A lot of businesses that are starting to look into worker classification end up with a lot of questions: Should you classify your worker as an employee or independent contractor? What benefits are an employee entitled to? What is the cost-benefit ratio?
Worker classification has become a hot-button topic in the last few years, as agencies including the CRA (Canada Revenue Agency) are starting to implement policies to cut down on business misclassification. This can be frustrating for a number of businesses that don’t have cut-and-dry guidelines, or simply don’t have prior knowledge of how they should classify their workers and how they should process the necessary paperwork. With this guide we’ll give you some answers to those frequently asked questions and help save you and your business from making some costly mistakes.
Basic Classification Guidelines
Thankfully, the Canadian Revenue Agency has an online guide which provides criteria to determine how to classify your workers, and the responsibilities you’ll have as an employer towards your workers, depending on whether they can be classified as self-employed or an employee. While the real difficulty is in the nitty gritty details of worker compliance, there are avenues that you can take to alleviate the burden of having to sift through all the legal documentation. For example, you have the option of requesting a ruling through the CRA, and there’s always the option of partnering with a PEO.
In terms of deciding which worker is more beneficial to your business in its current state, there are a few things to consider: If you’re a company that requires the ability to change size depending on the project (such as an IT company) then you’re going to need to adopt a business strategy which favours having a core team and a set of independent contractors. Scalability is useful in that it allows a company to be able to accept a large project opportunity and adjust resources depending on the needs of the project (i.e independent contractors). Similarly if the work is seasonal, businesses can scale down the workforce to adjust for those slow months. Other situations which might require the use of independent contractors is if there is a specialized skillset, which your business might require occasionally, but you don’t want to hire full time.
An employee is generally going to be hired when you have the infrastructure to support a stable workforce. Raymond Grainger, Founder and CEO of Mavenlink, suggests that if the billable time of current full-time employees is at or above 85 percent and the profit margins are at least 50 percent, those are good indicators that the company is ready to add another full-time employee. The employee is going to be supervised by a manager and more resources are going to be spent processing the appropriate paperwork for that employee. Often, the employee is also going to expect to be provided the necessary equipment by the business to do their job.
Partnering With A PEO
The danger of misclassification is real, and often has financial consequences for a business that for example, hires a worker as an independent contractor, but uses them in the same capacity as they would an employee. Thankfully, the importance of classification is become more and more well-known. With a bit of research, it’s clear that classifying properly saves you money and your reputation in the long run, particularly if you utilize an appropriate business strategy.
That’s why it often helps to partner with a PEO when dealing with worker classification. A PEO is going to have access to the resources that you need, and will work with you and your company to hire the appropriate workers, following strict worker classification compliance. It’s their job to ensure that you’re getting the appropriate staff for your business strategy, and they will do all the payroll and HR services that you would normally do in-house, for a monthly flat rate fee. Having determined whether you want to adopt a scalable business plan or not, partnering with a PEO can save you a lot of hassle, and guarantee that you won’t be met with a government audit and face the steep consequences of worker misclassification.