When hiring a worker, is it very important to distinguish whether that worker is an employee of your business or a self-employed individual (contractor). This employment status can affect the individual’s entitlement to receive employment insurance (EI) and it can also have an impact on your business’s obligations to that individual and the government.

If a worker is considered an employee, then the payer is the employer (employee-employer relationship). In such case, the employer is responsible for deducting CPP contributions, EI premiums and income tax from the employee’s pay. These deductions must then be remitted to the CRA along with the employer’s share of CPP and EI contributions.

On the other hand, if the worker is considered self-employed, then the relationship between the worker and payer is considered the same as the relationship between two businesses. In this instance, the payer does not make any deductions from the worker’s pay and does not make any remittances for tax, CPP and EI relating to this worker’s pay. Additionally, the worker usually does not participate in any of payer’s employee benefit plans.

Often, the differences between an independent contractor and an employee can become blurred which can result in costly mistakes. If the CRA later reclassifies a contractor as an employee, it can result in several fines and penalties for the employer. For this reason, it is critical that you clarify and communicate the relationship between your business and any contract workers hired.

There have been instances where the CRA will challenge an organization’s claim that it hired the worker as an independent contract and not as an employee. The CRA has several criteria which it uses to assess the relationship; the following are some of the areas which it will focus on:

• To what extent will each party have control regarding what work will be done and how it will be completed?
• Which party provides the tools, equipment and materials required to carry out the work?
• What is the degree of financial risk incurred by the worker? What costs does the worker incur which will not be reimbursed?
• Can the worker subcontract the work and hire assistants?
• Does the worker have an opportunity to make a profit of realize a loss?
• What is the degree of integration of the contractor’s work in the operation of the entire business?

From the perspective of the payer/business, there are a number of things you can do to protect yourself and mitigate any risk. You don’t want to subject yourself to huge penalties. Get the professional tax accounts and financial advisors at GTA Wealth Management Inc. to help.

As a business or organization, it is important for you to understand the differences between hiring an employee versus hiring a contractor and the implications it can have. Contact or call GTA Wealth Management toll free 1 855 GTA WLTH (855 482 9584) to accelerate your ride to financial independence. A professional wealth management financial advisor is ready to serve your wealth management, tax return and planning needs. GTA Wealth Management Inc. has three convenient locations in Mississauga, Toronto and Markham to serve you.
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