What is a Contractor?

Shawnee Love   •   January 23, 2019

In HR, you come to learn that “contractor” means different things to different hiring managers.

The most common type of “contractor” is actually a misnomer because it usually refers to a temporary (aka contract) employee. I.e., An employee hired with an end date specified in the contract. Other than the fact the person hired isn’t eligible for benefits, these types of “contractors” are pretty much treated the same as any other employee of the company. In Revenue Canada’s eyes, they are clearly an employee and thus the employer is responsible for withholding statutory deductions.

The second most common type of contractor is the self-employed type. This individual runs his or her own business, takes on multiple clients, commits to and gets paid for delivery of services (and products), invoices clients, and is free to offer their services and experience the risks and rewards associated with operating a business.  Assuming they and the organization hiring them operate professionally, the requirements are in place (e.g., service delivery agreement, business and tax numbers, etc.) such that Revenue Canada would recognize the contractor as a self-employed individual, independent of the hiring company. 

The last type of “contractor” hired by organizations is a weird hybrid version of an employee and contractor, effectively the platypus of the working world. However, in Revenue Canada’s eyes, the platypus type of “contractor” is likely to be deemed an employee, because it doesn’t meet the test of a true contractor. Examples of how employers create a platypus contractor include:

  • Paying the person biweekly through payroll but not taking source deductions
  • Requiring the person to work the same schedule and track time like other employees
  • Providing the person with a desk and the necessary tools and equipment (including business cards), 
  • Managing the person like an employee (including performance reviews, signing employment policies, and being offered external training),
  • Having a “contractor agreement” but using the word “employment” throughout,
  • Offering the person group benefits, and so on.

As with so much, the devil is in the details and only someone who knows what to look for can identify a true contractor (aka self employed individual) from an employee. A qualified professional can save you money and time you didn’t know you risk losing.  That’s because, incorrectly categorizing an employee as a self-employed type of contractor can result in penalties from Revenue Canada if caught. 

If you are going to hire a real contractor, take a read through our blog on employee vs. contractor which speaks to how to do it right. If you still have questions, please drop a line and we can guide you through it.

 

By |2019-01-23T09:45:54+00:00January 23rd, 2019|Management, Recruitment & Orientation|