What is the difference between an Independent Contractor and an Employee?

Hiring an independent contractor versus an employee can have a large fiscal impact on a business. In fact, many businesses will commonly shy away from forming an employer-employee relationship with their workers in order to benefit from the advantages of having a worker characterized as an independent contractor.

The model itself is simple. The business will typically recommend the worker to incorporate a business and to offer their services to the business through their corporation. The independent contractor’s corporation will then invoice the business for services rendered. Mainly and most importantly, this allows the business to not have to make payroll deductions to the worker and on the other end, the worker will reap certain tax benefits.

However, simply being incorporated is insufficient to prove a business-independent contractor relationship. In fact, several other factors are considered by the courts to determine if a worker should be deemed an employee or an independent contractor. Principally, the courts will examine the degree of subordination that exists between the independent contractor and the business.

Additionally, the courts will use the following criteria that is established by the Canada Revenue Agency to determine the nature of the relationship, namely:

Subordination
Financial Liability
Ownership of Tools
Degree to which the worker’s services are integral to the activities of the business
If the services end up achieving a specific result
The agreement between the business and the worker

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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Chalati Lawyer, with its head office located at 200-2205 boul. de la Côte-Vertu, Saint-Laurent, Quebec, H4R 1N8. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Chalati Lawyer or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice.

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