Question

The question as to whether a Worker was an employee or an independent contractor has been litigated before Canadian Courts on many occasions. Some of the leading cases in this area are Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025 (FCA), 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 (CanLII), [2001] S.C.J. No. 61 and Royal Winnipeg Ballet v. Canada, [2006] FCA 87. The common law test is whether “the Worker is engaged in performing services in business for herself (an independent contractor) or is under the control and direction of the hiring organization (an employee)”. To answer this question, the court considers a number of factors:

(a) control;
(b) ownership of tools;
(c) chance of profit;
(d) risk of loss;
(e) integration;
(f) intentions of the parties

The Scenario

An Accountant is offered a job with start-up tech company called “Hubba” on the following terms:

- 1 year fixed-term part-time contract, with possibility of renewal

- 25 hours per week at a rate of $50/hour

- Paid monthly

- Report to CFO and perform duties as required by CFO

- Worker is required to attend finance/accounting department meetings

- Duties include: prepare and review financial records, annual filings, and grant reports, conduct internal audits, implement accounting policies, processes and systems and provide

financial/tax advice

- Contract terms:

o Contract does not stipulate that Worker has to exclusively work for Hubba (note: Worker does not have any other clients)

o Contract does not stipulate whether Worker is employee or independent contractor o Worker entitled to 3 weeks unpaid vacation
o Worker is not reimbursed for expenses
o Worker is not entitled to health/dental/parental benefits

o Worker provided company laptop, cell phone, email, business card and office
o Worker required to supply accounting software and other resources, materials to

perform job
o Worker entitled to work remotely provided that it attends the office one day per

week and submits weekly reports
o Worker subject to restrictive confidentiality covenants

Question 1

Is the Accountant more likely to be classified as an employee or independent contractor of Hubba? Apply the facts to the legal test set out above (analyze the six factors).

Question 2

What are 2 advantages and 2 disadvantages associated with the classification of an independent contractor?

Question 3

If you are the Accountant, and Hubba asks for your input, what status do you prefer – employee or independent contractor? Explain.

Question 4

What are some legal consequences Hubba could face if it misclassifies the Accountant and treats it as an “independent contractor” when it should have been treated as an employee?

Answer 1

1. At both the government and state level, you can be required to pay a very long time in back charges. Likewise, you can be required to pay back wages and retroactive protection premiums, and in addition extra punishments. What's more, the danger of potential claims is added explanation behind you to consider this issue important.
A few tests are utilized by different government offices for arranging laborers, however before we take a gander at the tests, how about we investigate the meaning of a self employed entity.
Characterizing an Independent Contractor
A self employed entity is any laborer you bring installed to convey a particular outcome and decides without anyone else terms how to accomplish that outcome. Then again, a representative is a specialist who finishes the errands you provide for him or her in the time span and way indicated by you. The distinction here is the level of control you, as the business, have over the laborer.
The tests for self employed entities incorporate a few components, and it's vital to take note of that there is no single integral factor – all variables must be considered in the full setting of a specific case.
How about we inspect the principle tests that can enable you to utilize temporary workers the correct way.
"Appropriate to Control" Test
The IRS and a few different offices utilize the "Right to Control" test, otherwise called the "Customary Law" test, to group specialists. It takes the accompanying three classes into thought:
Conduct toward the laborer – Are you acting like a "manager" with this specialist? Do you decide how, when and where to take the necessary steps? Do you set work hours, give apparatuses and hardware, offer preparing, screen execution or make disciplinary move? On the off chance that you addressed yes to any of these inquiries, you're regarding this specialist as a worker.
Money related plan with specialist – A self employed entity normally pays for his or her own particular operational expense, possesses his or her hardware, has different customers and is paid by the venture.
Association with the specialist – A composed get that recognizes the laborer as a self employed entity is valuable, however it doesn't cover you totally. In case you're giving advantages and the relationship is inclining toward lasting or long haul, the more probable it will be seen as a worker relationship. In the event that you utilize a temporary worker to perform center business works, that likewise could be viewed as a representative relationship.
"Monetary Realities" Test
The Department of Labor (DOL) and the Occupational Safety and Health Administration (OSHA) utilize a six-factor test called the "Monetary Realities" test to set up the genuine business connection amongst managers and specialists. It does this by taking a gander at the monetary reliance a specialist has on a business.
The initial three elements, recorded beneath, are basically the same as the Right to Control test.
Ideal to Control – The laborer controls how the work is performed.
Speculation – Independent contractual workers should pay for hardware, devices, and so forth.
Length of Relationship – The relationship ought to be here and now.
The other three variables investigate a portion of the ideas to decide the degree to which a specialist relies upon another person's business for his or her proceeded with work.
Aptitude – Contractors have a tendency to have progressed or one of a kind abilities and are required to practice judgment and activity. The more standard the undertaking is, for example, picking up the telephone, the more probable the specialist could be delegated a worker.
Level of Risk – A temporary worker makes free, administration level business choices and has the chance to make a benefit or cause a misfortune in view of these choices.
Coordination – This is like the relationship factor morally justified to Control test. In the event that a laborer gives benefits that are a piece of your normal business, it will in all likelihood be viewed as a representative relationship. For instance, suppose you have a site advancement business, and your temporary workers are building sites for your clients. That is a center business work – and there's a high likelihood of misclassification.

