ch.5 ee vs contractor

Question 1

Implication of incorrect classification

Answer 1

If the Canada Revenue Agency (CRA) determines at some later point in time that the workers are employees and not independent contractors, the organization could be liable for both the employer’s and the employee’s share of CPP and EI premiums and for withholding taxes. In addition, penalties and interest may be levied on the under-remittance of those payments.

Question 2

Criteria for distinguishing between employees and independent contractors

Answer 2

• control:who has the right to determine the time, place, and manner in which the work is to be done.
• ownership of tools:cost of tangible tools supplied by the individual, worker is required to purchase or rent costly equipment, this test would favour an independent contractor relationship
• chance of profit / risk of loss:employee generally receives a set wage, independent contractor may risk incurring losses as a result of bad debts, damage to equipment or materials, and delays, operating costs
• integration: proportion of the individual’s income is derived from the organization, and whether the individual is free to work for other entities.
• specific results: ee is normally hired on an ongoing basis, not for a specific project. An independent contractor is normally hired for a specific job with no guarantee of ongoing work.
• intent: two parties intended to enter into a contract of service (employer-employee relationship) or whether they intended to enter into a contract for services (business relationship)