Employee or contractor? know the difference

2008·7.7 MB·English

by  Alberta. Alberta Employment and Immigration. People, Skills and Workplace Resources

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Catalogue Item #708399
This publication is available to view or order online at alis.alberta.ca/careershop.
Additional copies can be ordered from the Learning Resources Centre by telephone at 780-427-5775
or by fax at 780-422-9750.
Employee or Contractor?
Know the Difference
For copyright information, contact: Government of Alberta, Alberta Employment and Immigration
Alberta Employment and Immigration publications may contain or reference publications, trademark,
People, Skills and Workplace Resources
patent or copyright held by third parties ("third party material"),
Telephone: [phone] Fax: [phone] identified with a credit to the source. This does not grant the
E-mail: [email protected] user a l icence or right to that third party material. Users who
wish to reproduce any third party material in this publication
© 2 008, Government of Alberta, Alberta Employment should seek permission from that third party.
and Immigration
This information was accurate, to the best of our knowledge,
This material may be used, reproduced, stored or transmitted
at the time of p rinting. Labour market information and
for non-commercial purposes. However, Crown copyright is to educational programs are subject to change, and you are
be acknowledged. It i s not to be used, reproduced, stored or
encouraged to confirm with additional sources of information
transmitted for commercial purposes without written permission
when making career, education and employment decisions.
from the Government of Alberta, Alberta Employment and
Immigration. This publication is not for resale unless licensed
with Government of Alberta, Alberta Employment and
Immigration. Every reasonable effort has been made to identify
the owners of copyright material reproduced in this publication
and to comply with Canadian copyright law. The publisher
would welcome any information regarding errors or omissions.
ISBN 978-0-7785-5403-5
05/2008 - 2 0M
Cover printed on 25% post-consumer recycled paper. All photos in this booklet are for illustrative purposes only.
Inside text printed on 30% post-consumer recycled paper. They are not actual photos of any individuals mentioned.
About This Publication 2
Who it's for 2
What's included 2
What's not included 2
Ways to Get a J ob Done 4
Written contracts 4
Why the Difference Matters 5
Who needs to know the difference 5
How to figure out the difference 6
Other considerations 10
Government Organizations:
How They are Involved 1 1
Canada Revenue Agency 1 1
Employment Standards 17
Workplace Health and Safety 19
Workers' Compensation Board 21
Other agencies 24
Alberta Apprenticeship and
Industry Training Board 24
Alberta Health Care Insurance Plan 25
Alberta Labour Relations Board 25
Contacts at a G lance 26
Other Helpful Resources 28
Alberta Employment and Immigration 28
The Business Link 28
Alberta Law Line 28
Canadian Legal Information Institute 28
Government of Alberta, Alberta Employment and Immigration
About This Publication
This p ublication does not list t he p ros and
cons of c ontracting or self-employment.
Detailed information on self-employment
and starting a b usiness is a vailable in t he
publication Self-Employment: Is I t f or M e?
(online at alis.alberta.ca).
What's included
Many government organizations administer
work-related programs or enforce legislation that
deals with work-related issues. Different parties
in a work relationship have different roles,
responsibilities, entitlements and liabilities, and
This publication presents general information different organizations define work relationships
about how contractors and employees differ and in different ways.
why the differences matter. It e xplains how being
an employee or a contractor can determine what Employees, employers or contractors need to know
laws and regulations apply and what types of what rights and responsibilities they have in work
relationships.
taxes, premiums and contributions must be paid.
It a lso explains how government organizations
This publication explains how different
decide who is and who is not an employee or
organizations define the parties of a work
a contractor for the purposes of:
relationship and tells you where to find more
• taxation information.
• employment standards
The publication includes a number of tables
• occupational health and safety that make it e asy to see at a g lance how an
employee is d ifferent from a contractor. It i ncludes
• workers' compensation
contact information for the various government
organizations that deal with work-related issues.
Who it's for
The information in this publication can help
What's not included
anyone who is working as a contractor or thinking
about starting a contracting career, working The intent of this publication is not to give any
legal counsel or answers. The interpretation of
with contractors, planning to hire a contractor's
services, or exploring whether someone is a employment status is a complicated legal question
contractor or an employee. and independent legal advice may be necessary.
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© G overnment of Alberta, Alberta Employment and Immigration
Ways to Get a J ob Done
Work arrangements can vary. Work relationships
between those hiring and those hired can also vary.
Often those paying for work or services hire a
person or a f irm to do the work under contract.
Someone who works under contract can be either
a contract employee or an independent contractor:
Employees (or contract employees) work
under an employer-employee relationship or
"contract of service."
• C ontractors carry out their work under an
independent business-contractor relationship
or "contract for service."
Different groups, including different government
organizations, may use their own terms to describe
contract-for-service workers or independent
contractors.
