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

Generally, companies do not withhold payroll taxes for independent contractors in the same way they do for employees, since contractors are typically paid as business expenses. Requirements may vary depending on contracts and applicable Canadian tax rules. Independent contractors typically do not receive employee benefits, such as health insurance or pensions. They are generally expected to manage their own Canada Pension Plan contributions and any personal insurance, depending on their agreements and applicable regulations.

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.
• 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.

Control over work is one factor often considered when distinguishing between employees and independent contractors. Contractors generally have more autonomy over how they complete tasks, while employees typically have schedules and duties set by their employer. This is just one aspect of classification, and other factors may apply under Canadian law.

Tax reporting forms for independent contractors

Independent contractors generally manage their own tax filings, since businesses typically do not withhold income tax. Employers may provide forms such as a T4A to report payments made, but contractors should confirm their filing obligations with the Canada Revenue Agency (CRA).

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.

Independent contractors are generally engaged through contracts, and termination rights are usually governed by those agreements rather than employment laws. Contractors’ ability to end or continue their work typically depends on contract terms and applicable regulations.

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.