the employer vicariously liable for his torts, (v) the worker may have the privilege of employees’ shares in a company limited by shares, and (vi) tools are provided for work with possible allowances in their absence.
  • Contract for Services:
    The worker (i) pays his own taxes as income tax and VAT, (ii) is responsible for payment of his own social security, (iii) is responsible for his own torts, and (iv) procures his own tools for work. (2 marks)

iii) Rights and Duties of Both Employer and Employee:

Rights of the Employer:

  • Employ a worker, discipline, transfer, promote, and terminate the employment of the worker.
  • Formulate the policies, execute plans and programs to set targets.
  • Modify, extend, or cease operations.
  • Determine the type of products to make or sell and the prices of its goods and services.

Duties of the Employer:

  • Provide work and appropriate raw materials, machinery, equipment, and tools.
  • Pay the agreed remuneration at the time and place agreed on in the contract of employment or collective agreement or by custom without a deduction except as permitted by law or agreed between the employer and the worker.
  • Take practical steps to ensure that the worker is free from risk of personal injury or damage to health during and in the course of the worker’s employment or while lawfully on the employer’s premises.
  • Develop the human resources by way of training and retraining of the workers.
  • Provide and ensure the operation of an adequate procedure for disciplining the workers.
  • Furnish the worker with a copy of the worker’s contract of employment.
  • Keep open the channels of communication with the workers.
  • Protect the interests of the workers.

Rights of the Workers (Employee):

  • Work under satisfactory, safe, and healthy conditions.
  • Receive equal pay for equal work without distinction of any kind.
  • Have rest, leisure, and reasonable limitation of working hours and a period of holiday with pay as well as remuneration for public holidays.
  • Form or join a trade union.
  • Be trained and retrained for the development of skills.
  • Receive information relevant to the work of the worker.

Duties of Workers (Employees):

  • Work conscientiously in the lawfully chosen occupation.
  • Report to work regularly and punctually.
  • Enhance productivity.
  • Exercise due care in the execution of assigned work.
  • Obey lawful instructions regarding the organization and execution of the worker’s work.
  • Take reasonable care for the safety and health of fellow workers.
  • Protect the interests of the employer.
  • Take proper care of the property of the employer entrusted to the worker or under the immediate control of the worker.             (6 marks)

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