Employee vs. Dependent Contractor vs. Independent Contractor
When hiring, it is critical to accurately identify workers. Despite common intent and/or a written contract between an employer and a worker, the CRA may still rule that the worker is an employee. Incorrectly classifying an employee as a contractor may have serious legal and monetary ramifications. The Chart below is a guide only and does not constitute legal advice. It should be used in conjunction with other resources.
Definitions
Employee
A person who provides work or services for an employer for wages. Protected by Minimum Standards set out in the ESA
Dependent Contractor
- A contractor that is economically dependent on their principal Hiring Organization
- May be entitled to limited protection under the ESA such as termination notice.
Independent Contractor
- Someone in Business on their own account
- Not entitled to the minimum standards and protections under the ESA
Employee VS Independent Contractor
These are not strict & rigid rules, but rather, variables that are collectively considered by the CRA when classifying a worker
| Employee | Independent Contractor | |
| Degree of Control over the worker’s activities. I.e. What work is done & in what manner | Employer controls the workers activities Employer may choose to listen to the worker’s advice. Worker is subordinate to the employer. Employer chooses and controls the method & amount of pay | Worker has a large degree of control and independence. Minimal supervision by the employer. Sets out the rate of pay and send out invoices for payment |
| Who Provides, maintains and insures tools & equipment | Employer. The Employer provides the workspace for the workers | Worker. The worker retains the right over the use of their assets. Worker supplies his/her own workspace and does substantial work from there |
| Can the worker subcontract work or hire assistants? | No, The Employee cannot hire helpers or send replacement workers | Yes. The worker can contract out work or hire his/her own employees |
| Degree of Financial Risk the worker takes | Minimal to none. Worker receives protections under the ESA and benefits from the employer | Most to All. The worker is financially liable if he/she does not fulfil contract obligations. The worker does not receive any protection/benefits from the payer |
| Workers Opportunities for Profit | Minimal to none. The worker is not financially liable | Chance of profit/risk of losses. Has the ability to pursue and accept contracts. Can negotiate prices/unilaterally set prices for services and, |
| Business presence | None. Worker may need employer consent to work for another employer | Most to All. The worker has the right to provide products/services to more than one employer. Advertises and Markets his/her services. |
| Other relevant factor eg. written contracts | Yes | No |
What are the consequences to mis-classifying an employee as an independent contractor?
Employer may be required to:
- Pay both the employer’s and employee’s share of EI and CPP
- Pay penalties and interest
- Pay legal fees and other costs
Workplace Safety & Insurance
- If a worker is injured at work and makes a claim under the Workplace Safety and Insurance Act (WSIA) the hiring organization may be held responsible for costs and damages incurred by the injured worker and unpaid WSIB premiums, interest/penalties
- May be subject to substantial fines
Wrongful Dismissal Claims
- Monetary claims in lieu of notices, substantially exceeding the minimum requirements of the ESA
- Severance Pay
Recommendations & Next Steps
- Do your research and seek expert advice on hiring & classifying workers
- Seek independent legal advice and ensure each worker is covered by a contract of employment
- Assess the position your organization is looking to fill. Can it survive CRA scrutiny?
- Be sure to ask the intent of the worker – does the worker believe he/she is being hired as an employee or as an independent contractor?
- Know your rights. Either an employer or worker can request a CRA ruling to determine employment status. CRA rulings must be appealed within 90 days of notification of a ruling.