Let’s start with an example.
Suppose Mrs. Johnson next door hires you to help her paint her fence. She asks if you are available, you tell her a quote and how long you think it will take, and she agrees. You purchase the paint, the brushes, the drop cloths, and everything else that you’ll need. She doesn’t mind when you come to work, so long as the job gets done.
Moreover, Mrs. Johnson does not really care how you do the job. If you want to buy an expensive piece of machinery to get the work done quickly? You can do that! If you want to subcontract 3 buddies to make the work go quicker so you can simultaneously paint other fences? That’s okay too. If you get it done faster than expected, you can come out ahead. If the job drags, you may be the one taking a loss.
Congratulations – you are (most likely) an independent contractor.
Now, let’s suppose Mrs. Johnson is a bit more…controlling. She sets a clear hourly rate to pay you and expects you to come in at certain hours. She’s supplying all of the tools you will use to do the job, as well as the paint. She’ll be supervising the project throughout, and even though there’s nothing in writing, she is very much acting as the boss.
Even without a written employment contract, you are likely Mrs. Johnson’s employee. That means different things from a legal perspective, from a tax perspective, and for what happens when Mrs. Johnson decides your work is done. This blog will take a closer look at some of the issues involved in determining someone’s employment status, and how the government may be about to change the game once more.
Employees vs. Independent Contractors
The debate between employees and independent contractors is often misunderstood, and often makes headlines when a major corporation gets in hot water in the media for misclassifying their employees, or the government passes new legislation attempting to provide some clarity on recognizing the difference.
In truth, there are no hard lines that separate employees and independent contractors, but rather a series of legal tests that have been established both in case law, and by the Canada Revenue Agency. The latter because one of the key differences between employees and independent contractors is the taxation – employers remit payroll taxes for employees, while independent contractors are businesspeople and liable for their own taxes.
The primary test as to whether a worker is an employee or an independent contractor comes down to 4 key factors: ownership of tools, exclusivity, chance of profit, and risk of loss. Again, while these factors are not a certain determination in every case, they do provide a clearer picture as to someone’s status.
To refer back to the example above – the independent contractor is purchasing their own supplies to do the painting, and effectively setting their own schedule of working hours.
They can hire whoever they want to help, and if the job is done quickly, they can come out ahead. If not, they may lose out. They can also take on other fences simultaneously if they so choose. They are, in essence, operating as their own business.
Employees, on the other hand, are subject to not only laws such as the Employment Standards Act, but also the whim of their employer. If the employer tells them what they can and cannot wear while painting, what type of paint they must use, who precisely will be allowed to complete the project, and sets other rules then the painter(s) are most likely employees under that employer’s control and supervision.
Advantages to Both
For those looking to hire, there are advantages to hiring an employee. If you have specific ways in which you want things done, or you want to have close supervision over the work, for example, then hiring employees may be advantageous. You know, in essence, what you are getting, and you do not have to be concerned about delays, subcontractors, etc.
Yet when hiring employees, you are also obligated to follow employment standards laws, including payment of minimum wage, overtime pay, vacation pay, rest periods, termination pay, etc. Depending on your workplace and your contracts you may also be obligated to provide benefits, or other perks, and you are responsible for that employee’s payroll taxes and withholdings. Taking on employees is a responsibility.
Independent contractors may allow for more freedom, but the agreements must be written precisely to confirm that these are not employees in disguise. It also requires those in charge to cede a great deal of control – they are forming a contract with another business, not an employee where they might have the upper hand.
Dependent Contractors
There is, sometimes, a third category known as ‘dependent contractors.’ While these workers do not exist under statute or legislation, the Courts have previously acknowledged that there are independent contractors who are not truly independent.
An independent contractor has the freedom to take on multiple clients at once in order to keep their business thriving. Yet if you have a contractor and are supplying them with the large majority of their work, say upwards of 80% or 90%, where they are truly unable to take on other projects, then their independence is questionable.
If the party hiring them decides to cease the contract without notice, then these workers are effectively left without work, as they did not have an alternate client base to build from. In some cases, courts have ruled that while not technically employees, these workers operated in a similar way, and thus may be eligible for termination and severance pay.
Final Thoughts
There may be changes coming down the pipeline yet again. In September 2024, the Ontario government passed the Digital Platform Workers’ Rights Act, which comes into force in July 2025. It is intended to protect those who work through digital platforms such as Uber, Lyft, or other delivery apps. While it does not openly declare these workers to be employees, it does mandate certain protections for their work, such as minimum wage, recurring pay periods, etc.
It remains to be seen how that law will operate in certain industries, but the truth is that the laws around employees and independent contractors change frequently, and practices that may have once been quietly acceptable can now put employers into some costly situations.
Speak with an employment lawyer about what you’ll require from your workers. If employees are the right answer, a lawyer can help you draft employment agreements that are legally sound but that keep you in the driver’s seat. If you need independent contractors, they can draft agreements that make it very clear to all parties that these workers are truly independent, and not employees in disguise.
Contact our office today to set up a consultation.
