All workers are classified as either employees or contractors. Since each classification or sub-classification has different rules, rights, responsibilities, and requirements, it’s important to ensure you classify workers appropriately. Employers should know what each classification means because they have important consequences at every stage of the work relationship.
Contractor vs. employee: What’s the difference?
Who is considered an employee?
Most workers are employees. Employees exchange their labour with the company for compensation, usually in the form of regular wages. In every jurisdiction, minimum employment standards set out the base wages, vacation, leave, and other entitlements that employees must receive. In addition to minimum standards legislation, employees are governed by their employment contracts and any applicable company policies and procedures. An employee’s compensation does not depend on the amount of work they do: for example, employees are still paid even if the business is going through a slow period.
If your employee is only hired for the short term, the same considerations apply. Temporary employees are still employees, even though their employment agreements have set end dates.
Who is considered an independent contractor?
If your organization has less control or direction over a worker, they might be an independent contractor. Independent contractors are engaged in business relationships with the company. These business relationships are governed by the contract between the parties. Usually, an independent contractor is responsible for determining how they will provide the service the company wants; they might subcontract certain jobs to others or hire their own employees. Independent contractors usually use their own tools or workspaces and take on a degree of financial risk in their relationship with the company. They are sometimes called consultants or freelancers.
How do I classify a worker?
Worker classification is more than choosing a label for the worker. The worker’s classification depends on what the worker does, how they do it, and what rules apply to the relationship. Before hiring a worker, thing carefully about the role you are trying to fill. To decide what class of worker to recruit for the role, consider whether the worker will:
- Work exclusively for your company or be allowed to complete projects for other businesses if they meet their deadlines with yours;
- Use the company’s facilities, equipment, and tools, or be responsible for maintaining and providing their own tools;
- Be subject to the company’s progressive discipline policy; and
- Receive a standardized annual or hourly pay or receive compensation dependent on the projects they complete.
Always consult relevant legislation and consider any changes when classifying workers, or when updating or amending a worker’s contract. For help interpreting legislation, consult our experts.
What about gig workers?
The federal government has recently completed consultations under the Canada Labour Code to consider “gig work,” meaning short-term, casual work arrangements for specific or one-off tasks. Gig workers currently may be considered employees or independent contractors depending on several factors, including the ones mentioned above, but someday may be explicitly defined in the Canada Labour Code. Moonlighting is common among gig workers, who rely on multiple jobs to make ends meet. Employers should consider whether a moonlighting policy and other protocols should be issued, depending on the worker’s classification.
Entering into either an employment contract or independent contractor agreement isn’t the end of the worker classification process. Keep classification in mind throughout your working relationship, regardless of the worker’s class. Our FREE Guide to Worker Classification provides practical steps and considerations to classify a contractor vs. employee and manage the working relationship.
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