Hybrid Factors which lead to misconceptions and conflict

As previously stated, problems arise from hiring practices that are sloppy or thoughtless. The average BIA member has a lay knowledge of labour laws and standards. Especially since, in recent years, many employee benefits have become statutory. Government has legislated conditions which once negotiated between the parties, are now automatically included.
This has led to an increase of labour conflicts ending up in the courts or Labour Relations Boards. The best and least costly practice is to seek advice and implement the correct approach before stepping into the muck.
Some of the metrics listed below will surprise you…
  • If both sides agree (verbally or in writing) that a staffer is an independent contractor; it does not make it so.
  • If the staffer charges HST, submits invoices or has a business licence; it may still not make the staffer a contractor.
  • Use of one’s own vehicle is not a factor either way.
  • If the statutory deductions are not deducted (Tax, CPP, EI), one may still be considered an employee.
  • Working full time or part-time is not a yardstick.
  • Remuneration for expenses is not a yardstick – expenses can be recovered by contractors and employees.
The lesson to be learned is that avoiding problems is better than untangling them after a screw-up.

BIA advantages of hiring a Contractor

  1. No need to provide office and equipment.

The cost of rent, insurance, heating and equipment is avoided. If an office site, equipment and all supplies already exist within the BIA, then the facilities can be ‘rented’ to the contractor.
  1. No need to pay 4% for vacations or the employer’s share for the statutory deductions.

Contractors are not entitled to the benefits guaranteed by the Employment Standards Act. Furthermore, the statutory deductions (CPP and EI) also include an employer’s contribution commensurate to what the employee pays. This amount is saved.
  1. No need for severance or dismissing with cause.

Severance pay is now an accepted universal. The amount is usually determined by length of service. It only applies to employees – not to contractors.
To dismiss an employee, an employer must provide cause. This can be dicey because what may be seen as ’cause’ by an employer may not be accepted by the courts. Even before the matter is tried in court, the employee may choose to challenge the dismissal by hiring a lawyer or filing a complaint with a Labour Relations Board.
A challenge for wrongful dismissal will complicate termination. Such adversities will force the employer to either ‘settle’ out of court, or fight the challenge – both options creating legal costs.
  1. No need for Directors’ Insurance.

Sometimes people act inappropriately. Boards are comprised of Directors. One bad apple may choose to power-trip on an employee. Or abuse an employee in some other manner. Or, (the worst horror!) sexually harass an employee.
If such should be alleged (not necessarily happen), the costs of litigation; court and legal fees, etc., become nightmarish. That’s why Directors’ Insurance, which is designed to deal with misbehaviour towards employees, is a necessity – but it may still cost a fortune to resolve/settle. As is usual with insurance, there are deductibles as well as limits to coverage.
With a contractor, Directors’ Insurance is superfluous because it is designed for employees and not contractors.
This does not mean that a contractor can be mistreated with impunity. A contractor can also seek redress if badly treated. Unlike an employee however, a contractor has to hire and pay a lawyer up front. This is a strong deterrent to frivolous court challenges. (The usual problem with contractors involves contractual requirements and conditions not being met. That may still lead to a court fight, but contractual defaults do not fall under Directors’ Insurance).
An employee, however, may file a challenge against mistreatment at no cost – by filing a complaint with the Ministry of Labour or with the Attorney’s office. In neither case is there any payment required because the justice system kicks in and funds the court proceedings.
On the other hand, the employer (the BIA) has to pay its own legal expenses to defend an employee’s challenge. Such a situation often results in the employer settling a claim in order to avoid further court costs (which are encountered, win or lose). Of course, all the players know this – which encourages claims being made by the party which has no costs to pay.
Such no-cost availability encourages employees towards legal challenges which are almost always automatic.
  1. Fewer accounting requirements.

Obviously, the necessary accounting for monthly reporting and monthly payments of deductions is mitigated when simply paying a cheque to a contractor’s invoice.
  1. Avoiding Miscellaneous Fringe Costs

Overtime, public holidays, personal emergencies, family medical leave, ill child care requirements, termination pay, sickness or injury, pregnancies, organ donor, reservist service are all fringe costs. “Fringe” meaning that the staffer is not at work, provides no  service to the employer, but is entitled to these elements – some of which are payable.

Advantages of hiring an Employee

None.
By “none”, what is meant is that, all else being equal, having someone perform under contract is preferable by protecting the BIA from exposure to costly recriminations, than when having the same services provided by an employee.

Determining Employee or Contractor Status

The following excerpts reflect some metrics that the CRA uses in its review of working arrangements.
The full version can be found by clicking here:
References:    Underlined, bold italics are mine.

“Step 1

We ask the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)?
We need to know how they defined their working relationship and why they defined it as such.
Sometimes the intention is clear and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding as to the status of their working relationship, in which case there is no common intent.
Workers and payers can set up their affairs as they see fit; however, it is very important that the employment status they have chosen is reflected in the actual terms and conditions of the working relationship.
To decide the parties’ intentions, we get a copy of the contract, or testimony by the parties and examine the parties’ actions. Both parties’ intentions form part of the context that we analyse.

