The status of a worker as an employee or independent contractor is determined by more than just what is written in a contract.
According to the Canada Revenue Agency, “the facts of the working relationship as a whole decide the employment status.”
In order to determine if a worker is providing services as an individual for their own business or as an employee, the Canada Revenue Agency looks at two main factors to determine the intent of the working relationship between the person working and the person paying:
- the objective facts of the contract agreement
- the subjective nature of the working relationship
Employment status is therefore a function of both form and substance.
The objective facts of the contract
In order to determine if a worker is an employee or an independent contractor, courts will look at the subjective facts by first examining the language of the contractor agreement. Next, they will determine if both parties understood and agreed to the independent contractor arrangement. Finally, they will look at the actual nature of the working relationship through such documentation as invoices and income tax filings.
The subjective nature of the working relationship
The main subjective factors in determining the nature of a working relationship relate to the worker’s level of control or independence, their opportunity for profit or loss and their responsibility for tools and equipment.
The worker’s degree of control or independence. According to the ESA, you are most likely an employee if your payer decides such things as your work, pay, schedule and location. In an employer-employee relationship, the working dynamic is one of subordination in which the payer exerts control over the worker in terms of what jobs they will do and how. By contrast, an independent contract does not have anyone directly overseeing their activities and can choose to accept or refuse work from the payer as well as hire and terminate subcontractors.
The worker’s opportunity for profit or loss. In the case of an employer-employee relationship, the worker will likely be paid a wage, salary or commission and will not have the opportunity to directly profit from the specific work that they do. An independent contractor on the other hand, will hold the financial risk of the work in terms of operating costs, investment and liability.
Responsibility for tools and equipment. Who owns, provides, repairs, maintains, controls and replaces the tools and equipment necessary to do the work? If it is the payer, then the worker is likely an employee. If it’s the worker, then they are likely an independent contractor.
Why employment status matters
Employment status affects many things including EI benefit entitlements, pension and income tax. Employers are responsible for deducting Canada Pension Plan contributions, EI premiums and income tax. Employees are entitled to such Employment Standards Act provisions as minimum wage, overtime and vacation pay, as well as public holidays.
It is an offence to misclassify an employee as an independent contractor. While Bill 148 put the onus on employers to prove someone is an independent contractor should an allegation of employee misclassification be brought forward, Bill 47 (Dec. 2018) now puts the onus on the worker to prove misclassification.
KCY at LAW Can Help
Sometimes, it can be difficult to properly determine your employment status. If you believe you have been misclassified as an employee or independent contractor, you should contact an employment lawyer immediately to ensure that you are receiving your due rights, entitlements and opportunities.