If your business is incorrectly treating workers as self-employed – i.e. as independent contractors – expect trouble from the CRA. It has the power to change the classification of any worker, with expensive consequences for the owner of the business.
The tax savings for business owners incorrectly calling employees independent contractors can be significant – until you get caught.
Factors Tending to Show the Worker is an Independent Contractor
– The worker hires, supervises and pays his/her assistants
– The worker is free to work when and for whom he/she chooses
– The worker is paid by the job or receives a commission
– The worker has his/her own facilities used in performing the services
– The worker can realize a profit or suffer a loss from his/her services
– The worker performs services for several businesses
– The worker makes his/her services available to the general public
– The worker can’t be fired so long as he/she meets the contract terms
Factors Tending to Show the Worker is an Employee of Your Business
– You can require the worker to comply with your instructions about when, where and how to work
– You require the worker to render services personally; the worker can’t hire others to do some of the work
– You hire, supervise and pay assistants for the worker
– You establish set hours of work
– You have the worker do the work on your premises
– You require the worker to submit regular reports
– You pay the worker by the hour, week or month
– You pay the worker’s travelling expenses
– You furnish his/her tools, equipment and materials
– You have the right to discharge the worker
How Business Owners Can Protect Themselves
– Enter into a written contract with the independent contractor. Spell out the responsibilities of each party and how payment is to be determined for each job. The contract should allow the independent contractor to hire his or her own assistants.
– Require the independent contractor to furnish the tools, equipment and material need for the job
– If possible, have the independent contractor do all or most of the work at his or her own place of business
– Make it clear that the independent contractor is free to offer services to other businesses besides yours
– Pay for work by the job rather than by the hour, week or month. Require the independent contractor to submit invoices for each job before making payment
– Require proof of a business license and insurance.
The foregoing provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your own particular circumstances.