Employees Distinct From Contractors

By Greg Pratch
Categories: Blog, Employment Law

In the world of employment law there are “independent contractors” and there are “employees,” and each one has pros and cons from both the employer and employee perspective. The important thing to remember is that there are very different implications of each one, so when you are determining which type of relationship you are entering into you should do so with care.

Let’s start by explaining the difference between an independent contractor relationship and an employment relationship. In an employment relationship, an employer hires an employee and the relationship is subject to employment laws including minimum wage and reasonable notice and severance. In an independent contractor relationship, the independent contractor works for themselves and is hired to perform a specific service. The employment legislation does not apply and instead the only governing law is that of any other contractual relationship.

So, why does this matter? Well, there are a couple of really important differences in the way the courts will treat independent contractors vs. employees. I have already alluded to the first one: that the minimum requirements laid out in the employment standards legislation do not apply to independent contractors. This means that there is no minimum wage that needs to be paid and there is no severance or reasonable notice that needs to be given for termination. This sounds like a bad deal for the independent contractor, however, in most cases an independent contractor can work for multiple parties at the same time and should have negotiated appropriate termination of contract provisions into the agreement.

Secondly, in an independent contractor arrangement, the party retaining the contractor is not required to deduct and remit income taxes or other statutory remittances such as Canada Pension Plan or employment insurance premiums from the payments made to the independent contractor. In this case the independent contractor would be responsible to calculate and remit any amounts owing.

Thirdly, independent contractors will likely not receive any benefits that an employer would otherwise offer employees and may not be covered by the employer’s insurance coverage.

In some cases the determination of whether someone is an independent contractor or an employee is obvious. For example, if I hire a landscaper to come on one occasion and complete some landscaping work on my property this person is obviously an independent contractor. However, the analysis gets much more difficult if I own a commercial property and I hire an individual to continuously look after upkeep of the yard and facility and they do not have any other clients except for me.

In the next article I will discuss the factors that the courts use in determining whether someone is truly an independent contractor or an employee. If you are concerned about the nature of your relationship with a person you have retained or with a person that has retained you, I would recommend speaking with an employment lawyer to assist in making the determination as this can be a complicated analysis and it can have significant consequences for both parties.