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Have You Hired an Independent Contractor or an Employee? How do you know?
October 1, 2019
Have You Hired an Independent Contractor or an Employee? How do you know?

Businesses in Canada are increasingly using a combination of employees and independent contractors to staff their business operations.  This shifting dynamic sparks the question of how to define an employer-employee or a business relationship (self-employed, independent contractor).  There are significant legal differences to note between the two. Bill 47 (Making Ontario Open for Business Act) repealed portions of Bill 148 concerning the employee and contractor relationship. While there remains a prohibition against treating an appropriately classed employee as an independent contractor, the onus of proof has shifted back to the workers, who are required to prove that they are an “employee” instead of a contractor.  Despite the burden being placed on the employee, if you are a business owner, you may face misclassification; therefore, you should take the time to understand the differences.

 

Employee vs an Independent Contractor:

There are generally four main differences that emphasize the key differences between these two categories.

 

  1. Control

    • Employees are constrained in how they perform and carry out their work. The employer decides what the employee is to do, how much they will be paid, they supervise their work, and determine where and when the work is performed.  By contrast, independent contractors generally exercise more control over their work. 

  2. Tools and equipment 

    • Independent contractors are more likely to supply their own tools and equipment – uniform, computer, office, cell phone, etc.  Subsequently, they are also responsible for the maintenance and replacement of said items. Whereas employees will have their tools and equipment provided to complete their work.  

  3. Integration 

    • An employee’s job will be an integral part of an employer’s business.  A self-employed person, on the other hand, will be less integrated with the daily business. 

  4. Chance of profit/risk of loss 

    • When an employee is paid a set amount, they bear no risk of loss or personal expense in completing their work.  By contrast, with the independent contractor relationship, the worker can negotiate their fee, subcontract their work, as well they incur expenses.  

What Can Businesses do? 

The Ministry of Labour is responsible for deciding who is an employee in the event of a dispute.  Businesses, however, should start with a proactive review of your workforce and contracts. If you think you are misclassifying your employees, it is always best to ask an HR professional for advice. 

 

If you are facing a potential misclassification situation or have any questions regarding how to differentiate an employee from an independent contractor, we are here to help. Essential HR understands the importance of making clear this distinction to your recruitment and hiring practices.  Contact us today.

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