Recently we received a query from a PPMA member about the definition, role and responsibilities—for both parties—of a “contractor” versus “employee” as it relates to EI and CPP benefits. The member asked:
“Our previous caretaker...has approached me for a record of employment. He needs some insurable hours to get EI while he goes back to school. He worked the hours for us, but we didn't and aren't contributing to EI or CPP or any other benefits. Do you know if there is anything we can do for him?
Before answering this member’s query, we contacted the Canada Customs & Revenue Agency (CCRA), Business Services Office at 800-959-5525 to acquire the correct information on source deductions. There are a number of considerations when determining whether a person is classified as a “contractor” or an “employee” and they should be clearly outlined in your service agreement with the job description, related duties and benefits.
The first relates to the number of hours worked (daily, weekly, etc.) to perform the outlined duties and who dictates when they should be performed. If the person is supposed to perform a set routine of tasks within a certain number of specified hours a day, then that person leans towards being classified as an employee. If they have the list of duties, but it is up to them as to when they perform them—within a reasonable amount of time—and they schedule their own time, then that person leans towards being a contractor.
Another consideration is who’s tools does the person use to complete the work required. If everything is supplied by the employer, then that person leans towards being classified as an employee. If the person uses some or all of their own equipment, then they may be classified as a contractor.
Is the person being employed, in the business of providing these services (on-site caretaking in this case) or is this their only “job”? This point leaves a wide margin for interpretation. If the person has been employed in the past in the same field, then the past employment situations may come into consideration if a ruling is requested of the CCRA and your local tax office. The current conditions in which you employ other persons in similar situations may also come to bear in a ruling.
One other thing to consider in determining whether someone is a “contractor” or an “employee” is who assumes the risk of financial loss or profit of the building. This area is also not clear cut as some on-site caretakers receive performance bonuses or extra financial compensation for performing extraordinary duties, not outlined or expected within their service contracts.
At any time, either party may request a written ruling on the determination of their classification as a “contractor” or “employee” from the CCRA and their local tax office
As it relates to the deductions of EI and CPP, if the person is found to be an “employee” and is still working for the employer, then the employee will have to retroactively contribute their share of EI & CPP up to 24 months. If the employee is no longer working for the employer in question, the employer will be responsible to pay both portions retroactive for 2 years.
If the person is found to be a “contractor”, then the employer is not responsible to make EI or CPP contributions. It is up to the contractor to make these deductions and pay the amounts to the CCRA.
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The above is not intended as legal advice. If you have any questions regarding source deductions, employer or employee rights and responsibilities, please contact the CCRA, your accountant or legal council.