To determine if a worker is an employee or a self-employed individual, one has to examine and analyze the terms and conditions of the worker’s employment as they relate to the following four factors:
Generally, in an employer – employee relationship the payer exercises control if he/she has the right to hire or fire, determine the wage or salary to be paid, and decides on the time, place, and manner in which the work is to be done. In addition the payer may also control the list of clients and the territory covered. If the employer does not directly control the worker’s activities, but has the right to do so, the notion of control still exists.
In a business relationship, however, the payer does not usually exercise control over the worker’s activities. The worker can decide how and where the work will be performed for a price determined by him/her.
Ownership of Tools
In an employer – employee relationship, the employer generally supplies the equipment and tools required by the employee. In addition, the employer covers the following costs related to their use: repairs, insurance, transport, rental, and operation (e.g. fuel).
In a business relationship, workers generally supply their own equipment and tools and cover costs related to their use.
Chance of Profit/Risk of Loss
We have to examine the worker’s financial involvement, by determining if the worker has the chance of making a profit, has risks of incurring losses due to bad debts, damage to equipment or materials, or unforeseen delivery delays; and covers operating costs.
In an employer – employee relationship, the employer alone assumes the risk of loss. The employer also generally covers operating costs, which may include office expenses, employee wages and benefits, insurance premiums, and delivery and shipping costs. The employee does not assume any financial risk, and is entitled to his full salary or wages regardless of the financial health of the business.
In a business relationship, the self-employed individual may make a profit or incur a loss. There is no guarantee of a steady income because the self-employed individual’s income depends on the results achieved by the end of the contract. The self-employed has to cover operating costs and has risks of incurring losses due to bad debts, damage to equipment or materials, or unforeseen delivery delays.
Integration has to be considered from the point of view of the worker, not the payer.
Where the worker integrates the payer’s activities to his own commercial activities, a business relationship probably exists. The worker is acting on his own behalf, he is not dependent on the payer’s business and he is in business for himself.
Where the worker integrates his activities to the commercial activities of the payer, an employer – employee relationship probably exists. The worker is acting on behalf of the employer; he is connected with the employer’s business and is dependent on it.
Consequences of Misrepresentation
Misrepresentation of a workers status may have consequences such as the assessment of both the employer’s and employee’s share of CPP contributions and EI premiums to the employer together with penalties and interest and the increase in income taxes for the ‘deemed employee’ as a result of the CRA limiting the deduction of expenses claimed by the taxpayer to those allowable under a contract of employment.