Chances are, your business has independent contractors as well as employees. If so, it’s important to be aware that the Canada Revenue Agency (CRA) will determine whether a worker is an employee or independent contractor based on the facts and circumstances, not the wording of any contract you may have with the worker. A contract can help, but it won’t override other factors. The CRA will provide a ruling to determine whether a worker is an employee. The CRA looks at the control the employer has over the work – the more control, the more the worker will look like an employee.
The CRA will examine the facts that fall into three additional categories:
- Ownership of tools. What is the amount invested? What is the value of the tools and equipment? Who pays for the maintenance and rental of the tools and equipment? In an employer-employee relationship, the employer generally supplies the tools and equipment required by the employee.
- Chance of profit or risk of loss. What is the worker’s financial involvement? Does the worker have the chance to make a profit? Does the worker risk incurring losses due to bad debts, damage to equipment or materials, or unforeseen delivery delays? Does the worker cover operating costs? In an employer-employee relationship, the employer alone assumes the risk of loss.
- Integration. This final factor is analyzed from the point of view of the worker not the payer. What is the relationship of the parties, evidenced by the parties’ agreements and actions with respect to each other? Where the worker integrates his activities to the commercial activities of the payer, an employer-employee relationship probably exists.
A well-drafted independent contractor agreement supports your company’s position and serves as a blueprint of the working relationship
between your business and the independent contractor. The agreement should include factors that support the classification of the worker as an independent contractor. In addition, it should specifically mention that the worker will not be treated as an employee for federal tax purposes.
If you’d like to discuss strategies to strengthen the evidence supporting your business’s position on a worker, please contact our office to arrange for an appointment.