EMPLOYEE OR INDEPENDENT CONTRACTOR

DARWIN P. CHIM, B.A., APA, CGA, LICENCED PARALEGAL (LSUC)

Professional accountants may encounter the problem when dealing with clients in preparing their payroll. Some individuals may claim to be an independent contractor or being self-employed by providing giving a client a receipt for services, as a means of waiving statutory deductions of CPP and EI or other legally required deductions. In order to determine whether an individual is an employee or independent contractor depends on "employer-employee" relationship. Generally, an employee is under the direct supervision and control of the employer for the execution of jobs to be performed, whereas a contractor performs the job independently to achieve predetermined results.

The criteria for determining the nature of the relationship, of whether one are an employee or independent contractor is as follows:

Employment relationship (employee)

Individual is:

1. provided with statutory benefits.
2. covered with WSIB insurance by employer.
3. deducted taxes from his/her pay. Employer remits taxes to Government.
4. not liable for his/her negligent acts as he/she is the servant of the employer.

Independent contractor

Individual is:

1. doing self-employed work without supervision.
2. engaged by principal to perform specific work.
3. not subject to statutory deduction or provided with statutory benefits.
4. not an employee.
5. not under the control of principal to report work at a specified time.

To evaluate whether an individual is an employee or an independent contractor, several significant tests were developed by the courts for income tax purposes:

1. The control test – Individual’s work may be controlled by the organization.
   
   
2. Risk test – Individual may bear the financial risk.
   
   
3. Organization test – Individual may perform an integral part of business of an organization.
   
   
4. Tool test – Individual may own his own tools.
   
   
5. Durability and exclusiveness of relationship – Individual may serve the company exclusively.
   
   
6. Written Contract – The terms of the contract and the intentions of the parties on entering into agreement.
   
   

The following are the facts to assess and determine whether an individual is an employee or independent contractor.

Employee	Independent Contractor
performs limited to exclusive service	can work with other clients without restrictions
works for infinite terms	works with fixed term
subjects to control by principal	can accept or decline work
requires no investment or interest in tools	owns his own tools
undertakes no business risk	is responsible for profit/loss of his business
performs activity as part of organization	performs activity according to written contract.
is subject to statutory deductions of CPP, EI and Income Taxes	is not subject to statutory deductions but responsible to remit taxes to the government
is covered by Employment Standards Act regarding vacation & overtime pay.	is not covered by Employment Standards Act
is subject to performance review or disciplinary measures	is not subject to performance review or disciplinary measures.
is covered by employer’s liability insurance	is required to purchase his liability insurance
has job-related expenses paid by employer	pays his own expenses out of contract price.
can end employment at any time	can end at the completion of job agreed upon.
can be fired by employer’s decision.	terminated by act of parties or operation of law.

The above is the basic guidance for your reference only. Individual should consult his/her lawyer for a legal opinion and professional advice. This would minimize the risk of payroll audit and avoid penalties for non-deduction of payroll taxes.

There are also many other programs to accommodate individual’s interest. Some programs would provide diversify in other areas in addition to accounting practice. This would enhance competence of practitioners in public service. Members are encouraged to follow a routine, which would involve taking courses in addition to those P.D. ones accepted for continuing education by the professional bodies. They should be assured that pursuing such courses would enable an RPA to be firmly established as a professional accountant, whether an employee or a practitioner. Once a person has acquired that degree of confidence, from knowledge and practical experience it would be reflected in that one’s performance. Success comes with effort, knowledge and application to the benefit of oneself, an employer or a client if in public practice.

All RPA members would continue to increase their skills, if they keep the light of professional development burning.

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