Are you a Contractor or an Employee?
As a business owner or as a worker for a business, you may wish to classify the work, or be classified, as a contractor arrangement. After all, being a contractor comes with perks, like being able to deduct business expenses. Plus it saves the payer from having to contribute into Employment Insurance and the Canada Pension Plan on your behalf.
It is not, however, a simple case of classification. The wrong classification could put the employer on the hook for both the employer and employee's share of any contributions and premiums owing, as well as penalties and interest on these. The working relationship must be examined in a two-step process in determining whether a worker is an employee or a self-employed individual (ie. a contractor).
The first question seems simple enough. Does a contract between the parties exist? Was the working relationship defined through a contract from the start? Both parties must have intended to enter into a "contract for services" in order for a contractor relationship to exist.
Secondly, does the working agreement reflect a contractor relationship? The Canada Revenue Agency will consider these factors:
- control - how much control does the payer have over the worker's activities? Is the worker free to perform the activities as they see fit, or do they have to work as directed by the payer?
- who provides the tools to do the job?
- does the worker have the authority to subcontract the work or hire their own assistants?
- does the worker have any financial risk? If the work is not complete, will the worker be financially liable?
- does the worker have additional opportunities for profit? Are they able to accept additional contract work?
To ensure that the relationship is correctly classified as interpreted by the Canada Revenue Agency, a ruling can be requested to have the relationship evaluated.
Get in Touch with us to discuss your specific situation if you are uncertain and we can help you decipher the rules!