Question

Bob is working as a consultant at Wolf Lamp LLP in British Columbia, Canada. Bob has a temporary workstation set up with a computer, calculator, printer, telephone and scanner. When working on specific projects Bob sometimes ends up bringing some specialized tools with him. He usually starts work around 8:30-9:00am Monday-Friday. He can come in and leave anytime he just must be working from 9-4 Monday-Friday. He gets 2 weeks off a year and 10 sick days. Bob will sometimes bring his work home for his wife to assist him with when he gets too much work at the office, she is also a trained CPA. Bob and his wife love that Bob gets to work for Wolf Lamp LLP as he is paid very well. The one downfall is that if the specific consulting work, he does runs out, they may let him go.

a) Please determine if Bob would be considered an employee or a contractor for tax purposes?

b) Please explain, in your own words, why it matters if Bob is an employee or contractor for tax purposes?

Answer 1

a) Bob will be classified as a contractor and not as an employee as his employment is not permanent and it is based on a certain project. If the project is going well in the company then only his employment will be fixed and if the project is not going well in the company then, even his part in the organization is over.

b) If there is an employer-employee relationship, the payer is considered an employer and the person who works for the payer is an employee. Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration or other amounts they pay to their employees.From a business's point of view, hiring a contractor is much preferred as compared to hiring an employee because means a lot less paperwork and responsibility. Contractors don't receive benefits packages or pensions.

EI is a federal payroll tax which is required to be deducted from an employee's remuneration if the individual is employed in Canada and is receiving insurable employment earnings.

As an independent contractor, in canada income is not taxed upfront, leaving the burden on contractor to report how much he earned and to pay income taxes in a full or by installment.

If Bob is an employee, Federal payroll tax will be deducted everytime the remuneration is paid to him but if he is a contractor then, he has to report to government all by himself that how much he has earned and how much he will pay through tax.