For businesses of all sizes, independent contractors can be a useful resource for a company in meeting its workforce needs. They often offer significant savings for businesses as a result of fewer legal obligations placed on the employer relative to those that accompany the traditional employment relationship. There is, however, a significant risk to employers that working relationships with individuals intended to be based on a “contract for services” may unintentionally fall within the ambit of the employer-employee type relationship, thus evoking all of the obligations that come with it. This can also often be accompanied by significant penalties from the Canada Revenue Agency.
With that in mind, Here is a list of Tips and Traps that suggest ways employers can mitigate the risk of an independent contractor being deemed an employee of the company:
|TIP:||Enter into a written agreement that clearly identifies the individual has contracted to provide services as an independent contractor, not an employee.|
|TRAP:||Avoid paying a salary or a wage to the individual; instead, request to be invoiced on a regular basis for the services rendered.|
|TIP:||Ensure that the individual is able to make a profit and bears some risk for any loss.|
|TRAP:||Where possible, avoid providing tools or equipment directly which are the property of the company (laptop, cell phone) to the individual. Also avoid providing them with a business card, a key, security pass or other such items.|
|TIP:||Ensure that the individual charges and submits Harmonized Sales Tax (HST).|
|TRAP:||Avoid entering into an exclusive arrangement with the individual or a contract for an indefinite term (such that they become financially dependent source).|
|TIP:||Ensure that the individual determines when and where the work is to be performed and is allowed to use substitute workers when they are unable to perform the work themselves.|
|TRAP:||Don’t require the individual to comply with certain company policies (vacation policy, absenteeism or sick day policy).|
|TIP:||Treat the contractor as such in all forms, communications and correspondences.|
|TRAP:||Avoid holding the individual out as an employee of the company.|
At times, the realities of competitive business make it inevitable that the boundary between a contract for services worker and an employee will become blurred. However, being mindful of the many aspects that ultimately will define the nature of the working relationship, including those identified above, can assist the prudent employer in doing their utmost to ensure that independent contractors stay independent contractors and do not subject the business to unexpected and unnecessary costs.
This blog is provided as information and a summary of workplace legal issues.
This information is not intended as legal advice.