EMPLOYEES, SUB-CONTRACTORS AND RISK

Who gets to decide whether a worker will act as an employee or as a sub-contractor? It should be a key concern to independent contractors. 

Some workers prefer the stability of a steady pay cheque and the ease of having taxes, EI and CPP deducted and remitted on their behalf at source. Other workers prefer the flexibility and tax write-off potential of sub-contracting. 

My preference was strongly towards having subs.It offered me motivated workers, flexibility in scheduling, simpler books and less pressure. It kept labour as a cost of sales, not overhead.  

So who should decide....workers or employers?

Turns out, neither...  

CRA gets to decide in the end. And they may not see things your way. There is A TON of room for interpretation when it comes to defining the relationship you have with each of your workers. But it is CRA's interpretation that may determine it in the final analysis. 

The risk here for you is that if you operate your business with sub contract labour for years and CRA one day decides to examine your situation, you could find yourself owing back payments and possibly interest and fines. It could be enough to bankrupt your business, or your family. This could happen as a result of an audit. It could happen if one of your sub-contractors is audited. It could happen if one of your sub-contractors decides they aren't actually as happy as they thought they would be with your arrangement. It could happen if you run out of work and one of your sub-contractors tries to apply for EI.  

At the very least it is prudent to familiarize yourself with the guidelines that the government outlines for establishing a employer/employee relationship. You can find them here:

RC4110 - Employee or Self-employed?
 
It is a 14-page PDF, but the criteria is clearly laid out on pages 6-8.  

Protect yourself by accurately defining the relationship.




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