Contractors vs Employees – How Your Organization Can Stay on Track for CRA

With how competitive the marketplace is today, attracting and retaining the right talent for your organization is more important than ever. Sometimes the ‘right’ individual is a contractor instead of an employee. Both you and your contractor agree that their services are indeed contracted. Canada Revenue Agency (CRA) may see this situation differently, though. So how do you define a contractor vs an employee, according to the CRA so that you can avoid running into trouble?

The CRA has several different criteria they use to decide on whether your talent is a contractor or an employee of the company. Why does this matter? If CRA reviews your “contractor” relationship five years from now and decides that your contractor was in fact an employee, your company will be charged retroactively for Employment Insurance and Canada Pension Plan contributions plus applicable penalties. This can be avoided by knowing the criteria CRA uses to define employee vs. contractor relationships.

One reason CRA would conclude that a contractor is an employee is if your contractor is entitled to benefits plans that are generally just offered to employees. These include registered pension plans, and group accident, health, and dental insurance plans.

HR professionals taking care of benefits plans should also take note of the following criteria CRA considers to determine the relationship between employers and contractors:

• The payer directs and controls many elements of how the work is done (such as what, who, where, when, and how)
• The payer controls the worker’s absences, such as sick leave or vacation leave
• The payer controls the worker with respect to the results of the work and the method used to do the work
• The payer creates the work schedule and establishes the worker’s rules of conduct
• The payer can impose disciplinary actions on a worker
• The worker has to do the work personally
• The worker has to remit activity reports to the payer
• The worker’s activities are reserved to a single payer (exclusivity of services)
• The worker receives training or direction from the payer on how to do the work
• The worker accepts being part of the payer’s business to have the latter benefit from his work
• The parties have inserted a non-competition clause in their written contract

Disclaimer:  Silverberg Group is not offering tax or accounting advice. For further advice in this area we encourage you to either contact a Tax or Accounting advisor or to review the rules on the CRA website at the following link: http://www.cra-arc.gc.ca/tx/hm/xplnd/rlng-eng.html