Let’s Call a Spade a Spade: When is an Independent Contractor really an Employee?

IC-employee1In this virtual era, the traditional workplace model of one site filled with many employees is gradually becoming replaced by the more modern approach of several individual workers operating remotely from a variety of locations, often home offices. The potential benefits to business owners of this alternative structure are myriad: reduced overhead, flexible work schedules, tax advantages…

Employers and employees alike are often attracted to the idea of creating an “independent contractor” relationship in these cases, where the worker will be the one responsible for all required government remittances (income tax, CPP) in exchange for being able to deduct business expenses from her income at tax time. Unfortunately, many of these arrangements are poorly thought out such that both parties are at risk of liability under various employment and tax laws by virtue of the worker being found to be an employee.

IC-employee2Many business owners are under the misconception that calling a worker an independent contractor will be enough to create a contractor relationship. In fact, neither the term nor even the parties’ intentions to contract on this basis will suffice under the law. Rather, BC courts and the various interested government bureaus (e.g. CRA, the Employment Standards Branch) typically look at the actual nature of the parties’ relationship when considering whether a so-called independent contractor is actually an employee.

Is there an ironclad solution to this problem? Sadly, no. Are there ways for employers to increase their chances of successfully arguing that their contractors are not employees? Absolutely. Here are just a few:

  • Make sure the contractor owns and uses her own “tools” of your trade, be they business cards, a computer, a vehicle, or a hammer.
  • Avoid imposing uniformity on your contractors, for example, in the form of their clothing or workspace.
  • Permit your contractor to subcontract or delegate his responsibilities to others.
  • Create a compensation scheme that puts the chance of profit and risk of loss squarely on the contractor’s shoulders.
  • Allow your contractors to set their own hours, within reason.

IC-employee3Keep in the mind that none of these factors, or any other, is more or less important when it comes to the independent contractor vs. employee question. As we are fond of repeating, much will depend on the facts of your particular case. Your best bet is to take care when structuring your business relationships, and seek the advice of employment counsel before finalizing the details.

Have more questions about an existing or proposed contractor relationship, or other employment law issues? Contact us: help@kentemploymentlaw.com

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