Employee vs Contractor – The 3 Way Test

Employee vs Contractor, Ashton & Associates RecruitingHiring contractors over employees is a growing trend in finding right fit talent to perform necessary services.  The benefits of hiring contractors are numerous including the flexibility, limited costs, and breadth of expertise that they bring to a project.

Take heed. However difficult the distinction of employee vs contractor can be to clearly define, failing to do so can leave you susceptible to an expected CRA ruling and costly penalties. The Canadian Federation of Independent Business offers a list of questions and says that if you say yes to most of them, chances are good your worker is an employee.

We’ve researched the employee vs contractor rulings and determinations and have come up with this 3 way test to help you determine the best and safest route to take when hiring workers.

#1 Worker Control

Who sets the amount and method of the worker’s pay?
Does the contractor work for others while working for you?
Do you train or give direction to the worker?
Does the contractor hire others and/or replacement themselves to deliver services to you?
Who directs and controls how the work is performed?

#2 Tools, Equipment, Premises

Where is the work performed?
Who pays for and supplies the tools and equipment required by the worker?
Do you retain the right of use over the tools and equipment provided to the worker?

#3 Finance & Remuneration

Are you the worker’s sole source of income?
Do you pay the worker’s expenses?
Who sets the pay rate?
Do you hold back pay, or is the worker at risk of not being paid at all, if they do not fulfill their contractual obligations?
Do you make benefit plans or other employment-related percs available to the worker?

As an extra caution,  it is important to seek legal advice when establishing an independent contractor relationship and to have a contract that clearly spells out the pay for performance contractor relationship. 

Additional employee vs contractor resources: 


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