Correctly classifying workers is much more important than people often realize. The Canadian government strictly enforces proper classification, so it’s important that you know the difference between an employee and an independent contractor. Save yourself the headache: use this handy guide to easily differentiate the two types of workers.
Degree of Autonomy
The amount of independence workers have is a great indicator of whether or not they are employees or independent contractors. Does the worker report to an employee of the company, or does he or she report to someone who is not affiliated with your business? How much control do you have over his or her work and how it is carried out?
If you aren’t able to exercise much control over the work they are undertaking, the odds are that this is because they don’t actually report to your company, but instead are employed elsewhere and are only completing contract work for you. If the workers do not report to someone affiliated with your company, they are contract employees and should be classified accordingly.
Tools and Equipment
If individualsare official employees of your company, then you are responsible for providing them with the tools and equipment necessary for the completion of their job. These tools belong to the business, not to the worker, and their use is conditional upon their employment.
If workers are supplying their own tools and equipment to carry out their work, then they are likely contract workers. Contractors are responsible for bringing their own equipment, all of which belongs either to them or the company they work for that is contracting them out to other businesses.
While there are occasions wherein an employee will have to provide their own equipment, this is rare, and there are still certain signals to look out for. If employees are providing their own equipment, the responsibility for maintenance and repairs will fall on the employer.
Employees don’t have the right to subcontract their workload, or to hire assistants, unless hiring capabilities have been granted specifically in their contract. Even if an employee does have the ability to hire, those hiring decisions would usually have to be approved by superiors of the departments involved.
Independent contractors, by virtue of not actually being employed by the company, have the right to subcontract their work and hire assistants without approval. They cover the costs of paying for the subcontractor. If the workers you’ve hired someone else to carry out their duties or services, then you should be classifying them as contractors and not as employees!
Taxes and CPP
Correctly classifying your workers is incredibly important because if the government finds that you have not done so, there are real consequences involved for both you and the workers. For employees, you are responsible for covering certain taxes and providing the paperwork they need to file their own taxes as full-time employees. You are also responsible for paying into their Canadian Pensions Plan, or CPP. If a worker is actually a full-time employee, but you’ve mistakenly classified him or her as a contractor, you’re not paying out the proper taxes to the government and you’re also denying the employee the full benefits he or she should be receiving as a full-time and legitimate employee.
On the other hand, if you’ve incorrectly classified an independent contractor as an employee, you’re providing benefits to the worker that he or she is not actually entitled to under the legal system, thus losing your money. The Canadian government takes worker classification very seriously, so making sure you’ve done the work to differentiate between employees and independent contractors can save you serious grief down the line.