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What Are the Consequences of Independent Contractor Misclassification?

Posted by Laura D’Andrea

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Jan 25, 2016 9:00:00 AM

What_Are_the_Consequences_of_Independent_Contractor_Misclassification.jpgThe misclassification of employees has negative impacts on many levels—on the worker, the employer, and even the Canadian economy at large.

Unfortunately no one factor determines misclassification, which makes the complexities of your workers’ statuses even more difficult to manage. It could happen to anyone—not only businesses and staffing agencies that choose to do so on purpose to save on costs. Even innocent agencies that mistakenly classify an employee as an independent contractor will face the consequences of their error.

Wage Law

The Employment Standards Act has very strict guidelines about employee wages, such as minimum wage and overtime. Employers could face both massive criminal penalties and liability for the payment of back wages if found in violation of wage laws.

WSIB

The Workplace Safety Insurance Board provides compensation coverage for employees who are hurt at work. If an employee is misclassified as an independent contractor, he wouldn’t be covered if he sustained a workplace injury. However, if misclassification was proven by the CRA, the staffing agency would be liable for unpaid premiums, occupational health and safety penalties, and perhaps even the full amount of the worker’s compensation.

Privacy Legislation

As an employer, it’s your duty to keep your employees’ personal information secure. Legislation is in place to stipulate how this information must be guarded and how long it should be retained. By misclassifying, you could be breaching a privacy statute, which constitutes an offence and may expose you to suits for damages.

Termination Notice

You are not required to renew a contract with an independent contractor. You can sever the relationship. But with an employee, there are laws in place stipulating why and how you can terminate employment. If an independent contractor you’ve terminated is later determined to in fact be an employee, you could be faced with a wrongful dismissal suit and damages for not having given notice of termination.

Vicarious Insurance and Liability

Staffing agencies can be seen vicariously liable for the tortious acts of their workers, but not, however, for those of their contractors. Insurance coverage may become an issue if employment statuses aren’t properly declared.

Employment Insurance and the Canada Pension Plan

Many staffing agencies purposely misclassify to get away with not paying their share of EI and CPP premiums. But once they’ve been found to have misclassified, they will have to pay the funds retroactively, along with interests and penalties, which can be significant.

Benefits Plans

Another way employers save from independent contractor misclassification is through the ability to exclude the workers from their benefits plans. If found guilty, however, they’d be forced to pay entitled employees what they are owed in terms of the company’s benefits plan, pension and retirement plan, health insurance, severance pay, paid leave, and more. In fact, this is a hot enforcement area that is subject to a number of lawsuits.

Anti-Discrimination

The Employment Standard Act offers strict guidelines for how employers are supposed to treat employees, but contractors are excluded from these regulations. Therefore, misclassification could lead to a failure to provide coverage under anti-discrimination laws for those improperly classified.

Taxes

Payroll and tax laws are clear about how much money employers are supposed to withhold from their employees’ pay cheques every pay period. Failure to withhold federal and provincial payroll taxes and submit them to the CRA will lead to heavy fines and penalties, as well as the back payment of owed taxes.

You Can’t Afford to Risk the Consequences of Independent Contractor Misclassification

The bottom line is that the consequences associated with misclassification are serious and potentially devastating. It could have a monumental financial impact on your staffing agency. You can’t ignore worker classification risks. Take preventative measures to save yourself a great deal of stress, money, and negative exposure. Outsource your worker classification to a back office solutions provider to ensure that you don’t run into any of these consequences.

Competing with the BIG multi-national agencies?

Topics: independent contractors

Why Is Everyone Freaking Out about Independent Contractors?

Posted by Karen McMullen

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Jan 13, 2016 9:00:00 AM

Why_Is_Everyone_Freaking_Out_about_Independent_Contractors.jpgYou’ve probably heard a lot of rumblings in the staffing industry about independent contractors. Everyone’s worried. Some staffing agencies have even stopped using contractors altogether to avoid any type of government fine or class-action lawsuit.

And you’ve probably read a lot about employee misclassification in the news lately, too. Companies like Uber, Zirx, GrubHub, DoorDash, Caviar and so many other recent up-and-coming companies have been hit with lawsuits alleging that their independent contractors should in fact be classified as employees. 

“What’s the big deal?” you think to yourself. Why is everyone freaking out? It’s not that big of an issue, is it? All you have to do is fill out your paperwork correctly and there’s no reason to worry. As long as you’re not purposely misclassifying your independent contractors to benefit from reduced costs, you won’t get in trouble. Right?

Nope. Nothing could be further from the truth. The fact is that everyone in the staffing industry, and in the business world as a whole, is freaking out about independent contractors because employee misclassification is a serious issue that requires serious attention. Here’s why.

The Penalties Are Significant

The penalties for misclassifying employees as independent contractors are severe. Not only will you have to pay back all of the back taxes, CPP contributions, and EI premiums for the workers that were supposed to be treated as employees, but you’ll also be on the hook for paying huge fines for your error.

But perhaps even more worrisome is the risk of a class-action lawsuit. If your current or past employees go after you for misclassification, you’ll have lawyer fees to pay, and if you lose, you might be forced to pay millions in damages: you’ll have to pay the workers back health benefits, vacation time, overtime, and expenses, among other monies that were rightfully theirs. And the bad press you’ll get from such allegations could lead to lost business opportunities and lost talent, which can hurt your staffing agency for years to come. You might even have to close your doors, like Homejoy was forced to do.

