Am I an employee or an independent contractor?
As a worker, you might not know if you are an employee or an independent contractor. You might not know if you fall under yet another category, dependent contractor. At first glance, this may appear to be legalese: all talk, with no meaning outside the courtroom. However, it is important that every worker know which of these categories they fall under, because this category determines how the person you work for must treat you and what they must pay you.
Do you get vacation or overtime pay? Does your boss have to pay severance if you get laid off? How about deductions for income tax, EI or CPP? It depends if you are an employee, dependent contractor, or independent contractor. Many of us would rather not have these deductions taken from our paycheque, but it is crucial the correct deductions are made so that you can receive EI if necessary, or so you do not get an unexpected income tax bill.
How do you know if you are an employee, dependent contractor, and an independent contractor?
This is a complicated question to answer and always depends on the facts of the case. There are many tests in caselaw and legislation to determine whether a person is an employee. One of the primary tests is from the 2001 Supreme Court of Canada case, 671122 Ontario Ltd v Sagaz Industries Canada Inc. This case held that whether a person is an employee is determined by whether the person is performing business of their own account. The Court considered several, non-exclusive factors:
1) Who has control?
2) Who owns tools or equipment?
3) Do the workers hire their own helpers?
4) Who bears financial risk?
5) Who has responsibility for investment and management?
6) Does the worker have opportunity to profit from the performance of tasks, apart from receiving a salary?
To put this in plain language
If your boss controls when you work, what you do, and how you do it, you are likely an employee. An employee generally must do as their told. In exchange the employer must provide things like training, safety equipment, and severance pay if they terminate your employment. Employees have benefits such as protection under employment standards legislation, a right to notice of termination, and entitlement to EI and CPP. Employers can be vicariously liable, meaning they can be held legally responsible, for actions done by their employees while on the job.
An independent contractor, on the other hand, has far more control over their work. An independent contractor will usually set their own hours. An independent contractor usually provides their own equipment and supplies and can charge the client extra for supplies used on the job. An independent contractor does what is asked but can usually decide how to do it. For example, a self-employed plumber who arrives at someone’s home to fix the sink would likely be an independent contractor and would likely not take instructions on how to fix the sink. An independent contractor provides the desired result, but in the way they see fit. Independent contractors have the additional responsibility of paying their own government deductions like income tax from their earnings. They also need to register themselves with the government if they want to pay into and receive EI.
Dependent contractors fall in between employees and independent contractors. Dependent contractors are not employees, but they work for one person to such an extent that they are economically dependent on that person. They are entitled to more protections than independent contractors, but fewer than employees. For example, they are entitled to reasonable notice of termination, but they usually are not protected by employment standards legislation.
Be sure to seek legal advice if you think you are an employee or an independent contractor and are therefore entitled to certain benefits. Legally, you might be an employee for one purpose but an independent contractor for another purpose. Due to this complexity it is well worth seeking legal advice if you need to know to what benefits you are entitled. Call me at 204-557-1533 or email me at firstname.lastname@example.org to schedule a free, 30-minute initial consultation.