As human resources professionals, we know that attracting and retaining the right talent is critical to your organizations’ success. Sometimes the ‘right’ individual is a contractor instead of an employee. Event if both you and your contractor agree that their services are indeed contracted, Canada Revenue Agency (CRA) may see this situation differently. How do you define a contractor vs an employee, according to the CRA?
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.
Watch this video for a run-down on how you can define and employee vs. contractor relationship:
One reason CRA would review a contractor as 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
The key takeaway here is adding contractors to benefits plans, though. There’s nothing wrong with doing this, but this individual should be hired as an employee, not a contractor. Clearly defining this relationship can avoiding tipping the scale with CRA, and the subsequent penalties, which are significant for a business.
This blog post was written by Allan Friesen, CEBS, CPHR. Allan is a Certified Employee Benefit Specialist at Silverberg Group in Lethbridge, Alberta. Contact Allan if you have a story to share about a similar situation with CRA and a contractor in your organization.