Note: For the purpose of this article, "Independent Contractor" and "Contractor" are considered one in the same.
It's been a running gag for decades that bosses are typically mean and/or annoying, have high expectations, and expect all employees to live their jobs. Bosses typically have a bad reputation from the get-go because employees are expecting them to be mean with unrealistic expectations.
As someone who's been both an employee and a boss, I know that there is a very fine balancing act between safeguarding the reputation and success of a company and ensuring employees are treated fairly and respectfully. Many times, the two can go hand-in-hand: Treat your employees like real human beings and in turn, your employees will be loyal and hardworking which will ultimately drive your business goals. But it all depends on what the boss's motivation is day-to-day. Is it all about the bottom-line or is it about connection, community, and respect?
At the end of the day, a company's soul purpose to make money. If they don't make money, they won't survive. However, it's also true that very few people who start a business have HR experience, very few know the ins and outs of employment law, and to be perfectly honest, some just don't care about either of those things.
And that's where you can get yourself into trouble. Yes, YOU - not the company. That is - if you don't know how to protect yourself.
There is a growing trend among small business owners (specifically those who provide services rather than physical products): hiring "sub-contractors" rather than employees. To most, the difference between a sub-contractor and an employee is minimal: the difference between having taxes removed automatically versus having to do it yourself at tax time. And this would be accurate but there is so much more that goes into it and if you don't know the difference, you could end up getting yourself into a situation where you're losing out at the end of the day.
With the new legislation that was passed in 2017, there is a more defined boundary between the two, and it's imperative that all job seekers understand the difference.
In past years, it was easy for businesses to tweak a few small procedures in order to avoid having to classify their employees as actual employees. These are called "loop holes" and generally offer advantages to the company and some disadvantages to the sub-contractor. Now, however, these loop holes have been essentially "filled" and businesses can now face prosecution, public disclosure of a conviction, and hefty fines if their sub-contractor/employee practices are not clearly defined.
Since a lot of my readers are men and/or women who prefer to concentrate on raising their families than work a 9-5 job, they try to find jobs in which they can essentially choose their own hours, work as much or as little as they like, and still have time to do what they need to do for their families. Luckily, there are quite a lot of jobs out there like this; however, these are the "types" of jobs where people are being misled the most: I'm not going to sugar-coat this here - what your "boss" is doing by misclassifying you is a scam, point finale.
Let Me Explain...
So, let's discuss. What is an sub-contractor?
Well, first we need to define what a contractor is. A contractor is someone who owns their own business and is hired by either another company or a private citizen to provide a service. As a contractor, I get to decide the 4 business essentials:
Who (to work for)
What (work I'm doing)
Where (the work is to be done)
How Much (I get paid)
A sub-contractor is someone a contractor hires to help with the job (also called outsourcing). And this can come about in many forms. Here are two examples:
I own a residential cleaning business. A person from within the community hires me to clean their home on a biweekly basis. I am, therefore, considered a contractor. As my company grows, I will need to hire additional cleaners to help me fulfill my commitments. In this case, they could be considered a sub-contractor (if I choose not to hire them on as full employees). Hiring sub-contractors will save me time and money in the long run as I won't have to open a CRA account and hire an accountant to ensure all my payroll duties are filled and filed on time. But we will get more into that later.
I own a construction business doing renovations. I am hired as a contractor to flip someone's kitchen. I offer the client an estimate and a deadline and set to work. But 2 weeks prior to the deadline, I realize I'm not going to make it. And since I hate disappointing clients, I choose to reach out and find someone who can help me. I then pay them when the project is complete (as opposed to the client paying them); their fee would come out of my payment for the job. In this case, I would dictate where the work is going to be completed and when it needs to be completed, but the sub-contractor would ultimately be the one to decide how much he or she gets paid.
In both of these circumstances, the sub-contractors would be responsible for dealing with their own taxes and wouldn't be subjected to CPP, EI, Pension deductions (until they do their taxes, of course).
The Confusion...
I want to point out here, that before I did all this research and wrote this article, I was under the impression that there were three classifications: Independent Contractor (self-employed owner of a business), an employee (who decides nothing but goes to work and gets paid), and a sub-contractor which lay somewhere in the middle. Someone who has the who, what, where, and how much dictated to them but is responsible for their own taxes and deductions.
This is not the case. A sub-contractor is self-employed, full stop. And being self-employed means there is a certain level of "wiggle" room you have in terms of the work you're doing. In most sub-contractor situations, you have the ability to choose when and where you work. Also, a sub-contractor is generally not paid by hourly wage, sub-contractors are usually piece-work: they're offered a cost for the entire project and are paid out at completion.
