Independent contractor vs employee? How to spot the difference!

Posted on June 21, 2016 · Posted in Blog, Employment Law

In today’s more flexible economy, where temporary and contract work is increasingly common, it is sometimes difficult to spot the difference between an employee and a contractor. The ability to distinguish between an employee and a contractor is crucial for working people to protect their most basic rights and interests.

The most basic distinction between an employee and a contractor is the degree of control that the employer has over the person that is engaged to perform services for them. The greater the control that an employer may exercise means an increased likelihood that an employer-employee relationship can be said to exist. The Wiebe Door test is very useful and provides constructive guidance.

The following indicators help to delineate the degree of control and to distinguish between an employer and employee:

  • Are the hours of work set or are they flexible? A standard 9-5 relationship suggests an employer-employee relationship, whereas a contractor has more flexibility to set their own schedule.
  • Does the employer provide tools for work or is the expectation that the worker supplies their own? Whereas employees use the office equipment and tools provided by their employer, contractors generally supply their own. For example, a mechanic hired by homeowners to do repairs as a general rule would bring their own tools, and is hired in the capacity as a contractor.
  • Does the worker have the right to hire their own helpers and subcontractors? Contractors routinely hire their own helpers and subcontractors to perform work tasks whereas employees are precluded from doing so, and it is their employer that makes personnel decisions.
  • Does the employer withhold and remit taxes to the Canada Revenue Agency (“CRA”)? This is a key difference between employees and contractors. Employers generally do withhold and remit to the CRA a portion of an employee’s earned income on each pay cheque, whereas contractors are remitted without any deductions but must withhold a portion of earnings to the CRA on their own.

A contractor essentially works for themselves and bills an employer for services rendered, while an employee works for their employer and is subject to much more supervision and control. Unlike an employee, a contractor enjoys greater freedoms and flexibility in their work, whereas an employee is subject to greater structure.

Yet the upside of being an employee is that despite the greater control by the employer, they are afforded rights and protections under the Employment Standards Act. [“Act“] The employee is entitled to statutory benefits, such as vacation pay, paid statutory days , and overtime pay of “time and a half” for hours worked in excess of 44 hours per week. A terminated employee must also receive notice or pay in lieu thereof, unless the employer can demonstrate just cause, which is reserved for severe and egregious misconduct.

There has been a definite shift towards contract work in most recent years, with precarious employment and temporary work increasingly filling the void in the job market. Although contractors enjoy much greater flexibility and mobility than employees do, they must withhold their own taxes and are generally not afforded statutory protections contained in the Act. It is very important to weigh the pros and cons before signing the dotted line in any contract, and to be able to spot the difference to best protect your own rights.

If you are not sure if you have been hired as an employee or contractor, and require independent legal advice, I am delighted to help! You can reach me at (647) 468-8347 or by email at jeremy.richler@gmail.com.