Step 2

We ask the worker and the payer questions that will help us understand the working relationship and allow us to verify whether the intent of the parties is reflected in the facts.
These questions relate to the following elements:
  • the level of control the payer has over the worker’s activities;
  • whether the worker provides the tools and equipment;
  • whether the worker can subcontract the work or hire assistants;
  • the degree of financial risk the worker takes;
  • the degree of responsibility for investment and management the worker holds;
  • the worker’s opportunity for profit; and
  • any other relevant factors, such as written contracts.
We look at the answers separately for each element and then together.
We consider whether they reflect the stated intention and we decide if the actual working conditions are more consistent with a contract of service or with a contract for services.

Factors to consider

To help you understand the process, we explain each factor below and show some indicators that the worker may be an employee or a self-employed individual.

Control

Control is the ability, authority, or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done.

Degree of control or independence

Consider the degree of control held by the payer or the degree of independence held by the worker. The actual degree of control will vary with the type of work and the skills of the worker.
Deciding the degree of control can be difficult when examining the employment of professionals such as engineers, doctors, and IT consultants. Because of their expertise and specialized training, they may need little or no specific direction in their daily activities. When examining the factor of control, it is necessary to focus on both the payer’s control over the worker’s daily activities and the payer’s influence over the worker.

Payer’s right to exercise control

It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right.
It is the control of a payer over a worker that is relevant and not the control of a payer over the end result of a product or service purchased.

Indicators showing that the worker is an employee

  • The relationship is one of subordination. The payer will often direct, scrutinise, and effectively control many elements of how and when the work is carried out.
  • The payer controls the worker with respect to both the results of the work and the method used to do the work.
  • The payer chooses and controls the method and amount of pay. Salary negotiations may still take place in an employer-employee relationship.
  • The payer decides what jobs the worker will do.
  • The payer chooses to listen to the worker’s suggestions but has the final word.
  • The worker requires permission to work for other payers while working for this payer.
  • Where the schedule is irregular, priority on the worker’s time is an indication of control over the worker.
  • The worker receives training or direction from the payer on how to do the work. The overall work environment between the worker and the payer is one of subordination.
  • The payer supplies most of the tools and equipment the worker needs. In addition, the payer is responsible for repair, maintenance, and insurance costs.
  • The payer retains the right of use over the tools and equipment provided to the worker.
  • The worker supplies the tools and equipment and the payer reimburses the worker for their use.

Indicators showing that the worker is a self-employed individual

  • A self-employed individual usually works independently.
  • The worker does not have anyone overseeing his or her activities.
  • The worker is usually free to work when and for whom he or she chooses and may provide his or her services to different payers at the same time.
  • The worker can accept or refuse work from the payer.
  • The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship.
  • The worker provides the tools and equipment needed for the work. In addition, the worker is responsible for the costs of repairs, insurance, and maintenance to the tools and equipment.
  • The worker has made a significant investment in the tools and equipment and the worker retains the right over the use of these assets.
  • The worker supplies his or her own workspace, is responsible for the costs to maintain it, and does substantial work from that site.

Tools and equipment

Consider if the worker owns and provides tools and equipment to accomplish the work. Contractual control of, and responsibility for, an asset in a rental or lease situation is also considered under this factor.
What is relevant is the significant investment in the tools and equipment along with the cost of replacement, repair, and insurance. A worker who has made a significant investment is likely to retain a right over the use of these assets, diminishing the payer’s control over how the work is carried out. In addition, such a significant investment may place the worker at a risk of a financial loss.
Self-employed individuals often supply the tools and equipment required for a contract. As a result, the ownership of tools and equipment by a worker is more commonly associated with a business relationship.

Subcontracting work or hiring assistants

Consider if the worker can subcontract work or hire assistants. This factor can help decide a worker’s business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss.
Indicators showing that the worker is an employee
  • The worker cannot hire helpers or assistants.
  • The worker does not have the ability to hire and send replacements. The worker has to do the work personally.
Indicators showing that the worker is a self-employed individual
  • The worker does not have to carry out the services personally. He or she can hire another party to either do the work or help do the work, and pays the costs for doing so.
  • The payer has no say in whom the worker hires.

Additional indicators showing that the worker is an employee

  • The worker is not usually responsible for any operating expenses.
  • Generally, the working relationship between the worker and the payer is continuous.
  • The worker is not financially liable if he or she does not fulfil the obligations of the contract.
  • The payer chooses and controls the method and amount of pay.
  • The worker has no capital investment in the payer’s business.
  • The worker does not have a business presence.
  • The worker is not normally in a position to realize a business profit or loss.
  • The worker is entitled to benefit plans that are normally offered only to employees. These include registered pension plans, and group accident, health, and dental insurance plans.

Additional indicators showing that the worker is a self-employed individual

  • The worker hires helpers to assist in the work. The worker pays the hired helpers.
  • The worker does a substantial amount of work from his or her own workspace and incurs expenses relating to the operation of that workspace.
  • The worker is hired for a specific job rather than an ongoing relationship.
  • The worker is financially liable if he or she does not fulfil the obligations of the contract.
  • The worker does not receive any protection or benefits from the payer.
  • The worker advertises and actively markets his or her services.
  • The worker has capital investment.
  • The worker manages his or her staff.
  • The worker hires and pays individuals to help do the work.
  • The worker has established a business presence.
  • The worker can hire a substitute and the worker pays the substitute.
  • The worker is compensated by a flat fee and incurs expenses in carrying out the services.”
Buzz

Leave a Reply

Your email address will not be published. Required fields are marked *