So How Do I Know if I Am an Employee, a Sub-Contractor, or an Independent Contractor?
With the Wynne government introducing their plan to increase minimum wage, they have also enacted new legislation to protect workers in an effort to level the playing field between workers and businesses. The Fair Workplaces, Better Jobs Act, 2017 was put into action last year and with it came a very defined difference between what a subcontractor is and what an employee is. In order to determine which one you are, there is a 4-point checklist the CRA has put together to help you know your facts:
1. Control
2. Ownership of Tools
3. Chance of Profit/Risk of Loss
4. Dependence on the Organization
Let me explain each of these in detail and give you some examples of how your "boss" may be able to catch a loophole.
1. Control
Who has the most control in this working relationship? As in, who makes all the vital decisions? As a sub-contractor, you will likely not have control over where the work is being done and/or how much you'll be paid. But you can/do have control over whether or not you take the job in the first place (if you don't agree on price or work hours, you can simply refuse the job - without penalty - because you have no professional ties with the independent contractor), you can dictate the work you will or will not do (for example: if the IC wants you to install both the cabinets and the countertops, but you have no experience in installing counters, you can refuse. You may not get the job, but you can refuse without penalty), and although the IC dictated your payment, it's negotiable and can be "haggled."
To know how you're being classified, you may actually be an employee if your boss is:
Dictating your work hours
Choosing your how you're paid (hourly or per project)
Where you're working
How long you're working for (as in - if your boss says that a specific job is going to take 6 hours and they will pay you $350 for the job - they pay you $350 for the job even if it's done in 2 hours).
You are paid per hour or per week (rather than per job)
You're being told how to do your job
Susan Ward, author of "Independent Contractor vs Employee: Which One Are You?" for The Balance: Small Business, explains:
"... in a business relationship, the worker decides how the work will be performed. As a contractor, then, it’s important that you maintain the right to decide where, when and how the work will be done. If it comes to the test, and you can show that you were the person responsible for planning the work to be done, choosing the hours of work, and/or setting the standards to be met[...]you’ll have a much better chance of being deemed a contractor rather than an employee."
When you're in a "fine-line" position (like a house cleaner), the lines can very easily get blurred and it can be difficult to know whether or not your "boss" has your best interests at heart - or whether they're just out to make a few bucks, damned the consequences. So then you'll need to look at past events, conversations, and facts that have been explained to you.
Are you "allowed" to refuse a job? If your boss says you are, look at what happens when you do - are you treated differently? Do you get reprimanded? Do you loose out on future jobs because you refused a job that was too far to travel?
Luckily for you, however, it's not up to you to prove to the court that you're working as an employee rather than a subcontractor, it's up to the business owner to prove that you're not working as an employee.
And why - you may ask - would you be in court with your "boss"? More on that below.
2. Ownership of Tools
Another sign that you're actually an employee as opposed to a sub-contractor is if your boss if supplying you with the tools you need to do your job. As a contractor (independent or sub), it's your responsibility to ensure you have the proper tools/equipment to complete the job. If I outsource a data entry task to a sub-contractor, I would assume that they had the proper equipment at home (or office) to complete the job. At no time should I have to supply the sub-contractor with anything they would need to complete the project.
A part of being self-employed is also investing in things that will help you do your job. If your "boss" is supplying you with what you need to do your job, then when you leave that company, you will no longer have the tools to do your job - which means you are unable to be self-employed.
Sometimes, even though you're a sub-contractor, the company you're servicing may request that you wear and/or carry certain apparel with the company's logo on it. In order to be considered a sub-contractor in this case, you would be responsible for purchasing these items out of your own pocket. This would essentially be like being a franchisee; investing in a company wherein you must further their brand. But at the end of the day, you'd still be responsible for choosing your hours and who/where you work.
For example: If you work for a company like Mary Kay, when you attend the parties or any conventions, you dress in Mary Kay-approved apparel that have the Mary Kay logo on them. The difference, however, is that you have paid for and signed a membership contract in order to represent the company and carry its brand. By paying for your membership, you're investing in the company as a separate entity.
Some employers will try to get around this by charging you a "deposit" for some of their supplies, or a "replenishing fee," thinking they found a loop hole. In court, however, this won't hold up. A deposit is intended to be returned (which means its not an investment); however, there may be a stipulation that if the items are not returned, you will lose your deposit and be charged the full amount for the tools. Additionally, if your employer is charging you a "replenishing fee" unless this fee amounts to the entire cost of the tools, it's not an investment and cannot be considered self-employment.
