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Employee or Independent Contractor?
Employers have an obligation to withhold and remit taxes, Employment Insurance premiums and Canada Pension Plan contributions on behalf of employees. No such obligation exists in connection with independent contractors. As a result, Canada Revenue Agency has an interest in ensuring that relationships are accurately characterized by the parties. An employer and a contractor may agree in writing that the relationship is not an employment relationship however the substance of the relationship may reveal otherwise. Several factors play a role in analyzing the nature of the relationship. One of the key factors is the amount of control the employer exercises over the worker. The more control, the more likely an employment relationship will be found to exist.
Control was the deciding factor in the recent Tax Court of Canada case, Mazraani K et al. v. Minister of National Revenue, 2016 TCC 65. In a decision that is more than 80 pages in length, the Court thoroughly reviewed all aspects of the seven-month working relationship, which had, at one time, been characterized as an independent contractor relationship by all parties. The existence of a written contract that characterized the worker as an independent contractor was not as persuasive as it might otherwise have been because the contract was not presented to the worker until after he started providing services. Ultimately, however, the central issue was control. The Court found that the employer had the power to issue instructions to, and to direct and control the work of the worker, and that it exercised that power on a regular and continuous basis. As a result, an employment relationship was found to exist.
If you engage contractors to provide services to your business, and you are concerned that the contractors may be considered employees at law, contact our office for assistance in assessing the relationship and determining your options.