There is often a lot of confusion around whether or not someone performing work for a Company should be considered a Contract Employee or an Independent Contractor. It’s not as simple as the mere fact that they are either paid through Payroll or through Accounts Payable, or that the employment relationship is for a fixed term or indefinite. Instead it is a question of the intention of both parties when entering into the working arrangement. Did they intend to enter into a Contract of Service (employer/employee) or a Contract for Service (employer/contractor)? There are many factors that should be considered prior to determining which type of working relationship will be entered into.
Some of these factors are:
Direction and control
- Who decides how, when and where the work is performed?
- How are they paid?
- Are they supplying a specific product or service that ends once the requirements of the contract have ended?
Ownership of facilities, supplies and equipment
- Do they provide their own equipment and or workspace?
Chance of financial profit or risk of loss
- Do they have the ability to make a profit or risk a loss?
- Does the person performing the work consider themselves to be self-employed?
- Do they perform work for multiple businesses at the same time?
- Can they hire helpers or other staff?
Why does it matter? The legal entitlements, responsibilities and liabilities change depending on the relationship. Contractors are responsible for their own deductions, payments and paperwork for the Canada Revenue Agency; whereas, Employers will do this on behalf of their Employees. In addition, Contractors may not necessarily be subject to the same provincial employment standards rules and regulations as an employee.
There can be huge implications if a person is classified incorrectly. Should the CRA or Employment Standards determine that a Contractor should actually be an Employee; there could be fines for both parties, in addition to having to pay taxes that were owed over the course of the relationship, as well as potentially having to provide back-pay for benefits and entitlements such as overtime, holiday pay, and vacation.
If you are not sure how to classify a worker’s employment status, please reach out to your PEO Canada HR Representative. You can request a ruling from the government. You would need to complete a form called ‘Request for a Ruling as the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act’. The form can be found at www.cra.gc.ca/forms
Renee Lastella / HR Advisor / PEO Canada