Six Things to Help Canadian Employers Determine an Independent Contractor From an Employee
Being a business owner anywhere can be a complicated endeavour. There is a lot to understand about employment law, which is why having an employment lawyer can be such a great idea. Having a professional who understands this area of the law and can advise you can be an invaluable asset.
They are particularly helpful when it comes to making the determination between an independent contractor and an employee. The distinction can be tricky for the uninitiated and can lead to unnecessary complications.
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Facts to Determine Independent Contractor or Employee
Here is what Canadian employers should know about determining an independent contractor from an employee.
1. The Control Test
There are a handful of tests that employers can conduct to determine whether a potential hire will fall under the employment banner or work as an independent contractor. The control test is not quite as effective as it once was, which is why it is in conjunction with a few others.
But in the olden sense, it is to determine if a salaried clerk is or is not in a master servant relationship. The terms have changed substantially, but it basically has to do with the right to control from the employer. Let’s take a look at the other tests.
2. Integration Test
This is also known as the organization test. This is to determine whether the work being done is actually integral to business operations. It basically is a determination of just how integrated an employee will be to the company. The more integration, the greater the possibility that the distinction is as an employee and not an independent contractor.
Essentially, an organization cannot hire an individual, make them a focal point to the operation of that business, and yet still only classify them as independent contractors. They would need to declare them as an employee and give them all the rights and privileges that an employee would garner. Sexual assault lawyer will help you with any kind of harassment if you face workplace sex abuse victims.
3. Economic Test
The economic test is used to determine salary or wages, what right to the company pension there may be, what constitutes payment during times of absent illness, control by the employer as far as a disciplinary code, work done on the employer premises, and any prohibition from working for competitors.
This is perhaps the most important determining test that there is. There is a fine line to walk between independent contractor and employee. Having an employment lawyer could help make the waters in situations like these a lot less muddy.
There are certain specifications within each organization that an independent contractor would have to follow versus an employee of the company. There are also certain benefits that would be entitled to an employee that would not be entitled to an independent contract such as medical benefits, pension plans, and more.
4. The Paperwork
There are certain thresholds that must be paid attention to as well as a slew of forms that have to be turned into the Canadian Revenue Agency (CRA) by a certain point in time. These include subcontractor services, construction subcontractors, cross border contractors, and even US citizen contractors in Canada.
Determining which forms are needed can be found through the CRA website and can include services such as lawyer, accountant, and bookkeeper. Personal services, such as dental work or a hair salon service, would not fall under this distinction.
5. Written Agreements
If there is one thing that is perhaps more important than the rest, it is having a written agreement in place. Having written agreements is the best way to reduce confusion and ensure that all of the proper guidelines, especially those pertaining to the CRA, are being adhered to.
Creating a written agreement, one that pertains to not only Canadian contractors versus employees as well as any potential visiting US contractors, can be incredibly complicated. It is highly advised that an employment attorney draft the documents necessary to create this agreement.
The written agreement will come in handy for determining the rights and obligations of each part under the agreement. It is also the reference point should there be any issues between employer and employee during the duration of the agreement.
6. The Penalties
Of course, there have been more than a few instances where this status was violated or not adhered to according to Canadian law. For these violations, there are penalties that follow.
They can include 10% on income tax, CPP, and EI when there is a failure to withhold the first time. Repeat offenders will see that penalty increase to 20% with non-deductible interest on the amounts owed being included.
Needless to say, it is in the best interest of an employer to make sure that they are following the guidelines. With an employment attorney, organizations of any size can ensure that they are following the proper protocols.