Independent Contractor Agreement Lawyers in Red Deer, AB
Independent contractor agreements are becoming increasingly common, especially in an economy as dynamic as Alberta’s.
When an individual does work for a business, he or she may act in the capacity of an employee or an independent contractor.
Employment contracts and independent contractor agreements both have their pros and cons, but both parties in these agreements need to be clear on which applies in their situation.
The consequences for employers (and employees) of wrongly categorizing the relationship can be severe. Understanding the differences can help you adopt the right agreements for the right employment and contactor situations and avoid both heavy tax penalties and legal issues.
At Taylor Janis, our lawyers can help you correctly classify employment relationships and draft the correct independent contractor agreements for the correct situations.
What are the benefits of independent contractor status?
Independent contractors in Alberta have the following right and responsibilities:
- They can claim allowable business expenses under the Tax Act, which offset the contractor’s yearly income.
- They are required to have private workplace accident insurance coverage.
- They are not protected by the Alberta Employment Standards Code, the Alberta Human Rights Act, and the common law.
- They may work for as many other companies as they wish, subject to any restrictions in their independent contractor agreement.
- They must arrange Employment Insurance payments, Canada Pension Plan payments, pay taxes/GST and arrange health benefits.
What are the benefits of employee status?
Employees in Alberta differ from independent contractors in the following ways:
- They often receive paid or partially paid health benefits.
- Their employers make Employment Insurance and Canada Pension Plan payments on their behalf.
- They receive protection from the Worker Compensation laws at no direct cost.
- They do not have the right to deduct expenses related to their employment from their taxes.
- They receive protection from the Alberta Employment Standards Code, the Alberta Human Rights Act, and the common law (e.g., overtime pay, termination pay/notice, minimum wage, holidays. etc.)
How do you know if you’re an employee or contractor?
What constitutes employer and contractor status has been frequently debated in Canadian courts.
Over the years, this has led to the development of several legal tests for employer or contractor status from numerous court cases. Many different factors must be considered when determining if a worker is an employee or contractor.
Most importantly, just because a company issues a worker with an independent contractor agreement that defines the role in writing doesn’t necessarily mean that the worker is an independent contractor. It’s only one factor that will be considered if there is a legal challenge to the relationship.
Our employment contractor lawyers often raise multiple other issues/questions, such as the following:
- Does the contractor decide what work he/she does for the business?
- Who determines the hours worked by the contractor?
- Who determines where and how the work is completed?
- What evaluations occur for completed work?
- Who pays for travel expenses?
- Who pays for any health benefits provided?
- Does the business supervise and evaluate the work?
- Is the contractor permitted to subcontract out part of the duties contracted by the business?
- Is the contractor free to refuse to complete certain tasks?
- What work is assigned as a project by the business?
- Who owns the tools required to complete the required tasks?
- Who is responsible for maintaining and replacing the tools required?
- Who profits from the work completed?
- Who is liable for negligence?
- Who bears the financial risk if the task assigned costs more to complete?
- Is a wage paid or are payments made for tasks completed?
What is the “integration test”?
The “integration test” looks at the entire relationship between the worker and the employer to determine whether the worker is “integrated” into the organization the way employees usually are.
What if an employer improperly designates contractor status?
Sometimes, it can seem advantageous for an employer to designate contractor status rather than employee status — and sometimes genuine mistakes are made.
Either way, improperly designating contractor status can have serious repercussions for an employer.
In fact, both the employee/contractor and the employer can be penalized by the Canada Revenue Agency if it is discovered that incorrect taxes have been paid because of an erroneous designation.
Tax penalties for employers include:
- Interest must be paid to the government at the Prime rate plus one percent.
- Payment of a 10 percent penalty on the total reassessment amount owed.
- Payment of backdated amounts owed for both Employment Insurance and Canada Pension Plan payments for the past year and the current year.
Tax penalties for employees include:
- Any disallowance of dividends will be owed as employment income.
- Loss of deductions that then become employment income.
- Previously made payments under corporate tax rates may be reassessed as employment income.
Bear in mind that there have been cases in Canada where the same worker has been considered a contractor for income tax purposes but an employee when it comes to severance pay rights. This is a good illustration of the considerable “grey area” and “overlaps” in the laws.
How can an employment lawyer help with independent contractor agreements?
The distinction between independent contractors and employees is nuanced and can be complex to unravel. The “grey areas” can be important and our lawyers can help you navigate them for the best possible outcome.
Remember, just because an employment agreement states that you are an independent contractor, it does not automatically void your right to severance pay.
We will help with the following:
- Evaluating the type of work provided by an employee/contractor so that the proper employment status is designated to the individual (contractor/employee classification).
- Drafting of independent contractor agreements (or employment agreements/manuals).
- Litigation concerning independent contractor agreements.
- Disputes about the correct classification (contractor or employee).
- Resolving disputes involving the right to severance pay for employees.
Is it better to be an independent contractor or an employee?
Workers who are independent contractors rather than employees often receive a higher hourly rate and can take advantage of tax write-offs and deferrals.
However, independent contractor agreements often include very few rights, with no access to overtime rates, vacation pay, break times, protected leave or termination pay.
Do you need help with an independent contractor agreement in Alberta?
If you need help drafting, defending or challenging an independent contractor agreement in Alberta, contact a Taylor Janis employment lawyer as soon as possible.
We can advise you of your options during a confidential, one-on-one telephone or video consultation.
Book A Consultation
At Taylor Janis LLP, we have the skills, knowledge, and expertise to handle all of your employment & labour law needs.
We also have a dedicated intake form to help you get the ball rolling. Our intake team will review your specific case and advise you on the next steps to take as well as what to expect moving forward.
Our Red Deer office is open 8:30 a.m.—4:30 p.m., Mon—Fri.
Sarah Levine is a lawyer in the firm’s Edmonton office but acts for clients throughout Alberta and British Columbia. She practices primarily in the area of workplace law, including wrongful dismissal, workplace harassment, severance review, human rights and discrimination issues, non-competition and non-solicitation agreements, and various other employment matters.