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Employee or Self Employed
There are several factors which the crown takes into account in order to determine the status of a worker, that is, is the worker an employee or self employed.
The government has increased their payroll audits on companies that hire subcontractors. The government assessor will try to deem the workers as employees and if successful, the deeming provision deems that the company has withheld the appropriate deductions and will assess the company accordingly, and charge the company interest and penalties which can be substantial.
Of course there is the route of filing a notice of objection, but the appeals section always agrees with the field audit. Based on your assessment, you will have no no choice but to go to court. If you and/or your business is involved in this position call us, we can help.
The criteria used by the department is as follow:
(1) Control – This criterion looks at the right of the payer to exercise control over the worker.
(2) Tools and Equipment – This criterion looks at who supplies the tools and equipment required to complete the task.
(3) Chance of Profit/Risk of Loss – This criterion looks at the degree financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit and risk of financial loss in performing his or her tasks.
(4) Integration – This criterion looks at whether the worker hired to perform the services is performing them as a person in business on his or her own account. That is, is the worker operating his or her own business, or is his or her work done on an integral part of the payer’s business.
(5) Intention – this is the newest criteria and was introduced with the most recent case i.e. the Royal Winnipeg Ballet. In this case both the worker and the payer had the same intentions as to their jobs.
When examining the factor of control, it is necessary to focus on both the payer’s control over the worker’s daily activities, and the payer’s influence over the worker.
Payer’s right to exercise control
It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right.
It is the control of a payer over a worker that is relevant, and not the control of a payer over the end result of a product or service that he or she has purchased.
Control
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Employee Indicators that the worker is an employee The relationship is one of subordination. The payer will often direct, scrutinize, and effectively control many elements of how the work is performed.
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Self Employed Indicators that the worker is a self-employed
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Tools and Equipment
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Employee Indicators that the worker is an employee
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Self Employed Indicators that the worker is a self-employed
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Chance of Profit/Risk of Loss
(a) Financial Risk
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Employee Employees will not have any financial risk as their expenses will be reimbursed, and they will not have fixed ongoing costs. Employees and self-employed individuals may be reimbursed for business or travel expenses.
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Self Employed Self-employed individuals can have financial risk and incur losses because they usually pay fixed monthly costs whether or not work is currently being performed. Consider only the expenses that are not reimbursed by the payer. Indicator that the worker is self employed The worker does not have to perform the services personally. he or she can hire another party to do the work or help complete the work, and pay the costs for doing so. The payer has no say in whom the worker hires
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(b) Responsibility for Investment and Management
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Employee Indicators that the worker is an employee The worker has no capital investment in the business Worker does not have a business presence.
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Self Employed Indicators that the worker is self employed The worker has a capital investment in the business Worker has a business presence i.e. Worker manages their staff Worker hires and pays individuals to help perform the work Worker has established a business presence |
( C ) Opportunity for Profit/ Chance of Loss
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Employee Employees normally do not have the chance of a profit and risk of a loss even though their remuneration can vary depending on the terms of their employment contracts. For example, employees working on a commission or piece rate basis, or employees with a productivity bonus clause in their contract can increase their earnings based on their productivity. This increase in income is not normally viewed as a profit, as it is not the excess of proceeds over expenses. Employees may have expenses directly related to their employment, such as automobile expenses, board and lodging costs. Normally, expenses would not place employees at risk of incurring a loss because it is unlikely that the expenses would be in excess of their remuneration. The method of payment may help to determine if the worker has the opportunity to make a profit or incur a loss. In an employer-employee relationship, the worker is normally guaranteed a return for the work done and is usually paid on an hourly, daily, weekly, or similar basis.
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Self Employed Self-employed individuals normally have the chance of profit or risk of loss, because they have the ability to pursue and accept contracts as they see fit. 1. They can negotiate the price (or unilaterally set their prices) for their services and have the right to offer those services to more than one payer. Self-employed individuals will normally incur expenses to carry out the terms and conditions of their contracts, and to manage those expenses to maximize net earnings. Self-employed individuals can increase their proceeds and/or decrease their expenses in an effort to increase profit. When a worker is paid a flat rate for the work performed, it generally indicates a business relationship, especially if the worker incurs expenses for performing the services.
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(D) Integration
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Employee This is a subjective decision and as a result many cases go to trial This criterion looks at whether the worker hired to perform the services is performing them as a person in business on his or her own account. That is, is the worker operating his or her own business, or is his or her work done on an integral part of the payer’s business |
Self Employed
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(E) Intent of the Parties
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Employee Workers and payers can set up their affairs as they see fit; however, they must ensure that the status that they have chosen is reflected in actual; terms and conditions of employment. There may be contract in place (and it may be verbal or written), the payer might state that the worker is self employed. However the courts and CRA look at the facts of the working relationship and must confirm the status the parties have chosen.
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Self Employed
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