Employee vs. Independent Contractor: Here's What Employers Should Know

Who is an Employee Versus Independent Contractor?

Are you an employer of both employees and contractors? In effect as of November 27, 2017, employers cannot misclassify employees as independent contractors. This change is a result of Bill 148 and is one of many amendments to the Employment Standards Act, 2000 (ESA). The purpose of employee misclassification is to prevent workers from being denied their entitlement to employment standards protections. More importantly, this puts greater responsibility on the employer to prove that an individual is not an employee. It is the responsibility of the Ministry of Labour to decide if someone is an employee or not. The Ministry of Labour may carry out an inspection of your workplace and request to speak to your employees or contractors and review any documentation. As a business owner, you should take the time to understand the difference and apply this definition to your recruitment, hiring, and employee management practices.

5 Ways to Define an Employee Versus an Independent Contractor

There are five main differences to classifying your staff or rather, any individual who provides service to your company.

Who is an Employee?

Employees are defined as someone who:

1. You provide tools, equipment, uniform or materials to, in order to perform work;
2. Cannot subcontract their work;
3.  Is told by their employer not only what to do, but how to do it;
4. You set employment regulations for, such as their duties, pay, vacation, timelines, and location.

Who is an Independent Contractor?

Independent contractors are defined as someone who, when working for you:

1. Owns and is responsible for all or some of the tools or equipment they use to complete their work;
2. Can subcontract some of their work;
3. Are in the business for themselves and can turn a profit or lose money from their work; and
4. You can end their contract for their services, but cannot discipline them.

4 Common Misconceptions of who is who

Where it gets tricky for employers, are the four misconceptions of classifying someone who services their business because they can still be an employee even if they:

1. Make a formal agreement (verbally or written) to work as an independent contractor;
2. Submit invoices and/or charge HST;
3. Use their own vehicle for work purposes; or
4. Deduct CPP, EI or taxes from their pay.

Does this sound familiar to you? If you think you're misclassifying your staff as an independent contractor instead of an employee, it's always best to ask for HR advice. Don't wait until you're in the middle of a dispute to ask these important questions. For more information on how Bill 148 impacts your business, check out our Infographic on the 10 Important Employment Standards Act Changes.