What Are You?

Employee v. Independent Contractor v. Dependent Contractor?

Depending on what your "status" is, you may have entitlements to vacation, job protected leaves of absence, overtime compensation, termination and severance pay, and many others - or, none of the above.

Figuring out what you are providing services as is, therefore, important.

What is the difference?

Employee

Generally speaking, employees enjoy the most entitlements when it comes to law protected perks, benefits, and security.

This makes sense, as typically an employee is more or less at the employer's disposal. An employee does as is told, follows directions, has little direction over how business is operated. Put simply, the employee may represent the employer, but does not run the business. The employee takes no risks, and has no opportunity to reap rewards the same way as the employer.

The employee is therefore not expected to take risks when it comes to employment perks, benefits, retirement compensation in some cases, and security.

Independent Contractor

Independent contractors, as the name suggests, are intended to be independent. Unlike employees, then, an independent contractor takes on risks when providing services to the same employer.

The independent contractor may still follow direction when it comes to actual job specifications. In terms of running their day-to-day, however, they have autonomy and have discretion. Put simply, they do not run the employer's business, but they run their own business in servicing the employer's business, and therefore, take risks and reaps rewards.

The independent contractor is therefore not expected to have employment perks, benefits, or security (apart from what they contracted for).

Dependent Contractor

Like almost everything else, there is never any clear black and white. There is bound to be a big area of gray, where you fall in neither the employment category, nor independent contractor. For example, you could be operating your own business, but in reality are dependent on that same employer.

If you are truly a dependent contractor, the law says you can enjoy some employment perks, benefits, and security. You may not be able to enjoy the same vacation pay, overtime compensation, and such statutory entitlements, but you have other entitlements such as severance at the time of termination.

The reason is, the dependence renders the dependent contractor vulnerable, to a certain extent. They are therefore able to pass some of their risks to the employer.

How is it decided?

There are extensive authority and literature on this topic, and it involves a legal test to determine which category you fall into. There are elements you have to meet and conditions that apply.

Ultimately it works almost like a checklist. There may be a checklist of, say, 20 features of you job that are relevant. Some of the features are reflective of an employment-like, dependent relationship. The other features are reflective of an independent relationship. Once all the features are considered, if you have more features that are in the former group, then you are an employee, and vice versa.

Many cases fall out of that generality, and there are always exceptional cases that are simply not simple.

The Checklist

What are the features and factors to go into the determination then? Common ones include:

• How are you paid? Do you invoice, or are you on payroll?
• Do you receive something that is like vacation regulated by the employer?
• Do you participate in some type of a program that other employees participate in as well? For example, benefit program, retirement compensation program, time banking system, and bonus pool?
• Do you use your own equipment and tools at all while doing your work?
• Do you wear a uniform? A name tag?
• Do you use your own letterhead, e-mail address, phone number, or, do you have company issued ones?
• Do you report to a boss?
• Are you required to follow company direction and policies that other employees follow as well?
• Do you enjoy some freedom and authority in figuring out how you want to operate?
• Is there any element of control in how you can make money and profit?
• Can you decide how you want to market or develop your business?
• Who pays you the most? Is a substantial portion of your income from one single source? Or, do you get paid more or less equally from a variety of companies/organizations?
• Can you say no to work?
• And others.

Not all these items apply to you. Factors that mean nothing to your job, may mean a lot to the next person.

Likewise, not all of these items are given equal weight. The fact that you invoice as opposed to being on payroll may be a factor, but given very little weight, whereas the fact that you get to say no to work as you please may be given significant weight.

As lawyers always say, it is a case by case determination as to what your true status is.

Dependence does not require 100% exclusivity

A note on putting you in the dependent contractor category: our judges have confirmed that just because you do provide services to more than one organization does not automatically mean you are an independent contractor with no entitlements.

The Ontario Court of Appeal in the case Keenan v. Canac Kitchens found the Keenans to be dependent contractors even though their source of revenue from Canac Kitchens were not 100%. They were 80% in one year, 66.4% the next, and 72.6% the last. Note, these are decreasing percentages.

This is significant for most self-employed business owners. The Keenans' circumstances reflect that of many entrepreneurs, where they appear to be fairly independent and autonomous, but in reality, they remain dependent on one major client. The case recognizes that they are in fact fairly vulnerable in the bargaining power tug of war, and probably will lose out to the big corporate giant. Therefore, they should enjoy some security that employees do, albeit not all.

Who cares?

Different statuses trigger different payroll obligations, benefit entitlements, severance considerations, and others.

Benefits and Entitlements

From a benefits and entitlements perspective, if you are generally under your employer's direction and authority, then you should enjoy the perks and benefits that an employee or dependent contractor enjoys. For the dependent contractor, even if you are not enjoying the usual employment perks and benefits, you should get a severance if the relationship is terminated by the employer.

Legal

This means, the way your contract is written is critical. Make sure you know what you are being hired as, and what that means.

Regardless of whether your contract is called an "employment contract", or a "consulting agreement", or an "independent contractor", or whatever it is, know what rights you may be signing away and what risks you are taking on.

Review your contract with your employment lawyer, so you know what you are getting yourself into

Tax

Of course, there are other tax and payroll implications depending on what your status is. Employees have a portion of their compensation withheld at source, for such deductions as income taxes, CPP, EI, and others. Independent contractors, however, get their full compensation from the same employer, and take care of their own business related taxes.

Therefore, being mindful of what your status really is can help you take the right steps with tax filing and tax planning.

What are you?

So the question remains, what are you? Are you an employee? An independent contractor? Or in between?

When in doubt, speak to your employment lawyer.