Disclaimer: The purpose of this blog is to provided a general sense of information. Everyone’s situations are unique; there is no one size fits all when it comes to employees, subcontractors, the work they do, labor laws and Canada Revenue Agency obligations. The information provided here is meant to be an introduction to the subject.For more detailed information, please visit CRA publication RC4110 and your local Employment Standards Office. You can also check out my webinar this week, Hiring a Subcontractor, for more insight.
You need help.
Maybe you arrived at that need in the best way: your business is booming and there’s too much for you to do alone (or with the one or two employees you have).
Maybe for not-so good reasons at the moment: you’re overwhelmed trying to get off the ground, or you just can’t keep up with everything on your own.
Whatever brought you to the impasse, you’re now at the crossroads.
You’ve got to enlist someone else’s services, but do you need an employee or a subcontractor?
It may be a no-brainer, depending on what you need done. Filling merchandise orders every day? Most likely, employee. Help with social media a few times a week? A subcontractor may be the right choice.
Here’s the thing: deciding you need to hire someone is your choice. Deciding whether you’ll pay them as an employee or a subcontractor is NOT.
Canada Revenue Agency has some pretty tricky guidelines that help them determine whether that person you’ve had working for you is an employee or a subcontractor. If you don’t know the difference and handled things incorrectly, you can face some stiff fines and penalties.
Frankly, there are a lot of lines that can be crossed.
If the CRA feels they have been, they can issue a Trust Exam. You’ll have to inform them in what capacity you hired the worker. Both of you will then have to answer questions to help them determine whether you overstepped your bounds.
Here’s a list of what they look at:
- The level of control you have over the worker’s activities
- Whether the worker provides and uses his or her own equipment
- Whether the worker can hire assistants
- The level of financial risk the worker takes
- The level of responsibility the worker holds in terms of investment and management
- The worker’s opportunity for profit
- Any other factors that should be considered, such as written contracts.
Once you’ve decided you need to hire that help, get familiar with the CRA’s publication #RC4110. Talk to someone; either contact Canada Revenue or your local employment standards, and get clear on which way to go.
If you do decide to hire a subcontractor, a Subcontractor Agreement is imperative.
Having one is evidence of your intentions from the start.
The human factor is one that can really blur the line.
What’s on paper seldom reflects how things turn out. A subcontractor may be eager to please you, or light on other clients and willing to do more; you may get an unexpected rush at work or encounter a family situation; any number of things can shift the balance.
You may not even notice how “employee/employer” you’ve suddenly become!
Even though you may both agree to changes, the CRA will only be interested in compliance with the rules.
It’s a complex situation, and there’s a lot more to know. So, if you’re interested in learning more, join me for this week’s webinar, Hiring a Subcontractor – where I’ll help you navigate the murky waters and help you understand what you need to know.
Stay profitable, entrepreneurs! (And compliant- that’s super important too!)