The flexibility of working from home or running a contractor-based business can be a wonderful option for workers, but both employers and the people they hire, need to be conscious of what makes up an employee relationship and what defines a contractor relationship.
A few months ago, we heard from an employer who was confused as to whether their worker was a contractor or an employee. The worker had come to them stating they were a contractor and for the employer, that seemed like a solid answer. After all, the individual had their own business number, company name and billing process. They had an office within their residence and occasionally worked there.
Unfortunately, to the CRA, there is more to the definition of employee or contractor. In Canada there is a Four-Point Test that allows workers and employers to define the nature of their relationship. Flexibility in working arrangements is commonplace and no longer does having a home office define a contractor like it once did, even having a business name and number isn’t enough. Categories like control over the work and how it is done, ownership of tools, chance of profit or risk of loss and integration are all aspects that must be addressed.
When the Four-Point Test was applied to the case of the employer who came to us, we found that for a number of reasons, the worker they had hired was in fact a contractor. The worker made decisions on where and how to perform the work and used their own tools to do so in addition to other aspects.
Before making the decision of who is an employee and who is a contractor, be sure to check the CRA’s guidelines to avoid concerns down the road.