Independent contractors are known as freelancers, What about contracted employees?
consultants or simply contractors. For simplicity,
this publication uses the term "contractor" to refer Employee placement, contracting or temp
to all independent contractors.
agencies may sign up workers and then assign
Freelancing is often associated with a certain type them for p eriods under contract to the user of
of work— like writing, for example. Consulting
the workers' services. The agency may even
may bring to mind independent professionals such
pay the workers directly. However, employees
as engineers or management advisers. Contracting
working under contract from an agency are
is often associated with the construction industry.
considered employees of t he agency. They are
However, a contractor could supply almost any
kind of work. For example, a contractor could contracted employees, not contractors.
do janitorial work, sewing, carpentry or
other trades work or provide services such as Businesses and organizations, including
environmental monitoring, hauling or courier government agencies, sometimes hire p eople
deliveries. A c ontractor could provide health- directly for a f ixed period. Such workers may
related services such as private-care nursing or
work under a c ontract and may even be
education-related services such as teaching or
called contract employees. However, they are
tutoring— even though health care and education
are usually connected with hospitals and schools. treated like employees. For example, income
tax is d educted from their p ay. T hey are not
No matter what type of work or service
contractors.
they provide, what all contractors have in
common is being independent.
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Government of Alberta, Alberta Employment and Immigration
The responsibilities outlined in a contract may
include but are not limited to the following:
• p ayment and invoicing
• whether any expenses are covered
• whether the contractor can hire assistants
• who directs any subcontractors
• who can terminate or suspend the contract,
and under what conditions
• who holds control of copyright, patents
or other rights
• who is responsible for remitting taxes, and who,
if a nyone, pays any other required payments
or premiums such as Workers' Compensation
• who is responsible for professional and general
liability or other insurance (for example, for
vehicles, equipment and premises)
Written contracts • who is responsible for shortcomings or defects
in any goods or services provided
A c ontract can help determine the intent of the
• who is responsible and pays for any required
relationship between the party who is d oing the
permits or licences
work and the party who is p aying for it. However,
a contract alone is not conclusive in determining • q ualifications requirements (to confirm that
tfohre tchoen t jroabc)t or has the qualifications needed
an individual's employment status.
Employer-employee relationships (contracts of
• requirements for the return or disposal
service) are governed by different laws and
of information or documents
regulations than business-contractor relationships
(contracts for service). A w ritten contract can help • warranty for goods or services provided
to establish whether the relationship between the
Even though a contract may include the above-
party who is doing the work and the party who is
listed clauses, this does not always mean that
paying for it is a b usiness relationship rather than
a contract-for-service relationship has been
an employer-employee relationship. established. For details on other factors that need
Contracts typically state that work or services are to be considered, see the section How to Figure
Out the Difference.
being provided on a contract basis. Contracts also
define the scope, time frame and cost of the work
Those paying for or providing contract
or service and outline the responsibilities of each
services may want to get legal advice
party in the work relationship.
when preparing or before signing their
contracts.
Government of Alberta, Alberta Employment and Immigration
Why the Difference Matters
Whether someone is a contractor or an
employee determines:
• who is responsible for certain actions
• who is entitled to what
• who is liable if t hings go wrong
Depending on the nature of the working
arrangement and relationship, responsibilities,
entitlements and liability may rest with:
• the employee
• the contractor
• the employer
• the payer or user— that is, the person or firm
that hires and pays a contractor
Most working people probably don't think much
about whether they are employees, contract
employees or contractors. However, definitions
become important when a working relationship Who needs to know
raises uncertainties about someone's legal the difference
entitlements and responsibilities. There may be
differences in interpretation of what defines a Certain government organizations may have
contractor among various statutes. reasons to review whether someone is an
employee or a contractor. The following
The need to review or define a working
organizations administer programs and enforce
relationship might arise for the following reasons:
legislation related to employment issues such as
income taxes, pensions, benefits and more:
• q uestions about payroll deductions, including
taxes, Employment Insurance premiums and
• C anada Revenue Agency
Canada Pension Plan contributions
• Human Resources and Social Development
• requests for holiday, vacation or termination pay
Canada, which administers programs such
• workplace health and safety questions raised by as Employment Insurance and the Canada
injury reports or investigations Pension Plan
• q uestions raised by the Canada Revenue Agency • A lberta Employment and Immigration, which
over a t ax return, audit or notice of assessment
is responsible for Employment Standards Code
• d eclined or denied Employment Insurance and the Occupational Health and Safety Code
applications
• A lberta Workers' Compensation Board
• d eclined or denied requests for time off
or payments for maternity, parental or Other government organizations that deal with
compassionate care employment issues:
• A lberta Apprenticeship and Industry
• d eclined or denied Workers' Compensation
Training Board
claims or coverage
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© G overnment of Alberta, Alberta Employment and Immigration
• A lberta Health and Wellness, which is
responsible for the Alberta Health Care
Insurance Plan
• the Alberta Labour Relations Board
How to figure out the difference
Contracting has less to do with the type of work
than with the control of how, when and where the
work is done.