3. Chance of Profit/Risk of Loss
Ask your self these three questions:
Are you making a profit from this contract? (If you're getting paid per hour, you are not making a profit - it's not possible. Also, if you're not putting any money into the business - and gas doesn't count - you cannot make a profit, as you did not put any money into it to begin with)
Do you run the risk of incurring losses due to bad debts, damage to equipment or materials, or delays? (If you loose out because a client didn't pay you, or you loose out because your equipment was damaged, then this is considered a risk and you would then be defined as a either an IC or a SC.)
Do you cover the operating costs? (Do you pay for your own tools and/or equipment? Are you responsible for paying for business/company insurance? Do you handle advertising and marketing?).
If you're responsible for paying for anything to enable you to do your job for the company out of your own pocket, this is considered investing in the company and you're probably also working for multiple different companies/clients simultaneously.
4. Dependence on the Organization
As a contractor, you are more than welcome to have as many contracts with as many clients as you would like - even if two companies are the same as the other. Though there are some limitations when it comes to working for a client who is direct competition with another client you're working with, as a contractor, you're free to work for whomever you please and one client does not have the right to dictate who you can or cannot work with while working with them.
When determining whether or not you are an employee or a contractor, CRA follows this guideline to determine the difference. If the company is expecting you to give the majority of your time to them or you are contractually prohibited from working for other similar companies, you should be classified as an employee. For more information on this and the items above, you can check out the Canada Revenue Agency's website.
In the event of a dispute between yourself and a company/client, the factors above are all taken into account and weighed against the other; however, there are other issues that need to be considered, as well. Below are some ways in which a company/client can blur the lines between their classifications and for which you need to be aware of if you were hired on as a sub-contractor:
BEING SCHEDULED: You are being "scheduled" to work rather than your work being requested (as in, you are sent calendar invites without prior approval or you receive a weekly or monthly schedule rather than being contacted with a request). As a contractor, you are legally able to refuse work without threat of disciplinary action. If you don't have a choice in the matter, you're an employee.
NOT OFFERING ENOUGH NOTICE FOR JOBS: As an employee, your boss must give you 96 hours notice for an upcoming job or project. Should a company or client have an urgent matter that needs to be tended to prior to the 96-hour mark, you have all rights to refuse and cannot be penalized for refusing. As a contractor, your "boss" may request you do work with less than 96 hours notice (even 2 hours) but you have every right to refuse - as your "boss" can never demand you work. If you are unable to work, you have too much other work, or you simply don't want to - whatever the reason - you can refuse a work request from your "boss." As a contractor, it is your prerogative as to whether or not you accept the job.
As a contractor, you don't have to give your "boss" any information about your personal life - when you are and aren't available, how often or how little you want to work. You, essentially, have no loyalty to the company/client. You are a completely different entity from the company you're contracted to work for, so if you are not obligated to give them any information about your working situation outside of their company. They simply contact you to find out if you can work and you say yes or no - that's it.
Here's Why This Matters...
At this point, you're probably asking yourself the same thing I did when I started researching this:
Why does it matter?
Well...because it does. It matters because there are so many blurred and fine lines. If you're an independent contractor offering writing services within your community, it's pretty cut and dry. You offer them a service with the cost and they choose whether or not to hire you. You continue to write for other clients without informing the first client, and the "roles" are pretty obviously defined.
However, in most cases, it's not so black and white. A lot of start-up and/or small businesses choose to "hire" sub-contractors as opposed to employees as it keeps the overhead low, keeps things simple, and avoids a ton of time-consuming paperwork. However, these are the companies that need to be the most careful because as they grow, it's really easy to completely obliterate those already blurred lines.
Although there are, in summary, 4 basic characteristics that define the difference between an employee and an IC/SC, in order to be considered either/or, only 2 of the 4 need to be met to qualify as one or the other. Let me provide you with an example of this.
Here's a real-life example from my own experience in which loopholes were found and taken advantage of:
I was hired by an up-and-coming residential cleaning company who told me right off the bat that I would be classified as a sub-contractor. She explained that I would be responsible for my own taxes and deductions, as well as for my own gas and travel expenses. Within only a few days, I noticed some irregularities (which is what led me to research and write this article). Let me lay them out for you, and you can tell me what you think I should have been classified as:
SCHEDULING: I had no control over scheduling. My daily cleans were changed on a dime and I was never given any prior warning. On one occasion, I had a Tuesday off, and the evening prior I received an email from my "boss" informing me of a clean the following day (Tuesday). When I called and asked why it had been changed so last minute, she told me that she based the schedule off the availability her cleaners gave her and so if I'd stated I was available on Tuesday, unless I stated otherwise, I was expected to cooperate. When I told her that I wouldn't be able to do the work, she told me that too many refusals could result in a decrease in hours.
