When running your own business, it is important to determine whether your workers are employees or self-employed individuals. The differences can sometimes be subtle, but employment status directly impacts the entitlements a person receives from employment insurance (EI), as well as how a worker is treated under the Canada Pension Plan, WSIB and the Income Tax Act.
As an employer, it is your responsibility to understand the relationship you have with your workers. Employment status can have a direct impact on the way you operate your business as employers are responsible for deducting CPP contributions, registering for WSIB, paying EI premiums and income tax from remuneration or other amounts they pay to their employees. An employer who fails to deduct the required amount must pay for the employee’s and employer’s share, plus any penalties or interest.
To determine a worker’s employment status, there are a few things the business owner can look at.
- Determine whether you entered into a contract of service (employer-employee relationships) or a contract for service (business arrangement). This is important, because it tells you how the two parties mutually defined their working relationship. Often times this is straightforward and agreed upon (common intent), but sometimes disagreements arise about the nature of employment status.
- In the event of such disagreements, looking at a variety of other factors can illuminate the true dynamics of a relationship. This can include looking at the level of control the payee has over the worker, the degree of financial risk the worker takes and whether the worker can subcontract the work or hire workers. Either party can request a ruling to have the status determined by contacting the Canada Revenue Agency.
For a thorough list of factors which can determine employment status, visit the Canada Revenue Agency website.
It is truly important to have a clear understanding of the working relationship as a whole in determining the employment status of your workers. You should ensure that the job description, duties and relationship are clearly specified in writing, and that you and your workers understand this relationship. This small step can protect your workers, avoid larger headaches down the road, and help your business to operate hassle free.
One of the goals of the Centre is to empower small and medium-sized enterprises and give you the tools to achieve success. For more information about Halton Region’s Small Business Centre resources, services, business events and seminars, contact us by dialing 311, 1-866-442-5866, online atwww.haltonsmallbusiness.ca, by email at firstname.lastname@example.org visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitterand find us onFacebook.