August 4, 2004by Israel Foulon LLP
Question: How is an employee distinguished from an independent contractor and why is this distinction important?
Answer: It is important to distinguish between an “employee” and an “independent contractor” because the majority of protective employment statutes apply to contracts of employment. Workers who are employees are also taxed at a higher scale than independent contractors who are running their own businesses.
The key distinguishing factor between an independent contractor and an employee is the degree of control the employer exhibits over the manner in which the employee performs the job. This control of the employment relationship manifests in the subordination of the employee to the authority of the employer. This distinguishes whether the worker is an entrepreneur operating her own business, or forms part of the employer’s business. But control is not always conclusive in determining the legal employment relationship.
Five factors should be evaluated to determine if a person is an employee or independent contractor:
- Control. Independent contractors have a greater ability to delegate authority, whereas employees are more likely to perform the work themselves.
- Ownership of the tools. Although an employee may use some of her own tools, an independent contractor likely brings all of her own equipment to the job site.
- Chance of profit. An employee likely receives more regular compensation with little fluctuation, whereas an independent contractor has the ability to negotiate a new contract for each assignment.
- Risk of loss. A person who has a financial investment in the business beyond providing her labour is likely to be an independent contractor.
- Regularity of employment. It is common for an independent contractor to take on a number of jobs for a variety of employers, while an employee might do many jobs but will only answer to one employer.
It is important to remember that simply calling the individual an employee or an independent contractor will not make it so. Courts and government agencies will look beyond the label to determine the true nature of the relationship by taking into account the above considerations.
Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or firstname.lastname@example.org. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today