Whether you provide services to someone or someone provides services to you, the nature of your work relationship determines the legal consequences of that relationship. Under the law, an independent contract relationship is treated differently than an employer - employee relationship on matters such as source deductions, insurance requirements, confidential information and intellectual property.
Whereas employers must make deductions, such as those required under the Income Tax Act, Employment Insurance Act, Workers' Compensation Act and the Canadian Pension Plan, from the employee's pay and remit them to the appropriate government authority, independent contractors must remit these contributions themselves. On work-related insurance matters, employees are typically insured by their employer's liability insurance for job-related activities. Independent contractors, on the other hand, are not covered by such policies and, therefore, should insure themselves no matter where they work. On confidential matters, employees are expected to keep their employer's sensitive information such as trade secrets, confidential. While independent contractors are not under the same general obligations to keep information confidential, they may face liability if they disclose or use confidential information outside the parameters set their contract. As well, independent contractors should draft their contracts to ensure that the company for whom they work keeps their own sensitive information confidential. On the ownership of intellectual property, an employee's inventions or ideas typically belong to the employer if the employee came up with the idea while on the job. Independent contractors, however, can claim ownership of such inventions and ideas especially if the contract stipulates that they belong to the independent contractor.
So, how can you determine whether you are an employee or an independent contractor? The courts have used the following four tests as guidelines to distinguish between employees and independent contractors:
Control:
If you have the power to dictate the method, place and time that work is to be done, the power to determine who does the work and the power to directly supervise the work being done, then you are likely an independent contractor. If someone else makes these decisions for you, you are likely an employee. The absence or presence of control is often considered to be the most important test in distinguishing employees from independent contractors.
Ownership of Tools:
If you own the tools, materials and equipment that you use to do the work, you are likely an independent contractor. If these tools, materials and equipment are owned by the company for whom you work, then you are likely an employee.
Chance of Profit:
If your remuneration is dependent upon the completion and success of the work, you are likely an independent contractor. If you receive remuneration that is pre-determined and payable on a regular basis, then you are likely an employee.
Risk of Loss:
If you invest your own financial resources into the work, you are likely an independent contractor. If you do not contribute financially to the work, or you are reimbursed for any financial contribution that you make to the work, you are likely an employee.
If you apply these tests to your situation, you may find that you may be considered an employee under one test and an independent contractor under another. Keep in mind that not all the tests will be relevant to your circumstances or be of equal importance. Remember that the tests are only guidelines and that the final determination of your status may depend upon other factors. It is unlikely that your job title conclusively defines your rights and responsibilities in the work place. If you are in doubt as to your status, consult your employer or the company that has contracted for your services and consult your professional advisers.