Are you an employee or an independent contractor? The distinction is critical for understanding your rights, benefits and tax obligations.
Here are 5 ways to help determine your classification:
๐. ๐๐จ๐ง๐ญ๐ซ๐จ๐ฅ: Who decides how, when and where the work gets done? Employees typically follow the direction of the employer, while contractors have more autonomy as to when, where and how they perform the work.
๐. ๐๐ฐ๐ง๐๐ซ๐ฌ๐ก๐ข๐ฉ ๐จ๐ ๐ญ๐จ๐จ๐ฅ๐ฌ: Contractors typically provide their own tools and equipment (such as computers, cell phones, office space and vehicles), whereas employees use the employerโs resources to perform their duties.
๐. ๐ ๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐ซ๐ข๐ฌ๐ค: Contractors often take on more financial risk, covering their own expenses and facing potential losses, and may be paid on a piece-meal or pure commission basis. Employees, on the other hand, are generally paid a base wage or salary, and may have a variable component such as salary or commission to supplement this base pay.
๐. ๐๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ฒ ๐๐จ๐ซ ๐ฉ๐ซ๐จ๐๐ข๐ญ: Unlike employees, contractors may profit from cost savings or taking on additional work, or charge based a percent of revenue generated, giving them the potential for higher earnings.
๐. ๐๐ฑ๐๐ฅ๐ฎ๐ฌ๐ข๐ฏ๐ข๐ญ๐ฒ: Employees often work for only one or two employers, while contractors frequently provide services to multiple clients.
Why make the distinction?
๐ธ Employees are often entitled to significant severance packages if terminated, while contractors are not
๐ธ Employees are entitled to paid vacation, public holidays, minimum wage and other legislated benefits and protections, while contractors have more limited rights
๐ธ Contractors, considered a form of business under the tax act, have greater tax incentives, especially if incorporated.
Many contractors are actually employees, and enjoy the tax benefits for years before being terminated and suing for severance claiming they are truly an employee.
If you’re unsure about your or your workersโ employment classification, and want to understand the risks and benefits, seek legal advice to review your specific case.
Feel free to reach out if you need guidance.
