Contract workers and employees in Ontario are protected by a set of different contract employee and Canadian employee rights governing everything from legal responsibilities to deductions and more. To make it easier, we answer the question “What is the difference between contractors vs employees?” We also discuss the possible repercussions of misclassifying your workers.
Employees
Ontario labour law defines what an employee is in the Employment Standards Act. According to the Act, an employee is:
Since the definition is somewhat vague, Ontario courts have had to rule on disputes between contractors, employees and employers on a case-by-case basis. You may therefore want to clarify your worker’s status before their employment begins. You can ask your human resources department to explain the worker’s role, status, and duties to avoid confusion.
Independent Contractors
The Employment Standards Act, does not apply to contractors who are not entitled to the same rights as employees. These include minimum wage; overtime, vacation and holiday pay; and notice and severance. Employers are only entitled to give contractors exactly what is in their contract and nothing more. What’s more, employers generally save money by using contractors because they don’t need to withhold tax, employment insurance, CPP or WSIB.
Contractors, however, are entitled to certain deductions come tax time. A delivery driver, for example, can write off vehicle operation and maintenance costs. Many contractors feel this is to their advantage, and that they earn more money this way. In reality, in many cases, it’s a benefit in disguise for employers as it saves them from any financial obligations, such as overtime and vacation pay, and other responsibilities owed to an employee.
Dependent Contractors
The term “dependent contractors” has only come into meaning in the Ontario labour market recently. Workers who are self-employed, but earn all or almost all of their income from one source/client/company, are considered dependent contractors and therefore viewed differently by the courts when it comes to labour law.
Just like independent contractors, dependent contractors aren’t entitled to health benefits, minimum wage or vacation pay and don’t need to make statutory deductions like EI or CPP. The only difference is that if the business relationship terminates with their main income source, they will lose all or most of their income (just like an employee). Given this fact, contract employee rights in Ontario entitle dependent contractors to a reasonable notice period if they lose work and the right to unionize to better protect their employment.
This is often seen in agreements with workers in the skilled trades, who may not be directly employed by the corporation receiving the services they provide, but given the nature of their work and the ability to be on one project at a time, they can realistically only work for the corporation contracting them. They are also often members of professional unions, so a contract entered into with them is bound not just by the terms of being a dependent contractor in Ontario but also by whatever stipulations have been set out by the union regarding notice and pay.
Why hire a contractor?
There are several reasons to choose a contractor for your next project, depending on your needs as a business. For example, if you are a small business, just starting out or want to stay nimble and agile, hiring a contractor saves you the paperwork and time needed to properly onboard an employee. They can get to work almost immediately with less downtime spent on the more administrative side of the job.
Likewise, businesses that see fluctuations in customers or sales, like those only open seasonally or on an event-by-event basis, can be a lot more flexible in whom they hire and for how long they employ contractors. It makes sense to hire contractors rather than paying someone around the clock for work they’ll only be doing occasionally. Examples of this include food servers at carnivals or fairs only operating over the summer, a snow plowing service that doesn’t operate when it doesn’t snow, or a graphic designer who is only needed to create a company’s logo and a few pieces of brand collateral but nothing more.
There’s also a strong case for the savings a business could realize by hiring contractors. It reduces labour costs since employers don’t need to contribute to employment insurance, training, certification, equipment or anything else besides the agreed-upon pay.
Why hire an employee?
If your business is one where work needs to be done to a certain spec, under supervision, or over a long period of time, a trusty employee is a proper choice. Consistency and reliability are much more guaranteed this way, and you never need to worry about unexpected disruptions in labour availability.
Employers who hire employees also retain more control over workplace culture, policies and rules, which is vitally important in certain industries.
What happens if you misclassify contractors and employees?
Given the dramatic differences in how contractors vs employees are compensated and viewed by Labour Law, special attention is required to ensure that you do not misclassify your workers in Ontario. You may run afoul of both the Employment Standards Act (2000) and the Canada Labour Code—and stiff penalties and damages may result.
If a contractor self-classifies as an employee, employers are responsible for proving otherwise and may consider them employees until doing so. However, if employers choose to misclassify employees as contract workers in Ontario to save money or time, they can face penalties and stiff fines down the road. The bottom line is that it is not worth the time or expense to correct your workers’ classification later versus doing it properly from the start. When in doubt seek the advice of an expert.
