The Contractor vs. Employee Issue

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Executive Summary

The problem of employee versus contractor is very significant. Many a times, the problem arises as to whether the person providing his or her service or services is an employee or a self-employed person (an independent contractor). This situation also arises when the employers treat their employees as contractors to skip various obligations arising from the employer-employee relationship. In addition, other people also start this controversy due to their ulterior motives.

However, the Canada Revenue Agency (CRA) provides rulings in these cases to declare whether the person is an employee of the business or he is a self-employed person providing his services to the business. Additionally, the courts also employ various means to justify whether the party in the case is an employee or a contractor.

The four most important tests used to determine a person's eligibility as an employee or a contractor include control, economic reality, specific results, and integration tests. The control test looks at the level of control exercised by the employer on the employee. The economic reality test measures the degree of financial risk borne by the contractor, in addition to the contractor's ability to generate profits or suffer losses in the conduct of business. The specific results test identifies the specific objectives for the contractor and evidences the relationship. Finally, the integration test looks at the imminence of the employee in the organization. The last test is difficult to administer and is mostly avoided by the honorable judges of the courts.

The case of Woodland Insurance and the Minister of National Revenue was a good case of employee versus contractor. The case provides an excellent example of the use of tests to determine a person's status. The Contractor vs. Employee Issue

Introduction

The problem of contractor or employee is very common in determination of income taxes and other employee benefits. Very often, it is impossible to determine whether a person is a self-employed or independent contractor of a business, or if he or she is an employee with the relationship of employee-employer between the contracting parties. Yet, most often these differences are subtle and it is not very simple to identify whether the person is an independent contractor or an employee. However, some argue that certain businesses are in need of seasonal workers and, accordingly, these employers employ persons as contingent employees. In these situations, the employees' continued hiring is contingent on the need of the employer which originates from the market demand for the employer's good or service. As such, it is argued, that these employees are neither full-time employees of the contractor nor are they independent contractors engaged by the business or the employer. Instead, these employees fall somewhere in between as contingent workers (Barton, 2001).

On the other hand, others rightly argue that there is no in-between or middle state in the determination of independent contractor versus employee. Either the person is an independent contractor or he is an employee of the business working for the employer (CRA, 2011). Yet, there ...