Before a start-up hires its first worker, it should consider how to structure the working relationship to maximize the available benefits and minimize the risk of liability to the business. We have set out below a few key hiring considerations.
What’s the Difference Between a Contractor and an Employee?
Below is a basic overview of the distinction between the two main types of workers:
|Control||By their very name, they are independent and they determine the manner in which they provide services (i.e. the “when, where and how”).||Employees are dependent on and subject to the control of the employer.|
|Exclusivity||Independent contractors are not required provide services exclusively to one company.||Employees provide service on an exclusive basis to one employer.|
|Tools||Independent contractors use their own tools and workspaces to provide services.||Employers provides the tool and workspaces required for employees to work.|
|Personal service vs. subcontracting||Subject to any contractual restrictions, independent contractors may subcontract some or all of the services.||Employees must provide services personally.|
There is also a third category of worker called a dependent contractor that resembles an independent contractor but is an exclusive service provider, which is a hallmark of being an employee.
Why is the distinction important?
CRA and the courts will look at the true nature of the relationship, rather than what the parties have called it, to determine whether a worker is a contractor or an employee. If the relationship is mischaracterized, a business may suffer costly consequences.
For example, a court or government agency (including the CRA) may examine a relationship between a business and one of its independent contractors, and if the relationship is truly that of employer-employee (notwithstanding what the parties intended), there may be unintended consequences, such as:
Take-Home for Businesses
Before a worker is hired, start-up businesses should:
Jennifer Heath, Employment Lawyer, Rubin Thomlinson LLP, Toronto, ON