Understanding Independent Contractor Agreements
When any person does work for a business, individual or company, they may act in that capacity as an employee or an independent contractor. Employment contracts and independent contractor agreements both include pros and cons. The right framework for any given situation depends on the specifics involved and the intent of the parties to the agreements. If the choice is acting as a contractor, it is essential to properly draft the agreement. At Kahane Law Office, our employment lawyers assist clients with drafting proper independent contractor agreements specifically suited to your unique situation.
The Difference Between Independent Contractors And Employees
First, understanding the difference between independent contractors and employees is key. With that understanding a business, and the person working for that business may then determine what works best. The following include the key differences between the two.
What Are Independent Contractor Benefits?
Independent contractors differ from employees in that they may / must, for example:
- Claim allowable business expenses under the Tax Act. These expenses offset the contractor’s yearly income;
- Require their own private work place accident insurance policy;
- Lack protection under the Alberta Employment Standards Code, the Alberta Human Rights Act, and the common law;
- Work for an many other companies as they wish, subject to any restrictions in their independent contractor agreement; and lastly
- Arrange their own Employment Insurance payments, Canada Pension Plan payments, pay their own taxes and GST as required, arrange their own health benefits.
What Are Employee Benefits?
Employees, conversely, include what most people think of when they think of a person who works for a company. Employees:
- Often receive paid or partially paid health benefits;
- Rely on their employer to make their Employment Insurance and Canada Pension Plan payments;
- Receive protection of Worker Compensation laws at not direct cost to themselves;
- Do not have any right to deduct expenses related to their employment from their taxes; and lastly
- Receive protection from both the Alberta Employment Standards Code and the common law. This protection includes protection for overtime pay, termination pay or termination notice, minimum wage, holidays and more.
Legal Test For Employment / Contractor Status In Canada
In Canada, the test for employer or contractor status developed over time with a number of hearings and court cases. While no one factor plays a key role, in determining the status of a worker, the following variety of factors come into play. Independent contractor agreements help define roles explicitly, in writing in advance. However, these are examples only and merely represent some factors. Many other factors come into play and a proper evaluation by an employment lawyers help to avoid problems down the road. That said, for example, look at:
- If the contractor controls what work he or she decides to do for a particular business;
- Who determines the hours worked by the contractor;
- The party who determines where and how the work is completed;
- What evaluations occur of the work completed;
- The party required to pay for travel expenses;
- Who pays for any health benefits;
- If the business supervises and evaluates, the contractors work;
- Any allowance for the contractor to subcontract out part of the duties contracted to by the business;
- If the contractor is free to refuse completing certain tasks;
- What work the business sets as a project. Ie one specific component or task, vs regular ongoing tasks as assigned at the business’s discretion;
- Who owns the tools required to complete the tasks required by the business. Ie the business owns the tools vs. the contractor owns the tools;
- The party responsible for maintaining, and replacing tools required to complete assigned task;
- Who profits from the work completed.;
- The party with liability when a task is negligently completed;
- Who bears the financial risk if the task assigned costs more to complete; and lastly
- Payment of wage vs. payments for tasks completed;
Penalties For Improper Employee / Contractor Designation
Both the employee / contractor and employer may be penalized under Canada Tax laws if the Canada Revenue Agency deems a work relationship to be that of employment vs contractor. This is part of the reason why Independent contractor agreements are so important. The employee’s risk includes facing higher personal taxes in the form of:
- Any disallowance of dividends to be owing as employment income;
- Losing deductions which then become employment income;
- Previously made payments under corporate tax rates being reassessed as employment income.
Employers, if a contractor is deemed to be an employee face a number of penalties, including for example:
- Interest owed to the government at Prime plus 1%;
- A ten percent penalty on the total reassessment amount owing;
- Backdated amounts owed for both Employment Insurance and Canada Pension Plan payments for the past year and the current year.
How Our Lawyers Help With Independent Contractor Agreements
Our independent contractor agreement lawyers assist with the following aspects of employer / employee / contractor contracts:
- Evaluation of type of work provided by contractor;
- Determination of proper status of relationship between the person completing work and the business paying for it;
- Contractor / employee classification;
- Drafting of independent contractor agreements;
- Litigation surrounding independent contractor agreements and disputes on classification;
- Severance pay and termination pay of employees (actual or deemed); and lastly
- Drafting employment contracts, employment policy manuals and employment handbooks.
Hiring Independent Contractor Lawyers In Calgary
Our employment law team includes lawyers ready to help with all aspects of labour and employment law including all components of independent contractor agreements. We understand that completing these agreements properly often includes time sensitivity and we provide prompt cost-effective service to all our clients. Most important, please feel free to reach out to Kahane Law Office, in Calgary, Alberta anytime. Connect with us today at 403-225-8810 or email us to connect.