Are You An Employee Or An Independent Contractor?

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Being employed doesn’t necessarily mean that you’re an “employee.”

You may be finding that you or your friends are increasingly entering into working relationships where you’re an “independent contractor” rather than an employee.

Why?

Employers often prefer hiring independent contractors for the cost savings. Contractors do not receive benefit packages, pensions, or other perquisites provided to employees. Employers also do not have to withhold income tax or pay a share of a contractor’s CPP or EI. Contractors also do not have entitlements to basic employment rights such as minimum wage, overtime pay, health and safety protections, job-protected leaves, and human rights protections.

Contractors also benefit from a big (tax) advantage too, in that they can deduct reasonable business expenses at tax time.

Despite these potential benefits, there are significant drawbacks if a contractor is truly an employee, including unpaid taxes (for both the employer and the contractor), penalties, interest, CPP, EI, and other legal liability (under Human Rights Code and the Employment Standards Act).

How do you know which arrangement you are in?

You may be an employee when at least some of the following describes your working arrangement:

  • You receive training from the company
  • The company supervises your work
  • You do not have control over your work, hours or rate of pay
  • You work with tools or equipment that the company provides
  • Your boss is the one who makes a profit or loss- you don’t pay the costs of the business or get the profits over and above your wages
  • Your work is a (integral) part of the business or you have become an integral member of the company
  • You work exclusively for the company

You may be an independent contractor when some of the following describes your working arrangement:

  • You control how your work is done. You may hire other people to assist in doing the work and you (not the company) direct their work
  • You can negotiate your pay and when your work has to be done
  • You provide regular invoices to the company for your work rather than being paid on a payroll
  • You own and are responsible for some of the tools or equipment you use to work
  • You make the profit or loss from the work: if there is a profit, you receive it, and if there is a loss, then you are responsible for the loss
  • You are not an integral part of the company
  • You have the freedom to choose who you work for and can work for different companies at the same time

Even if you sign a contract which states that you are an independent contractor, you may still be an employee.

What determines whether you are an employee or an independent contractor is the nature of the relationship: in other words, how your work is actually performed. Therefore, even if you sign a contract that says you’re an independent contractor, you may still have rights and obligations as an employee if you are really an employee.

As the final determination depends on the individual facts and circumstances of each arrangement, remember that old saying about the duck: if you act like an employee and are treated like an employee (in all but receiving the benefits/protections of an employee), you’re likely an employee, notwithstanding intentions to the contrary.

Have you worked as an independent contractor in your field? Tell us your story in the comments!

Disclaimer: This article is for general discussion purposes only and should not be regarded as legal advice.

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About the author

Parisa Nikfarjam is an employment lawyer with Rubin Thomlinson LLP. She supports both employee and employer clients with legal counsel in all areas of employment law and workplace human rights. Parisa is a recent graduate of Osgoode Hall Law School, where she earned her Juris Doctor degree. Parisa writes numerous articles on employment law topics for a variety of publications including HR Connected and Lexology, and enjoys speaking to human resources professionals, educators, business owners, and recent graduates about workplace law issues.