Do you know the difference between an employee and an independent contractor? Whether you are an entrepreneur who has recently incorporated and are starting your own small business or you are a the small business owner responsible for hiring workers, it’s important to be compliant with HR law.
DID YOU KNOW: 2.7 million Canadians were self-employed in 2013.
There are many advantages of bringing on someone who is self-employed but did you know you are assuming some risk by entering into this relationship? Although a independent contractual relationship is considered mutually beneficial, it is important business owners appreciate they are assuming a material risk in entering into this relationship.
Risk arises when the relationship is improperly classified as an independent contractual relationship when it actually mirrors that of an employee. Where the business fails to properly treat the relationship as an employment relationship, the business may be subject to penalties, including fines and potentially even jail time, under various statutes. The chart below highlights specific legislation and employer obligations.
So, how do you determine whether a relationship is an independent contractual relationship or an employment relationship? There are four recognized tests which courts, tribunals and government agencies generally apply in determining the relationship:
The degree of control and independence the individual has in the workplace over such matters as the following:
In other words, does the Organization exert the type of control over the individual providing the service that it appears to look more like an employment relationship?
If the services performed by an individual form an essential part of the Organization’s day-to-day business, the individual is more likely to be considered an employee
Factors that are relevant to determining whether the individual is actually an independent business person include:
Unlike employees, independent contractors typically are engaged to complete a specific project. Relevant considerations under this test include:
If a worker is a true “independent contractor” the following will be true:
Please note the above points are guidelines only. It is always recommended that you seek legal advice for your specific situation and business. Although the above mentioned may seem confusing, it doesn’t need to be. Ceridian’s team of HR Advisory professionals are always a phone call away to ensure the elimination of potential liability and risk to your organization.
This post originally appeared on Ceridian Canada’s Big Ideas for Small Business Blog, June 10, 2014.
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