Your business is growing and you need to start hiring! Congrats! But before finding the candidates you need to decide: are you looking for a subcontractor or for an employee? Are you outsourcing a service or hiring an ideal candidate with the skills to grow in your team? What are the rules to follow?
As a business owner you need to comply with government regulations when hiring. Canada Revenue Agency (CRA) is really strict with these rules as they are going to decide if you need to deduct liabilities from the person paycheque, if the person is eligible for regular employment insurance, how they are going to be treated under the Canada Pension Plan program, and decide the conditions of employment.
The easy way is not always the best way here. Most of the time due to not knowing the full consequences of hiring in the wrong way you can get in trouble with CRA en end paying penalties and ate fee on the liabilities you needed to remit to CRA.
There are 2 to main areas that CRA asks when auditing a business hiring system (Quebec has its own set of rules) that rule for all the business:
- Intention?
- Control?
If the intention for both the worker and the payee is having a contract for service (business relationship) or they intend to enter into a contract for services (employment relationship)? Sometimes the intention is clear and both parties are in agreement, even they write and sign an agreement, and this is the proof of common intent. If there is no contract, CRA assumes there is not common intent and to decide the intention an examination of both parties' action is required. Be aware that this is just one step, just intention doesn't determine the employment status.
Once you can determine the intention, then you go to decide who is in control. This point will clarify the working relationship. These question relate to the following elements:
- level of control the payer has over the worker's activities
- Who is the person providing the tools and equipment
- whether the worker can subcontract the work or hire assistants
- the degree of financial risk of the worker
- the degree of responsibility for investments and management of the worker
- the worker's opportunity for profit
- any other relevant factors, such as written contracts
Based on all the answers CRA decide if the actual working conditions are consistent with a contract of service or a contract for services.
The actual degree of control may be difficult to determine when you are hiring a professional such as doctors, engineers, etc as their expertise and specialized training will require less directions and guidance in their activities. They tend to be more independent that let's say a cashier who you give an schedule, daily activities to complete, and systems to follow.
When you provide the tools, decide the working hours, take all the financial risks and are the only one with the capacity to hire someone as assistant for the work and/or subcontract the work, then you are hiring an employee and you have obligations under the Federal Labour standard and your provincial Employment Standards https://www.canada.ca/en/services/jobs/workplace/federal-labour-standards.html). You are obligated to calculate payroll and deduct Employment Insurance, Canada Pension Plan and Income Taxes, both federal and Provincial. At the end of each month you will need to remit the deductions plus the employer burden to CRA under your Payroll account.
If hiring subcontractors, then they are in control of their schedules, they have the capacity of hiring another person to do the job, as you are contracting a service, the result! They are also incurring in financial risks. The subcontractors need to keep their own set of books, save money to pay their own taxes and register for HST/GST when needed.
Either if you are looking for a subcontractor or an employee you need to be informed and make the right decision. Don't go with the note of "saving money" and "make things easier" hiring a subcontractor when in reality the relationship is for employment. Be complaint of the regulations and your business will flourish with succeeds and growth.
Are you still in doubt? Contact us today with your questions!
Photo by Gabrielle Henderson on Unsplash
