In our last post we talked about two bookkeepers, Dana and Walter, who were doing the same work. Yet one was considered an independent contractor, the other an employee.
This week we’ll take a closer look at why that’s so.
As a recap, here are the contract details for our two examples.
Dana is a bookkeeper who has 11 clients. She has just landed a new “independent contractor” short-term contract with Company A. Her contract states the following.
- She will not be provided with any workspace
- No hours are stipulated but the work must be finished by June 15.
- She must use her own equipment
- She will be paid in 3 equal installments, each at the end of 1/3 of the work, and she must submit invoices to be paid.
- She will be paid within a week of submitting the invoices
- She will receive no benefits (pension contributions, vacation pay, etc.)
- No CPP, EI or income tax will be taken off her pay
Walter is also a bookkeeper. Like Dana, he normally has 11 clients. He just landed a new “independent contractor” short-term contract with Company B. He will be doing the same work as Dana. His contract states the following.
- He must work on site
- He must work M-F from 8–4
- He must use the company computer system
- He reports to Manager E.
- He will be paid regularly every two weeks
- He must fill in time sheets
- He will receive no benefits (pension contributions, vacation pay, etc.)
- He will have no deductions taken off his pay (income tax, CPP, EI, etc.)
Last week I mentioned that Walter appears to actually be an employee, not a contractor. However, he is doing the same work as Dana. So how can one be an employee and the other a contractor?
It basically comes down to who is in control of getting the work done. In Walter’s case, it’s his manager. In Dana’s case, it’s Dana.
Dana has to coordinate everything that needs to be done to complete the work. There is no-one overseeing her. She has to supply her own equipment, create her work/deadline schedule, and fix whatever goes wrong herself.
Walter, on the other hand, only has to coordinate the specific tasks he’s given. His manager coordinates the project as a whole. If something goes wrong, he reports it to his manager, who decides how to proceed.
Employment status and the CRA
In addition to getting benefits/deductions that you are entitled to, there’s another very good reason to fully understand your true employment status: the CRA cares.
Canada Revenue wants to make sure businesses and individuals are living up to their financial obligations. It doesn’t want companies treating “employees” as contractors, because then required deductions such as CPP, EI, and income tax aren’t being remitted to the CRA.
It’s such an important issue, that the CRA has developed a whole procedure for determining employment status. On their website, they provide a guide and a list of “rules” they use to help them determine a person’s true employment status.
I won’t go over all the rules, but I put some of the main ones in the following infographic. It should give you a pretty good idea of how the CRA determines whether you are an employee or a contractor.
Note: The CRA uses the term “payer” to refer to employer or client.
These rules aren’t black and white. For example, it is possible to have 2 payers but still be an employee. An example is a person who has two part-time jobs. It’s also possible to have only 1 payer, but still be an independent contractor. An example is a person who works on only one project at a time. For that time period, they only have one payer.
Similarly, sometimes equipment is supplied, even though the person is a contractor. An example is a cleaning company who, rather than lug their own cleaning equipment such as vacuum cleaners around, requires their clients to have it available in their office, ready for the cleaner’s use.
When determining employment status, the CRA looks at the whole picture, carefully weighing answers to the questions above, as well as others.
The bottom line
Make sure you know what your true employment status is so that you receive the benefits/deductions you are entitled to. When it comes time to sign a contract, be aware of your actual rights. Being careful also helps you avoid running afoul of CRA regulations.
And now just a couple of closing remarks before I go.
- Not every workplace or workplace contract is the same. Sometimes different rules are at play. A good example is a unionized company. Unionized workers have an employment contract which may contain various extra rules that might go above what labour regulations provide for.
- I am not a lawyer. I don’t even play one on TV. So this article is meant as general information, not legal advice.
- Here is the link to the CRA’s guide to employment status.