Whether someone is considered an employee or
a contractor depends on the nature of the work
relationship between the party who provides
goods or services and the party who pays. If t he
work relationship is a contract of service, an
employer-employee relationship exists. If t he work
relationship is a contract for service, the party
who pays has a b usiness relationship with an
independent contractor.
The key word here is relationship. The
nature of the work relationship determines the
eligibilities and responsibilities of each party.
Government organizations and the courts have
• chance of p rofit or risk of loss: who stands to
developed some general guidelines to decide
make a p rofit or suffer a l oss as a result of the
whether a work relationship is a contract of service
working relationship?
or a contract for service. The review process that
is used takes into account the terms, wording and • integration: do the people performing a service
consider themselves to be in business for
intent documented in the contract agreement. It
themselves? Is the job or service being provided
compares whether the actual working relationship is
in line with what the people signing the agreement the worker's sole or primary source of income?
intended. In order to make this determination, the
review examines the following factors:
• d irection and control: who decides when and
how the work is d one?
• ownership of facilities, supplies, tools and
equipment: who owns what and who is
responsible for it?
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Government of Alberta, Alberta Employment and Immigration
While general guidelines apply, it's important to remember that different government
organizations use their own specific considerations to decide if a worker is an employee or
a contractor.
Table 1 : W orking conditions that determine if someone is an employee
or a contractor.
Employee Contractor
Direction and Control
Method of Receives an hourly, weekly • S ubmits invoices.
or monthly wage or salary,
payment • Receives pay as a l ump sum or
or is p aid on commission. in installments, often on contracts
received as the result of a successful
Receives a pay-related document
such as a paycheque and statement
of earnings. project bid.
Hours of work
Usually works specified hours • G enerally is f ree to choose time
that are set by the employer. of work.
Benefit plans Receives benefits such as vacation
• M ay pay insurance premiums
pay, Employment Insurance and for privately held plans.
Canada Pension Plan contributions.
• In most cases, does not participate
Benefits are paid for— in full or in in the Employment Insurance
part— by the employer.
program. (See NOTE 1 in Table 2
wfoorr k eexrcse.p)t ions that apply to certain
Full-time, Usually devotes all working time • T ypically has many potential income
personal to one employer. (Someone with streams and serves a number of
and exclusive
several part-time jobs with different payers during a g iven period.
service
employers is still considered an (On a l arge project, for a while,
employee.)
most of the contractor's time may
be spent on that project.)
Personally performs the work or
service and cannot hire someone
• M ay employ or subcontract others
else to do it. to do the work.
Training
Receives in-house, on-the-job or • Has the required training before
outside training that is p rovided, starting the job.
paid for or reimbursed by the
• Pays his or her own training costs.
employer.
Schedules • W orks under the direction and
• M ay have to meet deadlines, but
and routines control of an employer. can set the schedule, sequence or
manner in which the work is d one.
Government of Alberta, Alberta Employment and Immigration
Employee Contractor
Right to • C an be discharged from work, • Normally, as long as he or she has
discharge complied with the requirements of
provided Alberta's Employment
or terminate Standards Code and other the contract, cannot be discharged
employment requirements are met. (The right by the payer without compensation.
to fire is a f orm of control.)
• Normally, as long as the payer has
Can terminate his or her employment complied with the requirements of
the contract, cannot terminate the
in accordance with Alberta's
Employment Standards Code contract without liability.
requirements. • If t he contract allows for
termination, the payer or the
contractor can do so under the
specified conditions.
Supervision Works under the supervision • Generally works without supervision
and compliance of the employer. to meet the requirements of the
with instructions contract.
Generally must follow the employer's
instructions on how, when and where • Does not receive or follow ongoing
the work is p erformed. instructions on when, where and
how to work.
Generally must follow the employer's
instructions regarding the quality or • Decides what methods will be
volume of work. used to achieve the final outcome.
Specific results May perform a variety of tasks and • Supplies a product or service as
duties. (The relationship with the required by the contract. (Once
employer continues after these tasks these requirements have been met ;
are duties have been completed.) the contractual relationship ends.)
Ownership of Facilities, Supplies, Tools and Equipment
Facilities
Usually uses a workspace, furniture, • Usually supplies (leases, rents or
and premises phone, computer and related owns) the space, furniture, phones,
equipment provided, maintained and computers and other equipment
paid for by the employer. needed to do the work.
• W hen possible or necessary,
may work at the payer's premises.
(Working on site does not
necessarily mean that the payer
controls the contractor. However,
supplying a d esk, phone or related
equipment may be a sign of p ayer
control, particularly for contractors
who do not own or have access
to similar equipment on their own
premises.)
Government of Alberta, Alberta Employment and Immigration