2.

The Advantages

Spare Money

Maybe the most vital advantage that outcomes for most organizations is sparing cash. By characterizing your new contract as a self employed entity your business won't need to pay the different costs related with enlisting a "representative," including boss gave benefits, manager gave gear and work space, and in addition the required protection and wage charges.

Flexibility to Staff Your Business According to Your Business' Needs

Procuring a self employed entity may offer you adaptability in staffing your business. There is, by and large, more prominent flexibility to contract and let go self employed entities. Contingent upon the idea of your business, this opportunity might be particularly favorable (e.g. an occasional business can increment and lessening staffing with awesome adaptability). The relationship will be reliant on the terms of the business, however you can procure a laborer for a specific errand or a specific span of time without any difficulty.

Wipe out the Time and Costs Associated With Training

Enlisting a self employed entity may mean expanded productivity for your business since you'll likely contract a laborer who has particular aptitudes to finish a specific errand. As a rule, self employed entities have specific ability for the specific occupation or undertaking, and you can, in this way, wipe out the time and expenses related with preparing the laborer.

Lessen Your Business' Exposure to Liability

Self employed entities loath the broad scope of rights under state and government laws that representatives presently do. In like manner, there are less assortments of cases that self employed entities may bring against their managers. This makes an interpretation of to diminished presentation to work related claims for your business. Among the rights that representatives appreciate and self employed entities don't are: the lowest pay permitted by law rights and additional time pay rates; assurance from business segregation; the privilege to frame associations; and the privilege to take wiped out leave to tend to relatives. Moreover, self employed entities can't sue their bosses for wrongful end. The privilege to end a self employed entity ought to be obviously illuminated in the self employed entity understanding, and any confinements on the privilege to fire (or end debate) will be represented by such assention.

The Disadvantages

Less Control Over Your Workers

By definition, a self employed entity works autonomously, for himself or herself. To keep away from renaming of the self employed entity as a representative, you, as the business, must give up control over the laborers activities. While you can coordinate the general result of the work, the self employed entity has control over how to finish the errand, including the instruments and procedures utilized. You should will to surrender this control, something a few of us entrepreneurs experience difficulty doing, in light of the fact that neglecting to do as such may mean the IRS renames your specialist as a worker and forces punishments.

Expanded Turnover May Lead to Inconsistency and a Lack of Loyalty

Commonly businesses utilize self employed entities for here and now extends, which implies there's a higher rate of turnover. Continually turning your staff may make interruptions inside your business and at last, may prompt irregularities in the work item. Notwithstanding irregularities, employing self employed entities may prompt an absence of dedication for your business and at last, your image. Self employed entities, by nature, are faithful to their work item, not your business. Your business may rely upon building a staff of faithful specialists who are dedicated to creating reliable work item planned particularly to advance your business and its image. If so, enlisting self employed entities is likely not the best arrangement.

Everything Is Controlled By Your Written Agreement

While this may not seem like a drawback at first, remember that once you enlist a self employed entity and consent to the composed arrangement you have made an agreement. This agreement controls all parts of the business relationship, including your entitlement to end the relationship. Contingent upon the terms of the understanding, you might be liable to specific limitations that farthest point your capacity to flame the self employed entity. Any infringement of this assention implies you are presented to obligation for break of agreement.

You May Not Own the Work Product

For the most part, work that is delivered by a self employed entity is claimed by the temporary worker. This implies any copyrighted work that you employ a self employed entity to make will be possessed by them, not you. With a specific end goal to stay away from this, you'll need to draft a composed understanding that exchanges copyright responsibility for specific work from the self employed entity to you. This makes a little wrinkle that is for the most part not present if the laborer is a worker, since, by and large, work made by a representative is consequently possessed by the business, not the representative.

3.

ent Contractor versus Employee: Which One Are You?

