Differences Between Hiring an Employee and an Independent Contractor in Canada
If you’ve just started a Canadian business that’s doing well, you might have considered hiring employees in Canada. Since these are going to be your first hires, it pays to educate yourself on some of the important aspects of hiring a new workforce. For instance, what is the difference between hiring an employee and an independent contractor in Canada?
It is important to know the difference between these two options mainly because, as business owners, we tend to wear many hats, from overseeing the marketing and supply chain to getting our finances in order and attracting new investors, partners, etc.
This often means that while business owners know what skills they seek in the new hires, they don’t think twice about whether they should hire an independent contractor or an employee for their business. This is a big no-no for any business owner, especially because while it might not matter to them, it does matter to the Canada Revenue Agency (CRA) and the person whom they are hiring.
Keeping that in mind, here is a quick breakdown of the main differences between hiring an employee and an independent contract that every Canadian business owner should keep in mind when hiring an employee.
Review Your Business
For any Canadian business owner who is looking to hire new staff, it is crucial to take a step back and review your business. This is because, as an employer and business owner, you need to first have a thorough understanding of your workforce structure as well as other factors, such as your short-term and long-term business plans. It is also wise for employers to consider what their obligations are going to be when they hire staff as an employee or an independent contractor.
Knowing the difference between hiring employees or an independent contractor in Canada is also crucial if you have plans on scaling your business and want to keep your team intact once it’s built. It goes without saying that while hiring employees means you will have a long working relationship with them, on the other hand, when hiring independent contractors, the business relationship is often short-lived since independent contractors tend to flit from job to job.
In short, going the employee route works well if you are looking to grow your team and hire individuals with key skills that you are going to need over the long term. On the flip side, independent contractors are the preferred choice for business owners that require individuals with specializations that they may not need on a long-term basis. Knowing exactly what skills you require is key to choosing between whether you want to hire independent contractors or full-time employees. Here’s a breakdown of the two options so that Canadian employers can make a more informed decision;
An independent contractor (or consultant) is someone who can offer you short-term, specialized knowledge to help you make business choices. They can serve as anything from a sounding board to a project manager. Whatever your needs are, there is knowledge available, whether locally or worldwide. Also, the following are a few things that you need to keep in mind about independent contractors:
- Independent contractors do not have employment status. This means they are not entitled to any benefits that a regular employee enjoys.
- As an employer, you will not be responsible for withholding, collection, or payment of taxes of the independent contractor you hire.
- As an employer, you are not obligated to provide severance or notice when terminating an agreement with an independent contractor.
- The independent contractor is expected to submit an invoice for services provided to the company.
- An independent contractor has control over the when, where, and how a job is completed.
- As an employer, you are not obligated to provide an independent contractor with the tools, resources, or space to carry out the given task.
- An independent contractor can provide their services to other companies as well.
Employees often have a one-on-one, and sometimes long-term, connection with their boss. If your company wants long-term stability, hiring a full-time or part-time employee will usually provide the consistency, reliability, and availability you needed.
- An employee you hire will have very specific entitlements that are under Canadian labor law. These benefits will include paid vacation, statutory holidays, leaves, a minimum wage, and so on.
- As an employer, you are going to be responsible for any notice and severance requirements as prescribed by standard legislation.
- Employees will also have access to employer-paid benefits, such as professional development allowances and extended health benefits.
- There are two types of employee categories, fixed-term, as in, the contract will state an established start and end date of employment, and indefinite, where there is an established start date but no end date in the employment contract.
Startups must negotiate agreements that describe the job, duties, compensation (including any equity interests, such as options), and perks for the duration of engagement, regardless of whether they are hiring an employee or independent contractor in Canada.
It is also important to note that Canadian courts and administrative tribunals will examine the parties’ subjective intentions, which may include a formal contract and the objective reality of the working relationship when determining status. The weight that a written contract carries in Canadian courts and tribunals varies.
It’s more of an art than a science to figure out if someone is an employee or an independent contractor under Canadian law. Actions, in a nutshell, speak louder than words. The status of the connection between the individual in question and the firm employing his or her services will not be determined by a well-drafted and properly executed contract.
To ensure your questions on such distinctions are answered correctly in order to help move forward with staffing decisions, contact us at www.aadmi.com.