EMPLOYEE VS CONTRACTOR

Canadian Tax Employee vs. Contractor



Canadian Tax Employee vs. Contractor

Introduction

If employers are given discretion, they would prefer having all workers as contractors rather than employees. This would help them avoid payroll and employment taxes, employee benefits and much other compensation that they would pay to an employee. However, laws in many countries (including Canada and United States) do not permit an arbitrary choice in defining a worker as an independent contractor (Davies, 1990). To determine if the worker is a contractor or an employee, the Canada Revenue Agency (CRA), for example, uses various tests and measures. Simply stating a party as a contractor, or having an agreement made by lawyer does not conclude someone's identity as a contractor or an employee. The legislation is the area is specific; however, due to increasing forms of contract works, the ruling related to the subject comes under grey areas. In this paper, I explore the employee versus contractor tax factors in the Canadian context.

Discussion

Employees should have an understanding of their employment status since it has significant impact on their compensation in terms of Employment Insurance (EI) benefits given and covered under the Employment Insurance Act of Canada. Also, employment status (employee vs. contractor) is the determinant of entitlement under the Income Tax Act and Canada Pension Plan. For employees, Canada Pension Plan (CPP) contributions are applicable as payroll deductions. Similarly, employers are liable to keep records of income tax deductions as well as contributions to Employment Insurance (EI) premiums (Canada Revenue Agency, 2012). Following tests and measures applied by CRA to determine the workers employment status.

Behavioral control

Behavioral control is tested by reviewing the facts that demonstrate the degree of choice in worker's operations and specifics tasks for which he is contracted or hired. Therefore, if the employer gives signifcant ...