Independent contractor or employee.

• Author: Butler, Caitlin

With business culture evolving, we see increasingly varied means to manage one of the most expensive and critical components of a business--human capital. Whether a business is motivated to reduce labour costs, streamline available skills, or minimize staff during slower periods, businesses are tending to engage independent contractors (ICs) as compared to employees. For the purposes of this article, unless otherwise stated, an IC is a self-employed individual, whether incorporated or not. Note that this discussion may not apply to contracts entered into in Quebec.

How do I know if I am an employee or IC?

At first blush, it may appear easy to determine whether individuals are employees or ICs. Have they signed an employment contract? Did they receive a T4 Statement of Remuneration Paid from the payer? Do they report 'employment income' or 'business income' on their tax returns?

However, simply examining these factors is not sufficient to determine the actual nature of the relationship. Interested parties, such as CRA and the courts may look beyond surface indicators to determine the legal nature of the relationship. They most commonly begin by examining the intention of the worker and the payer.

A common intention can be communicated in a number of ways--for example, in emails, an informal verbal arrangement, or a formal written agreement. In other words, a contract between the worker and payer may assist in providing support to CRA or a court of a certain intention. However, quite often these contracts may not be afforded much weight if the nature of the relationship is not consistent with the expressed intention.

That said, a contract can provide another very important role in documenting the terms of the relationship.

After considering the intention of the worker and payer, CRA and the courts normally consider the following five main factors:

1. Control

   Control is the ability, authority or right to determine the manner in which a worker performs the work to be done. The degree of control a payer has over a worker may indicate whether the worker is an IC or employee (though the industry may also impact type and degree of control).

   It is the right of a payer to exercise this control that should be considered, rather than whether or not they actually exercised it. More control is generally exercised over employees than ICs. Control is often the most critical element in these decisions.

   Factors that may indicate an employment relationship...