DISTINCTIONS - INDEPENDENT CONTRACTOR versus EMPLOYEE
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The distinctions as between an independent contractor and an employee are driven by the adverse legal and tax consequences that can be imposed by the government and other parties against the hiring company if the arrangement is determined to be an employer-employee relationship. As such, when hiring companies contract the services of independent contractors, it is in their financial interests to structure the arrangement to best reflect the legal standard for an independent contractor arrangement. And it is for that reason that many hiring companies emphasize these distinctions both in the independent contractor agreement and throughout their business relationship.
CONTROL
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Employee: Subject to the payer's direction regarding when, where, and how the work is done.
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Independent Contractor: Has autonomy and control over the means and methods of work; works for a finished product or service.
FINANCIAL RISK / PROFIT
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Employee: Receives a fixed wage or salary; no risk of loss from the business's operations; generally reimbursed for expenses.
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Independent Contractor: Bears financial risk (e.g., fixed operating costs, potential for loss); opportunity for profit; expenses are generally not reimbursed.
TOOLS & EQUIPMENT
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Employee: Tools, equipment, and workspace are usually provided by the employer.
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Independent Contractor: Generally supplies their own tools, equipment, and workspace; responsible for maintenance and costs.
SUBCONTRACTING
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Employee: Must personally perform the work; cannot hire others to complete the task.
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Independent Contractor: Can hire assistants or subcontractors to perform the work or portions of it.
INTEGRATION
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Employee: Work is an integral part of the payer's business; often works exclusively for one payer.
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Independent Contractor: Work is done for the business but is not integrated into its day-to-day operations; typically works for multiple clients.
TAXES & DEDUCTIONS
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Employee: Payer withholds and remits Income Tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. Receives a T4 slip.
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Independent Contractor: Effectively self-employed; responsible for remitting their own Income Tax, and both the employer and employee portions of CPP. Generally does not pay into EI (unless they opt into specific self-employed benefits). Receives a T4A slip or invoices the client.
STATUTORY PROTECTIONS
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Employee: Entitled to minimum wage, overtime pay, vacation pay, statutory holidays, and termination notice/severance under employment standards legislation.
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Independent Contractor: Not entitled to statutory benefits or minimum employment standards; rights are defined only by the contract for service.
BENEFITS
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Employee: May be eligible for employer-provided benefits (e.g., health, dental, pension).
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Independent Contractor: Not eligible for employer-provided benefits; must arrange own benefits and retirement savings.
These distinctions are directly related to why companies hire incorporated independent contractors. It is also the basis for differentiating an employment agreement from an independent contractor agreement, and why you should proceed from a position of strength and knowledge when assuming work as an independent contractor. For an experienced business lawyer capable of provide you with such legal support and strategic direction, contact our law firm at Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation.
