Independent Contractor or Employee, that is the question!

Whether a person is an independent contractor or an employee is not a choice. Neither the employer nor the worker can make this choice. The choice is made by definition. CRA defines these relationships, as each has a set of identifiers. 

Charities like to save money

Employers find that having independent contractors are more economical. The employee costs of statutory deduction employer contributions like EI and CPP, Vacation Pay, severance pay, etc. are not part of the independent contractor costs. There are also costs associated with employees, administration of payroll etc. However if you get it wrong you could be assessed some of these costs at a later date if status is disputed. This is not saving money.

The worker wants to be independent….. that sounds good.

The independent contractor likes the ability of writing off travel to work and a home office. But here’s the thing – if the worker does not know the rules and he/she is terminated and realizes that they will not receive EI … does not get maternity leave or many other possible employee benefits…. You can see where this is going. The worker pleads innocence and the employer is responsible to have made the determination based on CRA Guidelines. This is not good.

The risk is great… get it right!

The risk here can be significant particularly when there are employee benefits packages and premiums are not being paid for one of the workers and they get sick or injured. There are a number of factors involved in the determination and they are detailed on the CRA site. Sometimes it is complicated and in that case you can ask for a determination. These are the general factors to look into:

Factor 1 – Control

Factor 2 – Ownership of tools & equipment

Factor 3 – Chance of profit/risk

Factor 4 – Dependence on the organization

Factor 5 – Intention of the parties

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4110.html

The best of both worlds

Some employees embark on hybrid relationships as a result of a lack of understanding of the legalities and pitfalls. The independent contractor is producing invoices each month and may well qualify by definition as a contractor BUT for some reason he/she is getting company group benefits. You should check your agreement with your benefit provider for a start and perhaps your employment policies.

One last word

What is a “Contract Employee”?… Good question! This is where some people get confused. Sometimes it is needed to employ a worker for a period of time. For example for a 6 month period to deliver a program with discrete funding. The person will be an employee but it’s like giving notice on the first day of employment.

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