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 VS. INDEPENDENT CONTRACTOR

These are not strict & rigid rules, but rather, variables that are collectively considered by the CRA when classifying a worker

Degree of Control over the worker’s activities. 

i.e. what work is done & in what manner

who provides, maintains & insures tools & equipment

Can the worker subcontract work or hire assistants 

degree of financial risk the worker takes

Workers’ opportunities for profit 

Business presence 

other relevant factors 

i.e. written contracts

What are the consequences to mis-classifying? 

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.

More Information is available through the CRA

Written March, 2020.

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