I want to hire someone to work at my property. I would like to put them on payroll as an employee, but the individual wants to be treated as a contractor. What is the difference between an employee and a contractor?
Whether a person is an employee or an independent contractor is a double-edged sword.
Employees are protected by minimum-wage legislation, along with other laws dealing with overtime, hours of work and vacation. They are entitled to severance pay if terminated without cause. They may enjoy health benefits and company-sponsored pension plans.
Independent contractors, on the other hand, enjoy increased flexibility and independence and may be able to claim a wide range of expenses as tax deductions, very few of which are available to employees. They are not subject to source deductions for EI or CPP and are responsible for remitting their own income tax.
Simply calling a person a contractor does not make him/her one. Instead, courts and Revenue Canada will decide a person’s status by weighing a number of factors: Who directs and controls how the work is done? Who owns the facilities, supplies and tools used to perform the work? Does the person stand to make a profit or suffer a loss? To what extent is the person integrated into the organization that hired them? Whose business is it really?
Because no single factor will decide the outcome, proper legal and accounting advice is critical to avoid expensive lawsuits, government audits, penalties and interest charges for unpaid taxes due to an inadvertent misclassification.
About Len Polsky: Len has over 27 years of civil litigation experience, including mediation, trial and appellate work. He has appeared before the Supreme Court of Canada, Alberta Court of Appeal, Northwest Territories Court of Appeal, Alberta Court of Queen’s Bench and the Northwest Territories Supreme Court.