Employee vs. Contractor

Employee Versus Contractor

As a self-directed support user (Microboard/Person Centered Society/Individualized
Funding) your funder’s policy may allow you to hire your staff as either an employee or as a contractor. However, most people do not realize that this isn’t a determination that your funder can make for you.

When you hire staff, it is your responsibility to figure out if they would be classified as an employee or as a contractor in the eyes of different governing bodies. While hiring a contractor is often easier for the payer, it is not simply a matter of choosing to hire staff as one or the other.

If you mistakenly hire staff as a contractor when the Canada Revenue Agency (CRA)
deems them to be an employee – you/your board could be responsible for all unpaid
remittances, taxes, and fees that are owed. This could include both your portion as the employer and the employee’s portion if they haven’t been remitting their taxes on their own.

As a general rule, because caregiving is based upon the needs of the person being
supported and not on the skills of the worker, most staff within our sector are determined to be employees. ) for any expectations they may have with respect to the bank account requirements.

How to Know Whether Staff is an Employee or Contractor

To figure out whether your staff are employees or contractors, you need to pay attention to the definitions and regulations set out by the CRA, Employment Standards, and WorkSafe BC. All of their definitions are similar, but each has slight differences.

1. Canada Revenue Agency (CRA):

Determining Employment Status

It is important to determine whether a worker is an employee or a self-employed individual. Employment status directly affects entitlement to Employment Insurance (EI) benefits under the Employment Insurance Act. It can also impact how a worker is treated under other legislation such as the Canada Pension Plan (CPP) and the Income Tax Act.

The facts of the working relationship as a whole determine the employment status.

Employer-Employee Relationship

In an employer–employee relationship:

The payer is considered the employer.
The worker is considered the employee.

Employers are responsible for:

Deducting CPP contributions, EI premiums, and income tax from amounts paid to employees.
Remitting these deductions, along with their share of CPP contributions and EI premiums, to the Canada Revenue Agency (CRA).

If an employer fails to deduct the required contributions or premiums, they must pay:

Both the employer’s and employee’s share of contributions and premiums owing.
Any penalties and interest that apply.

If a worker or payer is not sure of the worker’s employment status, either can ask the CRA for a ruling.

How to Request a CPP/EI Ruling

If a worker or payer is not sure of the worker’s employment status, either party can ask the CRA for a CPP/EI ruling.

A ruling shows whether a worker is an employee or self-employed, and whether that worker’s employment is pensionable or insurable.

You can request a ruling in several ways:

Log in to My Business Account (payer) → select “Request a CPP/EI Ruling.”
Log in to My Account (payer or worker) → select “Request a CPP/EI Ruling.”
Ask an authorized representative to request a ruling through Represent a Client → select “Request a CPP/EI Ruling.”
Write a letter, or print and complete Form CPT1 – Request for a CPP/EI Ruling: Employee or Self-Employed? and submit it online.

More Information

For full details, visit the CRA guide.

2. Employment Standards Act

Application of the Employment Standards Act

The Act applies to employees, regardless of whether they are part-time, full-time, temporary, or permanent.
The Act does not apply to independent contractors.
An independent contractor is considered self-employed, operating their own business.

Calling a person an independent contractor, even if the worker agrees, does not determine employment status. The Act sets minimum employment requirements, and any agreement that tries to waive those requirements is not valid.

Key Definitions Under the Act

To determine whether a worker is an employee or an independent contractor, it is important to review the definitions in the Act:

Employee includes:

A person (including a deceased person) receiving or entitled to wages for work performed for another.
A person an employer allows, directly or indirectly, to perform work normally performed by an employee.

Employer includes:

A person who has or had control or direction of an employee.
A person responsible, directly or indirectly, for the employment of an employee.

Work means:

Labour or services performed by an employee for an employer, whether at the employee’s residence or elsewhere.

Purpose of the Act

The purpose of the Act is to:

Ensure employees receive at least basic standards of compensation and conditions of employment.
Promote fair treatment and open communication between employers and employees.
Foster a productive and efficient labour force.
Assist employees in meeting their work and family obligations.

The Act is intended to protect as many workers as possible.

Determining Employment Status

When deciding if a worker is an employee or an independent contractor, one of the main questions to ask is:

“Whose business is it?”

The courts have developed some common law tests that may be useful, but they must always be considered in a manner consistent with the definitions and purposes of the Act.

Common Law Tests May Consider:

How much direction and control the worker is subject to
Whether the worker operates their own business and has their own clients
Whether the worker has a chance of profit or a risk of loss,
Whether the work is integral to the business
Whether there is an ongoing relationship

The longer someone works for another, and the more their duties and tools are controlled by the payer, the more likely the relationship is employer/employee.

Common Misconceptions

The following factors are not, on their own, enough to show that a worker is an independent contractor. There may be an employment relationship, even if the worker does some of the following: