Employee or independent contractor? If you're a business owner and you hire workers, it's important to correctly determine their employment status.
Why It's Important
In an employer-employee relationship, the employer is obligated to deduct, contribute, and remit payroll deductions. There is no such obligation if the worker is a contractor (self-employed). If an employee is incorrectly identified as a contractor, the employer will be required to pay both the employer's share and the employee's share of any contributions and premiums owing, plus any penalties and interest.
Factors to Consider
There are several factors to consider in determining whether a worker is an employee or a contractor.
Considers the degree of control the employer has in where, when, and how the work is done. An employer will generally exercise more control over an employee, such as directing the work, setting specific hours, and offering training when required.
In contrast, an employer will usually only control the result of the work being done and not how the work is carried out when dealing with a contractor.
Ownership of Tools
Considers if the worker owns and provides tools and equipment to accomplish the work. A contractor typically will supply their own tools.
Considers if the worker is able to subcontract the work or hire assistants. Being able to do so can affect their chance of profit and risk of loss.
Profit and Loss
Considers whether the worker is in a position to realize a profit or suffer a loss as a result of the working relationship. A worker who can exercise financial control over a working relationship, thereby being able to make a profit or suffer a loss, is likely a contractor.
Considers whether the tasks performed by the worker form an integral part of the business. For example, if you own a coffee shop, the barista is likely an employee, whereas the worker who washes the windows once a week is likely a contractor.
Other Relevant Factors
A common misconception is that a written contract is conclusive in determining the employment status of a worker. While a contract is a good indicator of the intentions of both parties, it is not definitive in itself. The objective reality of the relationship still needs to be considered (control, provision of tools, opportunity for profit, integration).
After considering these factors, you should be able to correctly classify whether your worker is an employee or an independent contractor. If you are still uncertain about the status of a worker, it may be best to contact the CRA and request a ruling.