Employee versus contract worker
It seems more and more employers are turning to contract workers, part-time workers and freelance businesses to help them reduce costs and run lean. For employees, the role within the company, whether it’s as full-time staff or as an independent contractor, can affect your rights to health benefits, employment insurance, pension contributions and tax breaks.
At its most basic, the distinction can be broken down into two parts: the intent of both parties in determining the role, and the reality of how the role is carried out. The former addresses whether the parties intended to have a contract of service (defined as an employer-employee relationship) or a contract for services (defined as a business relationship). However, this can often leave open room for interpretation – especially if no formal contract has been signed – and therefore it’s often the latter that will be examined in the courts if there’s a matter of legal dispute.
The courts may look at criteria such as whether the employee or employer owns the equipment, whether the worker is exposed to personal financial risk in carrying out the work, whether the worker can hire out work to subcontractors, whether the worker is required to report absences or undergo performance obligations, and how the worker is supervised and paid.
Disputes most frequently arise when how the role is carried out fails to match the agreed-upon terms. For example, if a worker is hired on for a contract for services, but then is required to meet the demands of full-time employees (reporting absences, forbidden to provide services to other businesses, etc.), he or she may well be considered a full-time employee in the eyes of the law – and therefore should be in receipt of employee benefits and pension contributions (if offered), as well as the terms of employment laws for full-time employees. Note that this may also mean the employee is not permitted to apply for tax credits or other benefits that apply solely to independent proprietors.
As set out on the Canada Revenue Agency website, “workers and payers can set up their affairs as they see fit; however, they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the working relationship.”
For more information on the difference between employee and contractor status, visit the Canada Revenue Agency’s website at http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html#determining_employment_status.