Canada: Employee Of Independent Contractor? Recent Trends In The Classification Of Workers

Canadian Consulting Engineer

Canadian workplaces have gone through significant changes in the last two decades. The rapid development of technology has caused the traditional bricks-and-mortar workplace, which was most common in the past, to morph into various non-traditional spaces. Likewise, workplace relationships today look much different than they did only a few decades ago, with relationships falling somewhere along a wide spectrum between the traditional employer-employee relationship and the arms' length independent contractor arrangement.

Traditionally, most engineers worked as employees. With the cost of retaining employees being at an all-time high in some Canadian jurisdictions, employers are increasingly looking at non-traditional arrangements as cost-saving measures, and as ways to allow organizations more flexibility with utilizing its professionals, including engineers.

For employers, engaging engineers as independent contractors rather than employees would result in cost savings with respect to overtime pay, vacation pay, public holiday pay, termination and severance pay, and statutory deductions such as Employment Insurance (EI) and Canada Pension Plan (CPP) premiums. For engineers, performing work as independent professionals rather than as traditional employees provides certain tax advantages, the ability to deduct business earnings and expenses, and the freedom to earn income from a variety of entities rather than being tied down to performing work for one organization only.

However, classifying a worker as an independent contractor rather than an employee has its pitfalls and legal risks. Some Canadian jurisdictions, such as Ontario, have recently cracked down on employers who classify individuals as independent contractors rather than employees, whether the misclassification is intentional or not. Bill 148: Fair Workplace, Better Jobs Act has amended Ontario's Employment Standards Act, 2000 to put the burden on employers to prove that any given worker is an independent contractor rather than an employee. A misclassification of a worker may lead to significant liability for the employer. This recent legislative change has caused a shift in the willingness of some organizations to treat certain workers as independent contractors.

In addition, if an organization is being audited or investigated by the Canada Revenue Agency (CRA) with respect to its classification of certain workers as independent contractors, and the CRA ultimately determines that a worker ought to have been treated as an employee rather than an independent contractor, the organization will be required to pay both the employer's share and the employees' share of statutory deductions such as EI and CPP, in addition to penalties and interest. In other words, misclassification can be costly to an organization.

Workers, and in particular professional engineers, may also determine that it is not in their best interest to be classified as independent contractors. In Ontario, for example, professional engineers who perform work as independent contractors must hold a Certificate of Authorization (C of A) under the Professional Engineers Act. The C of A must be renewed annually. Professional engineers who are employees, on the other hand, are not required to hold a C of A.

Professional engineers who are independent contractors must also carry professional liability insurance. This requirement does not apply to employees. In some jurisdictions professional engineers who are independent contractors are restricted in the manner in which they can advertise their services, restricting the way they can develop and carry on their business.

If a professional engineer does decide to hang up his or her own shingle, or work in association with others to carry on an independent business, it should be kept in mind that both the Canada Revenue Agency and adjudicators who are tasked with determining whether one is an employee or an independent contractor, ultimately weight a number of factors regarding the status of a worker, including the following:

  1. The degree of the worker's control or independence:
  • Did the worker have the ability to negotiate the terms of the contract, or were the terms dictated by the employer entity?
  • Does the worker have a registered business and an HST number?
  • Does the worker have set hours of work, or can he or she work at will?
  • Can the worker refuse work from the employer entity?
  1. Are tools and equipment provided by the worker, or by the employer entity?
  2. Can the workers assign the work to his or her own employees or subcontractors without seeking permission from the employer entity?
  3. Does the worker have financial risk in carrying on the work?
  • Is he or she financially liable if the work does not get performed?
  • Does the worker market his or her own services?
  • Is the worker hired for a specific project rather than being provided with work on a continuous basis?
  • Does the worker incur expenses in performing the work?
  1. Is the worker well integrated into the employer's business such that he or she looks and acts like an employee of the employer entity?

In conclusion, given recent legislative changes in some jurisdictions and the risk of liability that comes with misclassification of a worker, many organizations are no longer willing to enter into independent contracting relationships as quickly as in the past. However, through an analysis of the above factors, and the use of a well-drafted contract, professional engineers may continue to enjoy the benefits of being independent contractors.

This article was published in the June/July edition of the CCE Magazine

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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