Independent Contractors: An Employer’s Perspective

“What do you mean you are filing a UI claim? You signed a contract stating that you are not an employee and that our organization would not take UIC deductions from your earnings.”

Believe it or not, some independent contractors (or consultants) tell UIC officers that they were employed even though they signed a contract that clearly states they are not employees and even though they tell Revenue Canada that they are self-employed in your income. tax returns. And in some cases, the adjudicator hearing the claim will find that the individual was in fact employed.

For some functions, particularly those that are not an integral part of an organization’s business, it may be a very good idea to enter into an independent contractor agreement.

If structured correctly, the benefits of an independent contractor agreement can accrue to both the employer and the independent contractor.

The employer avoids the cost of expensive employee benefits and is not required to pay various payroll taxes such as UIC, CPP, workers’ compensation, and employer health tax. The employer also avoids having to deal with employee complaints filed with government agencies such as the Ministry of Labor and the Human Rights Commission. On the other hand, the independent contractor does not have to pay UIC and can write off certain contract-related expenses, such as a home office and car expenses.

When deciding whether a true independent contractor relationship exists, courts (and government agencies) look at the substance of the relationship to determine whether an independent contractor or employment relationship exists. Often, the following factors are considered in making this determination: control (ie, the consultant works a specified number of hours each week); tool ownership; possibility of profit; and risk of loss (i.e. the consultant pays the expenses related to the contract, such as office expenses, telephone charges, gas costs, etc.)

If the relationship is not carefully structured, this type of arrangement can result in significant legal exposure for the employer if the individual (or a government agency) later says they were an employee.

Here are some situations where a consultant may take the position that they are an employee and what this means for the employer:

o The consultant is injured in a work accident, the Occupational Health and Safety Branch of the Ministry of Labor investigates the accident and accuses your organization of a violation of the Occupational Health and Safety Law. If the consultant is found to be a worker and the violation is proven, the organization could be liable for a fine of up to $500,000.

o The consultant’s contract is terminated without prior notice and you file a complaint under the Labor Standards Act and/or claim for unfair dismissal. If the consultant is determined to be an employee, a Labor Standards Officer may order the employer to pay the consultant money damages, including termination pay, increased vacation pay, overtime pay, and/or severance pay. dismissal. Similarly, a court could order the employer to pay the consultant compensation for failing to give reasonable notice of termination.

Even though a person agrees in writing that they are an independent contractor, they can still later claim that they are actually an employee and assert all the rights of an employee. If the employer exercises a significant amount of control over the person, then a judicial or administrative tribunal may agree with the individual. So, if you’re considering hiring an independent contractor, talk to a lawyer about how you can structure the relationship to minimize your organization’s legal exposure.

Independent Contractors: A Contractor’s Perspective

If you want to get paid as an independent contractor (or consultant) so that you can claim certain expenses like a home office, car, etc., you need to carefully structure the arrangement and enter into a written contract to ensure it can withstand the scrutiny of Income. Canada or the courts.

However, you should be aware that organizations often propose this type of arrangement because it saves the organization money by avoiding payroll taxes and costly employee benefits, and because this arrangement denies you certain legal rights that you would have as an employee. . For example, as an independent contractor, you are not entitled to overtime, holiday, or vacation pay under the Employment Standards Act; your earnings are not insurable earnings under the Employment Insurance Law; and you have no rights under the Ontario Human Rights Code if you are discriminated against.

Until recently, if both parties wanted to create an independent contractor relationship, there was generally no problem. Now, however, Revenue Canada is investigating such arrangements as part of its audit function and, in some cases, concludes that the independent contractor is in fact an employee, even if the parties have agreed in writing that a relationship of employment exists. independent contractor.

In deciding whether an independent contractor relationship exists, adjudicators consider all of the circumstances surrounding the relationship, including the following factors: control; tool ownership; possibility of profit; and risk of loss.

I would like to thank Christine for helping me with this article. Christine has many years of exposure to the WSIB and MOL and has countless hours as a consultant. She is an independent who implements the correct policies, procedures and best practice documents for companies. Christine will be happy to help with any training for directors, managers and supervisors related to human rights, conflict, targeted training, harassment, written reports and employment issues, among others. Write me and I will contact Christine.