•••

Self employed entity versus Employee: How to Tell Which You Are

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BY SUSAN WARD Updated September 07, 2017

Self employed entity versus representative? Which would you say you are? What's more, would you say you are certain?

The contrast between the two can hugy affect your Canadian pay impose on the off chance that you believe you're a contractual worker and the Canada Revenue Agency (CRA) concludes that you're most certainly not. This article clarifies how the CRA figures out which will be which and how you can secure your status as a self employed entity in Canada.

Businesses Love to Hire Independent Contractors

Enlisting a temporary worker implies significantly less drivel than procuring a representative and can be more affordable, as well.

Contractual workers don't get benefits bundles or annuities and pay their own particular Canada Pension Plan CPP/QPP commitments. As a business of a self employed entity, you don't need to do finance, which includes withholding salary assess, pay the business' offer of CPP/QPP, Employment Insurance (EI), and so forth.

The enormous expense advantage for the self employed entity, obviously, is the potential for assess derivations. For the most part, an independently employed individual can deduct all sensible costs of doing business.

So organizations enlisting contractual workers can be a decent arrangement for the two sides. In any case, if a business enlists a contractual worker who is later esteemed to be a representative, the two gatherings lose large as unpaid expenses, punishments, intrigue, CPP and EI premiums will all must be paid.

Since the worker relationship and the business relationship is one of those hazy areas that is continually in motion, it's essential to do what you can to secure your self employed entity in Canada status.

Specifically, you need to make certain your work as a contractual worker stays "free" of your boss by ensuring it breezes through the Four Point Test.

The Four Point Test for Determining Contractor Status

The four-point test is the standard that the Canada Revenue Agency uses to figure out which kind of relationship exists.

Their archive Employee or Self-Employed? (RC4110) "sets out a technique that should, by and large, enable payers and laborers to decide the idea of their relationship."

The technique depends on four key focuses; control, responsibility for, the possibility of benefit/danger of misfortune, and joining. How about we take a gander at each of these from the perspective of the contractual worker.

1. Self employed entity versus worker: Control

The essential issue here is who's running the ship. Does the business have the privilege to contract or fire, decide the wage or compensation to be paid, and choose the time, place, and way in which the work is to be finished? At that point a business representative relationship exists. Note that "if the business does not specifically control the specialist's exercises, but rather has the privilege to do as such, the thought of control still exists."

Then again, in a business relationship, the specialist chooses how the work will be performed. As a temporary worker, at that point, it's vital that you keep up the privilege to choose where, when and how the work will be finished. In the event that it goes to the test, and you can demonstrate that you were the individual in charge of arranging the work to be done, picking the hours of work, or potentially setting the measures to be met, for instance, you'll have a vastly improved possibility of being regarded a temporary worker as opposed to a representative.

2. Self employed entity versus worker: Ownership of instruments

A conspicuous point, one would figure; a contractual worker would supply his own particular instruments. In any case, since it's standard for workers to supply their own apparatuses in a few exchanges 4. Six myths that prompt laborer misclassificationThese myths may give businesses an outlandish feeling that all is well with the world, and they can have exorbitant consequences.August 26, 2013
By Jim Buttonow, CPA/CITP
Bosses confront an essential choice in ordering their specialists for charge treatment. Specialists can be delegated representatives, who get Form W-2, Wage and Tax Statement, or as self employed entities, who get Form 1099-MISC, Miscellaneous Income. There are choice criteria to help organizations appropriately characterize their laborers, yet organizations have motivations to group their specialists as self employed entities. At the point when specialists are named self employed entities rather than workers, organizations don't need to pay business charges and exorbitant representative advantages, or agree to heap manager rules.
In the following quite a while, organizations will have another motivation to misclassify laborers. In 2015, when the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, is completely executed, organizations with at least 50 representatives will be required to give medical coverage to workers to maintain a strategic distance from a punishment. That punishment could be as high as $3,000 per specialist. Organizations needing to maintain a strategic distance from the business order to give medical coverage will have advance inspiration to group specialists as self employed entities.
The IRS has a major stake in appropriate laborer characterization. At the point when specialists are named self employed entities and ought to be representatives, the administration misses out on business impose income. In the keep going quantifiable examination done on specialist misclassification, for assess year 1984, the U.S. Government Accountability Office assessed that 15% of businesses misclassified 3.4 million specialists as self employed entities, costing the national government $1.6 billion. The present sum lost is obscure, yet the IRS is finishing an examination that will help measure the degree of the issue. Consequences of this investigation are expected in 2015.