The determination of whether a person is an employee or an independent contractor is not always an easy one. And, sometimes the authorities, such as Canada Revenue Agency, do not agree with the determination made between the parties. The consequences to both parties of a re-characterization of the working relationship can have significant legal consequences.
While the courts do want to allow businesses and individuals to implement their own intentions, those intentions must be lawful and the parties must act in a manner consistent with those intentions. It is not permissible to enter into an employment relationship disguised as a contract for services.
It is therefore important to understand what factors are involved in making this determination so that the correct type of working relationship can be established from the beginning of that relationship.
Factors to be Considered
There is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor. The total relationship of the parties must be reviewed. The following are a list of factors that should be taken into consideration:
- What is the degree of control over the service provider?
- Who has the power to select the service provider?
- Does the service provider provide his or her own equipment?
- Does the service provider have the authority to hire his or her own helpers?
- What is the payment arrangement?
- Does the service provider issue invoices?
- Is the service provider paid a set amount, at regular intervals?
- Does the service provider have other sources of income?
- What is the degree of financial risk taken by the service provider?
- What is the degree of responsibility for investment and management held by the service provider?
- Does the service provider have the opportunity for profit in the performance of his or her tasks?
- Who evaluates and what is the method of evaluation of the performance of work?
- Who has the right to suspend or dismiss the person engaged to perform the work?
- How is the working relationship terminated?
- Does the service provider enjoy employment type benefits such as,
- Medical and dental coverage;
- Pension and/or RRSP contributions;
- Compensation for work-related travel;
- Paid vacation;
- Paid sick leave;
The answers to the above questions can help to understand what the relationship between two parties is. Then, the appropriate type of relationship can be documented.
The level of control the employer has over the service provider’s activities will always be a factor in how the working relationship between two parties is characterized. However, the above factors can help to determine what the total relationship looks like. And, making this determination early on in a working relationship can help to avoid surprises down the road.
This article contains general information about certain legal and other related developments. It is not intended to be a complete statement of the law and is not a substitute for legal advice. To receive legal advice, you must speak with a lawyer. No part of this publication may be reproduced without the prior written permission of Kimberley A. Cunnington-Taylor.