This article are provided for information purposes only, and are not intended as legal advice.

Businesses are now hiring people under contract – do you know that this is not risk free?

October 1st, 2009

As the economy is starting to grow, more and more companies require staff.  Many people have left their jobs or been retired over the last 12 months an now the employers need more staff.  There is a growing trend for people to hire people under contract vs hiring as an employee.  As an employee, do you have a choice? Definitely not, this is the position and you can take it or leave it. 


Why do employers want people under contract?

  • costs, the employer does not have to pay the employee many things such as
  • vacation pay
  •  statutory holidays
  • benefit plans
  • sick days
  • unemployment insurance
  • contributions to Canada Pension Plan or FICA
  • pension
  • severance pay if you are terminated


Are you really a contractor if you signed a contract?  Canada Revenue Agency has a summary of what they consider the determining factors to see if you are an independent contractor.  Realistically, if you look like a duck, act like a duck, you are probably a duck.  Same goes for employment.  Are you an independent contractor but get all your expenses reimbursed like all employees?  Do you get a car allowance?  Do you have business cards, is your business name on it or your employers?  Do you work for the business every day between 9 and 5 and follow all the company procedures and protocal.  Can you come and go as you please?  Can you work from anywhere you please?  Can you take holidays at any time?  If your company does not collect the receivables from sales that you generated, is your compensation at risk?


If you are a contractor, you should include your expenses in your invoice, you should not get reimbursed like an employee.  Just because you sign a contract as an independent contractor does it mean that the company is off the hook.  They could be assessed for lack of withholding taxes, you could be assessed for underpayment of CPP, EI or FICA.


I have recently seen a case where a person was an independent contractor for six years, charged GST, invoiced the client but when she left, she sued for wrongful dismissal and wanted a severance package.  This person wanted her cake and eat it too.  The person wanted to be an independent contractor so that she could write off many expenses which are not allowed as an employee and also wanted to get a severance package when she quit.  Huge legal fees were paid and this case was settled out of court but this shows that businesses can be legally challenged on the way that they are classifying their staff.  Challenges could come from the tax authorities and also from the labour courts.  Businesses may not be able to hide behind the paper that the contract is written on, the courts and/or the tax authorities may look through the documents you have to see the real substance behind the transaction.


If you need clarification for your business, you should contact your accountant and/or lawyer for advice.

Filed under: Business strategies — Gary Landa @ 8:45 am

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