What does an independent contractor do?

If you are considering hiring an independent contractor, you may be curious about what jobs they perform. You can hire independent contractors for any job that you could hire a full-time employee to do.

Here are some of the most popular independent contractor jobs:

• Writer
• Virtual assistant
• Delivery driver
• Teacher
• Transcriptionist
• Travel agent
• Accountant or bookkeeper
• Photographer
• Customer service representative
• Therapist

This is not a comprehensive list as there are plenty of independent contractors doing different jobs. The important thing to note is that an independent contractor and an employee can do the same job, so it’s important to understand the differences between the two.

Differences between an employee and an independent contractor in Canada

Many businesses prefer to hire independent contractors because it requires much less paperwork. Companies do not have payroll tax obligations for independent contractors because they pay them separately as a business expense rather than through a payroll system, so they won’t need to withhold income tax or pay employment insurance. Independent contractors also don’t receive benefit packages, such as health insurance or pensions. So, independent contractors are responsible for paying their own Canada Pension Plan contributions and obtaining their own health insurance if they choose to pursue these benefits.

It’s important that the hiring company clarifies whether they have hired an independent contractor or employee because they will likely have to pay penalties, unpaid taxes, CPP, and EI if the worker is actually an employee, not an independent contractor.

Here are some other ways an employer can differentiate between an independent contractor and an employee:

• If you provide the supplies and tools the worker needs to do the job, the CRA could consider them an employee. An independent contractor will have their own tools and equipment and be responsible for maintaining them.
• An employee cannot hire helpers, assistants, or replacements, but an independent contractor can.
• Companies tend to be responsible for any expenses an employee incurs, while an independent contractor will be responsible for their own expenses.
• Employees often have less control over their work than independent contractors do. Companies have more control over assigning tasks to employees and setting working hours, while an independent contractor can decide what roles they want to take on and how often they want to complete this work.
• Employees tend to only work for one employer in the same field because companies do not want their staff to work for their competition. Independent contractors can work for as many companies as they want.

Overall, the best way to determine whether a worker is an employee or an independent contractor is to look at who has control. Independent contractors have an apt title because they are independent and thus have complete control over their work, while employers typically decide when their employees work and what tasks they need to accomplish.

Tax reporting forms for independent contractors

Independent contractors are responsible for filing and paying their taxes because companies do not need to withhold income tax for independent contractors. Companies should provide independent contractors with a T4A, though, to help them keep track of their income throughout the year.

An independent contractor can use form T2125 to record their personal and business income as well as their business expenses. This could include things such as a portion of their rent if they work from home, internet or cell phone bills, equipment, and any other operating expenses they need while working for you as an independent contractor.

If an independent contractor runs their business as a partnership, each member of the partnership must file a T5013 form. Independent contractors who earn more than $30,000 a year must also file a GST34 form so the CRA can collect the harmonized sales tax of their business.

When you hire an independent contractor, it’s helpful to discuss these forms to ensure they have all the information they need to complete them.

Pros and cons of hiring an independent contractor

After learning more about independent contractors, you may be considering hiring one. Before you do, take a look at the pros and cons of doing so:

Pros

Here are some of the pros of hiring an independent contractor:

• Potential to save money: You won’t have to pay for benefits, expenses, equipment, office space, pension, and employment insurance contributions when you hire an independent contractor.
• Flexibility to only hire when needed: Your workload may fluctuate over time, and you can hire independent contractors to suit your workload. For example, if your company is busy in the summer, you can hire an independent contractor to only work for those months.

Cons

Here are some of the cons of hiring independent contractors:

• Less control: Most independent contractors work offsite, so you won’t be able to monitor them as well as you would with employees. Independent contractors also get to decide when they want to work and whether they want to take a project. Employees usually have to take whatever assignments you give them and work within set hours.
• Independent contractors come and go: This means you will have to constantly train new contractors and get them up to speed with your needs and requirements.

FAQs about independent contractors

How do I pay independent contractors?

Companies pay employees through a payroll system, whereas you can pay independent contractors more like you would pay a supplier or vendor, using your accounts payable system to do so. Rather than paying independent contractors based on a specific time frame like employees (such as every two weeks, for example), you typically pay them after they send you an invoice.

How do I hire and fire an independent contractor?

To hire an independent contractor, you can provide them with a contract or written agreement. This contract should state how long the contractor will be working for you, what their role is, and how much you will pay them.

You typically can’t fire independent contractors like you would an employee, since they technically work for themselves rather than for you. You can stop working with an individual when their contract ends, or if they are not meeting the terms in the contract, you may be able to end your relationship with them.

How do I interview an independent contractor?

As independent contractor jobs tend to be skill-based, one of the best ways to interview an independent contractor is to test them. You can even forego a traditional interview in place of a test. For example, if you want to hire a writer, you can give them a test article to write to see if their style fits with what you’re looking for.

Another great way to gauge their abilities is to ask for a portfolio. Graphic designers, editors, writers, photographers, and many other professionals typically have a portfolio to show new clients.