Whether you are an employer who wants to hire an independent contractor or an individual who is about to sign an independent contractor agreement in Ontario, make sure you check all the facts before you seal the contract. Our Toronto lawyers can assist with any questions you need answered.
An independent contractor agreement, or contractor agreement, is used by an employer to hire an individual or entity to complete a task that is predefined and described in detail in that agreement. The agreement typically includes the compensation rate, the length of employment, and it can be used to hire consultants, freelancers and other contractors.
What’s the difference between an employee and an independent contractor?
According to the Employment Standard Act, 2000 you are an employee when your salary doesn’t change according to your efficiency at work and you mustn’t work elsewhere. The company gives you the tools and equipment for work, it makes decisions such as: where and when you will work, how large would your salary be and what constitutes your job description.
Unlike an employee, an independent contractor may possess and work with his own tools and equipment and determines when and how to work. If you are an employer, you can discipline your employee but you cannot discipline a contractor. However, as an employer you can still end the contract or enforce terms within the contract. As an independent contractor, you typically run the business by yourself, making decisions and takings risks. You may also hire another person to do the job for you.
What is interesting, you can be characterized as an employee even if you agree to be an independent contractor. Those who send invoices for their services, charge HST, use their own vehicle to do the job, don’t have statutory deductions, can still be considered employees, because the ultimate characterization is determined by the statute.
Need help determining if you’re an employee or an independent contractor in Ontario?
If you are still not sure what type of employment arrangement you have, you can always consult our lawyers. Also, if you want to change your employment status, you should first discuss with a lawyer what your options are.
Advantages of being an employee or hiring an employee in Ontario
Employees are qualified to get insurance and employers pay 50% of Canada Pension Plan. As an employer you need to provide your employees with certain benefits such as vacation pays, pension plans, health benefits, disability insurance, workers’ compensation.
An employee contract is harder to terminate and usually after a contract termination, an employer needs to take care of severance pay. Also, employees can get a higher pay rate per overtime hour than an independent contractor. An individual who has an employment contract is eligible for Canada employment amount tax credit.
As an employer, the benefit of hiring an employee is that you have greater control and direction over their scope of work – and typically the employee should dedicate their full time and attention to their employment.
Independent contractor agreement in Ontario- what are the advantages?
When you sign an independent contractor in Ontario, you don’t have employment insurance paid. Of course, you can pay it by yourself, if you want, but you are not under obligation to do so. Individuals who sign independent contractor agreements have more tax-deductible expenses and they can work more than one contract or have multiple clients.
If you are an independent contractor you can recover your GST or HST by applying to collect GST/HST. Independent contractors have more opportunities to increase profit and in the first year of operation they don’t pay income tax.
For employers, a contract relationship for services is easier to terminate and has less obligations towards the terminated contractor than the employer would with regard to a terminated employee.
What are downsides of an independent contractor agreement?
Both type of arrangements, whether as employee or contractor, have positive and negative sides. It is up to you to decide what solution is more reasonable. It also depends on the company and the terms and conditions you are offered. In some situations, one arrangement may seem to be a smarter choice than the other.
As an independent contractor you don’t have right to get severance pay if the contract is terminated and you cannot collect employment insurance apart from special benefits (maternity, parental benefits,sickness benefits, compassionate care benefits, and benefits for parents of critically ill children).
Independent contractors need to keep records by themselves or to hire a bookkeeper. They also have to pay for their equipment and maintenance and there is always a risk of loss. If your independent contractor agreement is longer than a year, you may need to start paying income tax installments. You also are not eligible for tax credits reserved for employees.
Can independent contractors receive a bonus?
If you are an employer who has just hired a contractor, you may wonder if they have the right to get a bonus. Broadly speaking, an independent contractor can get a bonus, if the terms of an independent contractor agreement lay down such rules. The specific contractor agreement will outline how compensation works, including wage rates, payment terms, and bonus or additional payments or reimbursements.
How to file a claim as an employee or employer
Whether you are an employee or an employer, you can file a claim and prove that your rights have been violated. To file a claim you need to fill in the online form on the Ministry of Labor website or a written form. You should receive a letter of confirmation that your documents are accepted or, if something is missing or is wrongly completed, you may need to correct and resubmit the documents again.
Need help with an independent contractor agreement in Ontario?
- Create an independent contractor agreement
- Help you with filing a claim or enforcing a contract
- Explain what your rights are
- Help you define your employment status
Call us today for a free consultation!