Independent Contractor vs. Employee

Written By louise lu

There has been an increasing movement towards companies relying on contractors instead of hiring employees in the traditional sense. Often employers are under the impression that they can save money and avoid certain legal obligations by hiring contractors instead of long-term employees. Workers are often engaged under a series of short term contracts or are asked to sign agreements that classify them as “independent contractors” and claim to limit their rights. However, employment relationships are governed by more than just the contract or agreement between a worker and a company. Many individuals who have been labeled as contractors are actually employees and are entitled to all of the rights and benefits that employees enjoy.


At Rousseau Mazzuca LLP in Toronto, we can help you understand your relationship with your company and assist you in getting the benefits you may be entitled to. We will provide knowledgeable advice and will assertively represent your interests if necessary.

THE DIFFERENCE BETWEEN INDEPENDENT CONTRACTORS AND EMPLOYEES


It is common for employers to deliberately classify workers as “independent contractors” in an attempt to save money and enjoy tax benefits and lesser legal obligations. However, more often than not, those workers are actually employees, entitled to all of the rights and benefits that come with being an employee, and will be considered employees if there is a legal dispute. Employers cannot avoid their obligations by simply labelling someone a “contractor” or “independent contractor”. If there is a dispute, courts will look at the day-to-day reality of the working relationship in order to determine whether the worker is a contractor or an employee.

DETERMINING WHETHER AN INDIVIDUAL IS AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR: A TEST


It is common for employers to deliberately classify workers as “independent contractors” in an attempt to save money and enjoy tax benefits and lesser legal obligations. However, mo

A court will review many factors in order to determine the nature of a workplace relationship, including:

  • Control

  • Ownership of Tools

  • Chance of Profits

  • Risk of Loss

Control

The court will ask whether the worker controls the place and manner in which their work is performed? Do they set their own hours? Working arrangements where a worker has a lot of flexibility over how and when their work is performed suggests an independent contractor relationship.

Ownership of Tools

The court will ask whether a worker controls his or her tools, supplies, work space, or equipment. A working arrangement in which a company provides highly specialized or expensive equipment points towards an employment relationship. On the other hand, a situation where a worker supplies their own equipment suggests a contractor relationship.

Chance of Profits

The court will review the worker’s earning potential. A worker who is paid an hourly rate, limiting their opportunity to increase their earnings, is more likely to be considered an employee. A worker who is paid on a piecework basis, meaning that greater efficiency may increase their profits, is more likely to be considered an independent contractor.

Risk of Loss

A court will assess a worker’s risk of loss. A worker is more likely to be considered an independent contractor if, for instance, they are at risk for losing money where work is not done correctly or efficiently.

re often than not, those workers are actually employees, entitled to all of the rights and benefits that come with being an employee, and will be considered employees if there is a legal dispute. Employers cannot avoid their obligations by simply labelling someone a “contractor” or “independent contractor”. If there is a dispute, courts will look at the day-to-day reality of the working relationship in order to determine whether the worker is a contractor or an employee.

louise lu
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