University of Waterloo

Purpose

The term “honorarium” is often misunderstood in the University setting resulting in payments being incorrectly coded for income tax purposes. These errors can result in:

  • The University being in violation of federal and provincial tax regulations that require mandatory deductions from employment income.
  • The University being in violation of the Employment Standards Act (ESA) if the services/work performed is in fact employment in nature.
  • A reassessment by the Canada Revenue Agency (CRA) with the University being required to pay the employer and employee share of taxes (i.e. Canadian Pension Plan (CPP), Employment Insurance (EI), Workplace Safety and Insurance Board (WSIB), and Employer Health Tax (EHT) plus fines and penalties. 
  • The University being in violation of purchasing requirements if the individual being paid is in fact an independent contractor.
  • Damage to the University’s reputation.

Incorrect coding of payments can also negatively impact the individual receiving the payment as ultimately they will be responsible for paying income taxes on the amount. This can be a financial burden if this was not anticipated, especially if the amount is substantial. The individual can also be assessed fines and penalties for late payment of these taxes.

The purpose of this guideline is to provide more clarity regarding the definition and payment of honorariums and to provide a framework for consistent and fair treatment across the University.

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Related links

Casual or additional pay request form (PDF)

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General

What is an honorarium?

The term “honorarium” is not well defined by the Canada Revenue Agency (CRA). From a CRA perspective, payments for services made to an individual are either employment income or business income. The CRA does however support the notion of small payments that are not subject to the usual tax rules. The criteria for these payments include:

  • They are nominal - $500 or less in a calendar year;
  • They are made to an individual for voluntary services for which fees are not legally or traditionally required;
  • They are not reflective of the value of the work done;
  • They are made on a one-time or non-routine basis to an individual as a “thank you”. 

When is an honorarium appropriate?

Keeping the above criteria in mind, examples where an honorarium payment would be acceptable include:

  • payment, as a “thank you” or gesture of goodwill and appreciation, to a non-professional;
  • guest speaker or lecturer,
  • external party for a special classroom lecture or short series of such lectures,
  • individual for conducting a seminar or workshop,
  • guest speaker at an educational event or other similar function,
  • guest speaker participating at outreach events,
  • payment to a volunteer for assistance for set-up or supporting activities at special events;
  • payment to an external examiner whose services are engaged on a one-time or very infrequent basis.

When is an honorarium not appropriate?

An honorarium is not based on an agreed to amount between the individual providing services and the University representative seeking services. If payment is agreed upon, this constitutes a contractual arrangement. This means that an employment or independent contractor (business) relationship exists.

An honorarium is not appropriate if the University is obtaining the services of a professional speaker or consultant who performs the requested service for a living. These individuals would be considered self-employed and should receive a fee for service or consulting payment.

Are honorariums subject to tax deductions?

Honorarium payments to University employees:

Honorariums paid to individuals who are otherwise employees of the University (for instance, staff, faculty, or undergrad or graduate students performing employment services for the University), will be treated as employment income and subject to deductions at source for Income Tax, Canada Pension Plan contributions and Employment Insurance premiums. The payment must be nominal ($500 or less), and must be for services provided outside the individual’s regular responsibilities. These payments will be reported on the employee’s T4. 

Honorarium payments to non-employees:

Residents of Canada: An honorarium paid to a resident of Canada who is not an employee of the University is not subject to tax deductions; however, this does not mean that the recipient does not have to pay taxes on the amount received. The individual will be issued a T4A for the payment, and when they file their tax return for the year, any taxes owing on the amount paid will be assessed by the CRA.

Non-Residents of Canada: Where the service was performed in Canada, honorariums paid to non-residents of Canada are subject to a flat rate income tax deduction and are reported on a T4A-NR. If the service was performed outside of Canada, there is no tax deduction or reporting requirements.

What if I want to pay an individual multiple honorariums within a calendar year?

If you intend to pay an individual an honorarium more than once in a given calendar year and the total of the payments will exceed $500, please contact Payroll in Human Resources for direction. Please also be aware that as the University is considered a single employer by the CRA, should an individual receive multiple honorariums from various areas on campus and exceed the $500 nominal amount, any subsequent payments may be treated as employment earnings and amounts already processed may be converted to employment earnings.

What happens if I pay an honorarium and the CRA later assesses the payment as employment earnings?

Should the Canada Revenue Agency reassess a payment processed as an honorarium as employment income, the University will be responsible for paying 4% vacation pay on the amount as well as WSIB and Employer’s Health Tax (EHT) premiums, and both the employer and employee share of CPP and EI. These amounts will be charged back to the department that issued the payment. Any fines and penalties owing will also be charged directly to the department.

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Procedure

Accountability

The University representative seeking services is responsible for understanding what does and does not constitute an honorarium and for seeking clarity where there is uncertainty. As well, it is their responsibility to ensure the payment form is completed in its entirety and submitted in a timely fashion to Human Resources.

Human Resources Payroll is responsible for reviewing submitted forms for completeness and for processing payment. Payroll is also responsible for issuing T4/T4A or T4A-NR forms as required as part of the year-end reporting process.

Process

Honorarium payments are to be submitted on a Casual or additional pay request form (PDF), which is available on the HR website.

Before submitting the form for payment, the University representative submitting the payment form will make sure all fields are completed. “On-file” will not be accepted. The Social Insurance Number (SIN) number is required for CRA reporting purposes, unless the individual is a non-resident of Canada.

Completed forms are to be submitted to Payroll via campus mail or in person in accordance with the posted submission cut-off dates. Please note: payment forms submitted for monthly paid employees will be added to their regular monthly pay processing and will not be processed on the bi-weekly pay cycle.

Questions regarding the application of this guideline can be directed to payroll@uwaterloo.ca.

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