Employee or contractor

What will YOUR post-pandemic workforce look like?

Canadian employers are hiring again, and many are doing things differently this time. Several mega tends are colliding: the shift to remote workplaces, changing skill requirements to a more digitally savvy workforce, and accelerating retirements among baby boomers. These forces are creating worker shortages in many sectors and accelerating the advancing gig economy. Contractors are replacing traditional employees at a rapid rate.

Are you unsure about your future labour needs and how you will fill those needs during these unpredictable times? You might be considering hiring more people in more flexible contract arrangements. What does this mean for your business as you pick up the pieces left behind the Covid lockdowns?

Lots of employers love hiring contractors because it means less paperwork and
responsibility for the company. Independent contractors take care of their own
income tax, EI, and CPP payments. Most often, contractors don’t receive health
insurance, life insurance or pensions from the employer, and they usually don’t
need training.

That’s a lot of savings for the company. Employing contractors rather than full-time employees also gives companies more flexibility to adjust the workforce
according to the ups and downs of business. This helps them manage cash flow

Many workers like the contractor role too. It puts them in control of their working
life, and they enjoy significantly more tax deductions than employed workers.

What’s not to like about this? 

Hiring independent contractors can be a great solution for both sides, providing the contractor really is independent.

Its up to the company and the payroll administrator to make sure that the
independence criteria are met. CRA has a big stake in the employee/contractor
distinction. It uses six specific criteria to classify contractors: control,
ownership of tools, the chance of profit, risk of loss, sub-contracting or
hiring assistants, and integration.

Getting this wrong can cause big problems for your company and your workers. If CRA reclassifies a ‘contractor’ to an employee, things can get difficult and
expensive for both of you. The CRA may review your payroll records and assess
amounts for unpaid taxes, CPP and EI payments, plus interest and penalties to
the employer.  Your worker/contractor will have to repay all those business expense deductions they’ve claimed in previous years, with interest and penalties of course.

So, its important for employers and contractors choosing this employment path to
understand the rules and create contracts and documentation to protect their
tax status. 

Read about the CRA 6-point test and how to prevent unwelcome CRA interest in your payroll affairs in the next issue of the WinTax Payroll Post.