What are Independent Contractors?

This question is most often asked of me by employers who hear from someone that they can avoid the costs and risks of being an employer if they convert their employees to "independent contractors". This tactic is also used by some employees who do not want income tax, EI and CPP premiums deducted at source.  This issue has caused a lot of problems for uninformed employers.

What is an independent contractor?  The most useful answer is: someone who does work for you that is NOT an employee?  So how can you tell if someone is an employee or independent contractor? There is no magic formula to determine the answer.  The underlying theme is CONTROL.  The tribunals and courts look at a number of factors, none of which is necessarily conclusive on its own, but each is an indicator of the presence or absence of an employment relationship.  Ask yourself these questions:

Does the person have a desk and a phone?  Does the person work set hours, or can they determine their own schedule?  Who owns the tools?  Do you pay wages, or does the person submit invoices? Do you specify WHO does the task, or do you only care that the job is done?  (For example, your office cleaners are likely independent contractors: you don?t care who shows up to do the cleaning, as long as it is done right.)  Does the person set the fee, or is it dictated by you?  Is there a chance of profit (and corresponding risk of loss) for the person?  Do you decide how the work is done, or can the person choose the method? Does the person work at your place of business or somewhere else? 

When you ask yourself these questions, you should get a sense over who has control and whether the person is an employee.  If you think it is unclear, be safe and assume the person is an employee, or change the work environment so that the answers to the questions make it clear that they are not employed.  It is not worth being audited by Revenue Canada.

Next month, I will set out some advantages and disadvantages of independent contractors, and the consequences to you if you make the wrong determination.