2 minute read
Employees VS. Contractors
Robin Lao
President, HRIS Consultants Ltd.
Differentiating Between Contractors And Employees
In the complex landscape of employment arrangements, the distinction between an employee and an independent contractor has significant ramifications, influencing individuals and the companies they serve. However, a concerning trend has emerged where companies incorrectly classify workers as independent contractors instead of employees. This practice, known as worker misclassification, can be accidental or intentional, with some employers using it to evade labor laws and shirk responsibilities like providing benefits and covering employer EI and CPP subsidy costs.
Consequences
Canada Revenue Agency (CRA): Incorrect classification can result in the obligation to pay outstanding EI and CPP contributions, potentially accompanied by fines.
Workplace Safety and Insurance: Misclassification can lead to breaches under the Workplace Safety and Insurance Act (WSIA), resulting in investigations, fines, and potential liabilities for company directors and officers.
Ontario Employment Standards Act: Misclassified employees may be deprived of entitlements such as overtime and vacation pay, leading to potential fines, imprisonment, or personal liability for corporate directors.
Wrongful Dismissal Claims: Terminating misclassified workers can result in wrongful dismissal claims. Courts consider written agreements and how individuals are treated, potentially awarding damages.
Understanding Classification Criteria
Control: An independent contractor is responsible for delivering a result and making their own decisions about fulfilling their responsibilities. If the employer dictates how, when, and where the work gets done, it’s an employee relationship.
Ownership of tools: According to CRA, “Self-employed individuals often supply the tools and equipment required for a contract. As a result, the ownership of tools and equipment by a worker is more commonly associated with a business relationship.”.
Financial risk and the chance of profit: Contractors aim to make a profit. They usually cover their own operating costs, and they run the risk of losing money. Employees usually don’t share in the business risk or returns.
Subcontracting work or hiring assistants: If workers can subcontract work or hire assistants, they accept the possibility of profit and risk of loss (see points 3&4). This suggests an independent contractor role. If the worker does not have this authority, they will likely be considered an employee.
Integration: CRA considers how integral the work is to both parties’ business. This factor isn’t clearly defined, but the primary consideration is the number of clients the contractor serves. A contractor with only one client might be classified as an employee by the CRA.
HRIS Consultants Ltd.
905-281-0380
