As a business owner, it’s possible that you occasionally hire independent contractors. For example, maybe you’ve contracted with a management consultant to do some work for you in the past. Or perhaps you’ve contracted with a statistician to assist with a project that your organization was completing. While it can seem advantageous to contract with an individual as opposed to hiring them – for example, no need to pay EI, CPP, or other benefits and entitlements – there are requirements that need to be met in order for someone to be considered a contractor. When it comes to determining the work engagement with an individual, general rules are as follows:

Employee:

  • The business provides the tools, equipment or materials to perform the work
  • Pay is not affected by the way the individual does their work (ex. if the individual works faster or creates a better product, they will not necessarily be paid more)
  • Work cannot be subcontracted to another person
  • The business has the right to suspend, dismiss or otherwise discipline
  • The business decides:
    • What the individual does
    • How much they will be paid
    • When the work needs to be completed by
    • How and where the work is completed

Independent Contractor:

  • The individual owns and is responsible for some or all of the tools or equipment used to do the job
  • The individual is in business for themselves, and can make profit and has the risk of losing money from the work that they do
  • The individual determines how and/or where the work is completed
  • The individual can subcontract some of the work
  • The business can end the contract for services, but cannot discipline the individual

Source: https://www.ontario.ca/page/difference-between-employee-and-independent-contractor

Although there are relatively clear distinctions as per the above, often these lines can get a little grey. If you contract with someone who actually should have been hired as an employee, the Canada Revenue Agency will not look at this in a favourable manner, and this can turn into a costly error (both for you and the individual that you contracted with). With the gig economy, we are seeing more and more employee vs. independent contractor issues arising – Uber being an example. One issue that can surface is when you hire someone as a contractor but over time the relationship shifts to look more like employment. For example, a consultant that you engage with originally has a number of clients and only spends a fraction of their time doing work for you. However, as your needs change, the consultant ends up working for you nearly full time, you are their only client, and you direct their work. In a situation such as this, you should move to an employment relationship with this individual. If they are unwilling to accept employment, you should end the contract and hire an employee to do this same work.

There are certainly instances where contracting is the right option. However, proceed with caution prior to initiating contracts – you want to ensure that you get this right in order to avoid issues (including time and money) in the future!

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