Independent Contractors

Agreements must be properly structured.

There are many advantages to hiring “independent contractors” instead of “employees”. From a business point of view, for example, a business hiring an independent contractor does not have to withhold nor pay the employer’s portion of Employment Insurance and Canada Pension Plan, and there may be a saving on the business’s Workers’ Compensation premiums. From the worker’s point of view, the self-employed worker will not be subject to Employment Insurance premiums, but will have to pay both the employer’s and employee’s portion of Canada Pension Plan premiums. And the worker will be entitled to certain deductions for tax purposes, which would not be available to that worker as an employee. The savings to both the business and the worker can be substantial.

One person’s gain is another person’s loss. The “loser” is generally a government agency, and affected government agencies routinely attack “independent contractor” agreements. Similarly, disgruntled workers attack such agreements, generally after termination, in order to become entitled to receive employment insurance, vacation pay, and severance payments.

A properly structured independent contractor agreement will provide certain standards of performance which must be met by the worker, but will not specify how those standards are to be met nor give to the business any control over how those standards are met.

This is one of those areas where proper advice can save a business thousands of dollars. A properly drafted independent contractor agreement will generally cost less than the savings to be achieved by the business in a single year. If you are going to have independent contractors, can you afford and do you want to take the risk of not having a properly structured agreement?