Over the last couple of months, we have seen our employer clients engage an increasing number of “independent contractors”. This can be an effective way of getting overflow work done without adding to the headcount, and adding fresh blood to an organization.
Here are a few things to look for when structuring these arrangements:
- Put it in writing. Even these arrangements can end in tears if there is a disagreement on the basic terms. Your best bet is to set out the agreement in writing. Things that should be included are: what the project is; what the term is; where the person will work; and what the compensation will be. The other very important thing to include is what happens if there is a termination.
- The duck test. Just because you call your new person an independent contractor, doesn’t necessarily mean that they aren’t an employee at law. If it looks like a duck, and walks like a duck, it may just be a duck, or in this case an employee to whom you may have to pay statutory or common law notice. An independent contractor is just that – independent. If you fully integrate that person into your operation, and if you exercise control over how they do their work, there is a chance that they will be an employee at law. Look to set up arrangements that look like a bargain between two equals, with a substantial amount of control and flexibility resting with the contractor.
- Leaving it too long. The longer the relationship lasts, the greater the possibility that someone – and that could mean Revenue Canada – will conclude that it is really an employment relationship. In that case, the employer will be on the hook to pay income tax withholdings and CPP and EI premiums for the employee, often calculated from the beginning of the relationship. This can be costly, and may be difficult to collect from the employee.