Sometimes, employers just don’t need full-time employees but require workers for specialized projectsin shortertime period. For those looking to hire these types of worker, it’s important to make sure you understand how contractors differ from employees.
Avoid these five mistakes if you’re considering hiring Canadian independent contractors.
Misclassification is big problem for businesses. Wrong employee labels result in serious consequences. By misclassifying, you’ve been miscalculating wages, benefits, and taxes incorrectly from the start. Canadian independent contractors are not employees, and this crucial distinction is defined by their nature within the company.
Courts use a four-point test to classify an independent contractor:control, equipment and tool ownership, subcontracting ability, and profit chance/risk loss.Contractors have more independence from the employer than full-time employees. They generally own and provide the majority of the equipment and tools for the project, and theyhave the ability to subcontract some work if necessary. In addition, if they have a chance of profiting and run the risk of incurring lost profits, they’re contractors.
2. Poorly Drafted Contracts
An employee contract should be drafted in line with the provincial Employment Standards Act, and the same rules apply for contractors. If a contract is signed between the business and the independent contractor, it’s necessary to clearly indicate within that said person is an independent contractor. Clearly defining this worker within the contract helps it hold up and remain enforceable in court. This will also later help fend off categorizationissues by the Canada Revenue Agency.
A well-written contract classifies the intention of the relationship. While courts will still consider circumstance and individual facts of the case, well-worded contracts between businesses and independent contractors better highlight theirindividualsituations.
3. Miscalculated Taxes
Taxes for Canadian independent contractors are calculated differently than employees, precisely because of their different classification. In fact, employers do not handle the tax responsibilities for contractors at all. Again, the importance of labelling workers correctly at the beginning is key for avoiding future penalties and ensuring the right amounts are calculated in final remittance reports.
When it comes to contractors, withholding amounts, reporting requirements,and CPP and EI contributions are not deducted as with regular employees.
Knowing the difference is crucial forensure compliance with tax regulations.
4. Wrongful Distribution of Wages and Benefits
Pay and benefits also have to be precisely calculated. Just like tax deductions, these are also totalled differently. Canadian independent contractors aren’t provided benefits.
A contractor isn’t employed by the employer in the same sense that an employee is, so a contracto’s pay is calculated differently—they are typically paid a higher wage but they do not have deductions for benefits, pension, or anything else. An employee integrates commercial activities to the payer while independent contractors integrate the payer’s activities to their own commercial activities.
5. Miscommunicated Intention
If you’re unclear about contractors’ roles from the beginning, the intention of their business may never clear up during the project. Confusing employee status can cause problems in the working relationship.Remember that unlike with the employee, the employer has less control over independent contractors. Contractors set their own schedules, which both parties agree to.
Contracting shouldn’t be a full-time job disguised an independent contract work–this is an incorrect intention. Employers should familiarize themselves with the legislation and policies on employees and Canadian independent contractors to ensure they clearly understand the differences between them and can clearly communicate the intent of both workers. The four-point test mentioned earlier is key to distinguishing the type of worker hired.
Clearly understandwhy contractor services are considered independently contracted. Be clear about who you’re working with and the job needed to ensure both parties know a contractor is hired and not an employee. Miscommunication just leads to confusion.