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THE QUESTION

I am planning to start a sole proprietorship within a year. I would like to employ independent contractors/freelancers rather than employees as I find the responsibility too heavy.

I plan to keep this status for 12 years before changing my business status. During this period I would like to hire a product manager, a social-media manager, a website manager, an administrative assistant, a financial analyst, an accountant and 90 comic artists (cartoonists, colourists, writers). I would like to know if and how I can collaborate with them during these 12 years without switching them to employee status. Is this possible?

THE FIRST ANSWER

Rahul Soni, barrister and solicitor, Soni Law Firm, Toronto

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Many employers incorrectly assume that having an independent contractor agreement is enough to clarify their workers’ status. If you want to hire workers as independent contractors, be sure their nature of work is that of an independent contractor and not of an employee.

The court determines whether someone is an employee or independent contractor by using a holistic approach and looking at various factors including the level of control the employer has over the worker’s activities; whether the worker provides his or her own equipment; whether the worker hires his or her own helpers; the degree of financial risk taken by the worker; the degree of responsibility for investment and management held by the worker; the worker’s opportunity for profit and loss in the performance of his or her tasks; and the worker’s agreement to provide any exclusivity.

Think of the “duck test”: if it looks like a duck, swims like a duck and quacks like a duck – it’s a duck.

An independent contractor would be a cartoonist who is allowed to control their own work schedule, uses their own work tools, invoices for their services based on the nature of artwork produced and is able to work for multiple organizations.

An employee would be an accountant who is restricted to working for your business only, uses your company’s software, computers and other tools for carrying out work, receives a fixed annual salary and supervises other accounting staff employed by you.

Given the tricky nature of classifying workers, it’s best to consult an employment lawyer to determine whether you are actually engaged with an independent contractor or an employee.

THE SECOND ANSWER

Carly Crawford, lawyer, HHBG Lawyers Employment Justice, Vancouver

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You may hire independent contractors, but you should determine each worker’s status to avoid liability for taxes, reasonable notice or other amounts.

A worker may be an “employee,” “dependent contractor” or “independent contractor,” depending on the level of control the business has over the worker, not just the worker’s title or contract.

Employees experience the highest level of control and independent contractors experience the lowest. Dependent contractors fall in the middle as they are more economically dependent than independent contractors (e.g., they may be integral to the business and restricted from working elsewhere). Like employees, they may be entitled to reasonable notice upon termination without cause.

Courts, tribunals and CRA consider various factors to determine the level of control, including whether the worker:

  • Has their own business or GST/HST number
  • Invoices the business and charges tax
  • Is permitted to work for other customers
  • Sets their own hours
  • Provides their own equipment and/or helpers
  • Pays for workers’ compensation and liability insurance
  • May profit from work performed

If “yes” to most or all of the above, a worker is likely an independent contractor or dependent contractor. A worker’s status can also change if working conditions change.

You intend to hire workers who appear integral to your business for 12 years. These factors indicate that the workers would be either employees or dependent contractors, but more information is needed. I recommend that you consult a lawyer to discuss further and plan accordingly. You may also request that CRA provide an advance CPP/EI ruling to minimize liability.

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Have a question for our experts? Send an e-mail to NineToFive@globeandmail.com with ‘Nine to Five’ in the subject line. Emails without the correct subject line may not be answered.

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