Contractor vs. employee: how to classify your workers
By: Claudius Du Plooy
Tags: Employees, Hiring, Employment Law, Contractors, Employment

Classifying your employees and contractors is crucial to your bottom line. Employees are protected under the Employment Standards Code and contractors operate separately meaning they are not protected in the same way. As an employer, you are responsible for each person you employ making it imperative for you to understand the rights of each member on your team. This article will help you understand how and why it’s important to classify each person you hire.

Should workers be classified as employees or contractors?

Working relationships are classified by the Courts as an employee or contractor based on how operations are conducted. These five factors help with identifying the difference between contractors and employees and should be considered when classifying a work relationship.

Who is primarily responsible for overseeing work activities?

○ If an employer has more control over workplace functions it is more likely they will be classified as an employee. For example, if an employer dictates what, when or how operations are conducted they assume most of the responsibility, classifying those who work for them as employees..

2. Who provides the supplies required to conduct operations?

○ If an employer provides the necessary equipment such as computers and software, there’s a high likelihood the Courts will classify the worker as an employee.

3. Who hires additional employees or contractors, when required?

○ Anyone who hires their own support team and conducts business on their own accord, will likely be classified as a contractor. Contractors are responsible for hiring and paying their own employees or subcontractors, in addition to assuming financial risk separate from the employer.

4. Who assumes any financial risks?

○ The higher the financial risk of a worker, the greater the probability they are classified as a contractor. Hiring employees, leasing warehouse space or vehicles, or entering into service contracts with other companies are all indications that a person meets the requirements to be classified as a contractor.

5. Who has more opportunity for profit?

○ If an employer is paying a worker set fee and the worker doesn’t directly incur job related expenses the Courts will likely classify the worker as an employee? Alternatively, if a worker is paid by the hour for consulting services but pays for the software they require to fulfill job requirements, the Courts will likely be classified as a contractor based on job related expenses incurred.

After you’ve identified your employees and contractors it’s important to further define your contractors as dependent or independent. Here’s why:

In addition to classifying workers, employers who hire contract workers must further distinguish contractors as dependent or independent. The biggest differentiator between the two is that Independent contractors are not entitled to protection under the Code, while dependent contractors are entitled to certain provisions, such as termination pay.

The Courts determine dependency by assessing balance of power in the work environment and how much a contractor relies on the employer. High economic dependency creates greater bargaining power for the employer and therefore, the Courts believe the contractor should be protected. To avoid an unequal balance in power, the Courts consider exclusivity between the employer and the contractor to define the dependency levels. For example, if a contractor derives 90% of their income from one employer this level of economic exclusivity likely means t the contractor is dependent. Dependent contractor classification is case specific so as an employer, it’s imperative to understand your potential obligation to contractors who derive a large portion of their income from you.

We strongly encourage using these classifications for your workforce as a way to limit potential liability and protecting your bottom line. As always, we’re here to answer any questions you may have so if you require further clarification be sure to get in touch with us.

Email: assistant@duplooylaw.com

Phone: (403)718–9877

https://duplooylaw.com/