TOOLS/EQUIPMENT: Tools and equipment were supplied to me along with a carry bag with the company's logo on it. I was charged a $50 deposit for the supplies and would be charged a $25 replenishing fee every month. But I had no choices on what supplies I used, which brand of equipment, and had to follow specific procedures when leaving a home (like leaving candies and a the company's business card).
PAYMENT: I was paid per hour and paid out once a week. I was responsible for sending her an invoice for the hours I worked and a receipt once it had been paid out.
CLIENTS AND LOCATION: I had absolutely no control over where I worked and for whom. All of that was done at the corporate level and we were not given a choice as to who we did work for, nor the location (since it was the client's home).
So given all you've learned so far, can you recognize the loopholes? I'm sure you're able to recognize just by reading those 4 things that I had absolutely no control over any of it; however, the owner of the company had done her homework and knew that, in order to be considered a sub-contractor, there were certain things that she needed to qualify.
Considering the fact that the who/where/what had already been determined by the company (there's no way around that), the owner would have been responsible for ensuring that some of the other areas weren't so controlled. However, the owner did recognize the areas in which she needed to relinquish control, but found loopholes on making it seem as though she had, but in fact, had not.
For instance, requesting a deposit and a replenishing fee could be considered an "investment," however, if you really look at the facts, if I left the company, I wouldn't have any tools or equipment because I was essentially "renting" them from the company. However, I was not allowed to "rent" my equipment from anyone else. So, at the end of the day, no investment was made.
Scheduling was an issue, as well. Not only was I not allowed to accept/deny jobs, I was told when I had to be there and was not given ample notice or choice.
As for payment, the owner of the company dictated not only when I would be paid, but how much. The owner dictated the hourly wage as well as which day I had to submit my invoice otherwise I would have to wait until the next pay period. The owner was able to "loop hole" the employee factor here by requesting invoices, making it seem as though she didn't have record of the hours I'd worked, since she'd scheduled them.
So what did I do? I did my research, I educated myself, confronted the owner about the issues, told the owner I could no loner work for the company, and started my own business with clear lines drawn in the sand.
If your amount of control over what happens, where it happens, how long it happens for, how much you get paid, what tools you use and so on makes your control less than 10-15%, you're an employee and should be treated as such. A business cannot have it both ways - they can't insist that you be available for them 24/7, "rent" your supplies from them (but must use the tools they prefer for their business), advertise their business through your own networking, but not pay you as if you were an employee with benefits, insurance, and taxes. It's illegal.
Since the implementation of Fair Workplaces, Better Jobs Act, 2017, business can be severely reprimanded for misclassifying their employees/contractors. The law states:
“employers who miss-classify their employees could be subject to penalties including prosecution, public disclosure of a conviction and monetary penalties...In the event of a dispute, the employer would be responsible for proving that the individual is not an employee (as per Bill 148)."
The Legalities...
It's possible that even your "boss" isn't aware of these changes or laws, but as a business owner, it is their responsibility to ensure they never have one leg on each side - you're either an employee with employee perks, or you're a subcontractor with subcontractor perks - it can't be both - otherwise, your "boss" is taking advantage of you and saving him or herself loads of money while you're handcuffed to a job you have no control over.
Being classified as a sub-contractor when you're being treated like an employee services to benefit the company but leaves you loosing out on both sides. On the one hand, you're having "employee expectations" placed on you - loyalty, accountability, responsibility - but with no benefits, no IE, and no severance. So you're losing all the control benefits you would have as a contractor without any of the benefits of being an employee.
Additionally, it also means that the company for which you're providing services is operating illegally; not paying their proper taxes, not paying into EI, CPP, and Insurance premiums, with all the benefits of getting their employees to do everything they're asked to do. What's that saying? The rich just get richer. That's essentially what this is: taking advantage of low to middle class workers who work just enough to get food on the table while the companies hope they can pull the wool over their workers eyes and get away with it.
If you're concerned that you may be in a position like this and your boss isn't attempting to resolve the situation, contact the Labour Board of Ontario. Know Your Rights. Don't let people take advantage of you.
If you're interested in knowing more about the difference between being an employee and subcontractor, there are many great articles you can refer to. The ones I used for this article are listed below and are very helpful.
Have you ever been in a situation like this? Did you even realize it? What did you do about it? Leave your comments below!
#labourlaws #Ontario #subcontractor #employee #business #selfemployed #knowyourrights #protectyourself #thepensivemama #stcsmallbusinessconsulting
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