The Laws Aren’t Cut and Dry

Even if you do take worker classification seriously at your staffing agency and try your best to treat, pay, and manage your workers based on the correct label, you could still be in the wrong. The worker classification laws aren’t cut and dry. In fact, they’re complex and nuanced. Many of your workers likely fall in a grey area—classification could go one way or another. If you’re using more of a hit-and-miss approach and making your decisions based on guesses and assumptions, you could be in trouble. Chances are, you’re going to be wrong some of the time if you don’t have an effective worker classification program in place at your staffing agency. And the CRA won’t care. Whether you misclassify on purpose or because of an innocent mistake—because you misinterpreted the tricky laws—you’ll still be hit with the same fines and penalties. What you don’t understand, or don’t know, about worker classification can still hurt you.

Enforcement Is Being Stepped Up

You’ve been operating your staffing agency for a while now. No one seemed to be worried about misclassification just a few years ago, so why now? Staffing agencies and other business owners used to be able to get away with misclassification a large portion of the time because the government didn’t care about it so much. The feds were pretty lax on enforcement. But with independent contractors becoming increasingly prevalent in the business world, misclassification is becoming a more serious issue. The government is losing out on more money. More workers are losing out on rights and pay. So the CRA is paying closer attention. And unfortunately, as staffing agencies are common offenders, they have become big targets.

Competing with the BIG multi-national agencies?

Topics: independent contractors

With Independent Contractors, You Need a Worker Classification Program

Posted by Mai Dowdie

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Dec 28, 2015 9:00:00 AM

With_Independent_Contractors_You_Need_a_Worker_Classification_Program.jpgCompliance is critical in the staffing industry. There are hundreds of regulatory policies and procedures that your staffing agency must abide by. There are payroll and tax laws, employment standards, health and safety regulations, and many more laws that you must comply with. Being in the staffing industry is risky business.

And now, there’s increased pressure for compliance with worker classification. If you employ independent contractors, it’s vital that you classify each and every one of them correctly. The feds are becoming more aggressive and they’re zeroing in on the staffing industry. Unfortunately, many of your fellow staffing firm owners have taken advantage of lax laws for far too long, and the government isn’t letting it happen anymore. You’re going to face increased scrutiny, so you need to have a comprehensive worker classification program in place in order to save yourself.

Avoid the Penalties of Misclassification

Being deemed noncompliant with worker classification laws is no joke. You won’t just get a slap on the wrist if you plead ignorance. You’ll face the harsh consequences of your actions. Whether you’ve misclassified on purpose to save money on taxes, EI, CPP, overtime, benefits, expenses, and holiday pay, or you misclassified completely in error, you’ll be punished equally.

You’ll get audited as the first step. And this will, as you know, be a lengthy and painful process. But that’s not all. You’ll also need to pay back all of those back taxes and other monies owed to the government, plus costly fines and penalties for your mistake. You might even get jail time.

You might also face a class-action lawsuit from current or past employees looking to get what was rightfully theirs all along—like reimbursement of expenses, overtime pay and more.

And finally, the repercussions of misclassification will continue to harm your staffing firm over the long run. The bad press you’ll receive will damage your reputation. And in turn, it could make you lose out on future business opportunities with new and old clients as well as top talent.

To be completely frank, misclassification can sink your firm.

Losing Out from Being Overly Cautious

Being overly cautious can save you from the consequences mentioned above, but it’ll also lead to a lot of wasted money. Many staffing firms that understand and fear the severe penalties of misclassification decide to simply classify and manage all of their workers as employees instead of labelling anyone as an independent contractor. Though this will get you off of the government’s radar, it means that you’ll be paying into taxes, CPP, and EI, and paying overtime, holiday pay, and other monies and benefits to workers who aren’t supposed to be getting them.

You will employ true independent contractors who should be classified as such, and classifying them as employees instead is just a waste of money.

What you need instead of being overly lax or overly cautious is an effective worker classification program. This will solve all of your classification issues.

Implementing a Worker Classification Program

Instead of overpaying or underpaying your workers, you can implement a comprehensive program that will allow you to classify your employees and independent contractors correctly each and every time. Classification is no doubt complex, and even if you try your best to make the right call, you could still end up making a mistake. By performing a thorough analysis of each worker and taking all relevant factors into consideration, you can consistently classify your workers correctly and have the documentation you need to protect your agency against a misclassification audit.

If you do not have the means, knowledge, or resources required to set up and maintain a comprehensive worker classification program, consider outsourcing your compliance function to a back office solutions provider in order to get guaranteed compliance.

 Competing with the BIG multi-national agencies?

Topics: Worker Classification independent contractors

Staffing Firm Named in Lawsuit for Misuse of Independent Contractors

Posted by Shannon Dowdall

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Apr 3, 2015 8:05:00 AM

Independent contractor or employee, do you know the difference? Are you properly classifying workers? Misuse of placing independent contractors who do not qualify to be paid as such can trigger audits or in this case a law suit for millions of dollars. Deloitte LLP has recently been hit with a $384-million class action for misclassifying workers as independent contractors. Placement agency ProCom Consultants Group, contracted by Deloitte as an intermediary, is also named in the suit.  Review the full article.

For many years there has been confusion over the difference between an independent contractor and an employee.  Don’t let your contract staffing firm get caught in the wrong classification by referring to the Four Point Test method to help staffing agencies who place contract or temp staff  decipher between a self-employed individual and an employee; control, ownership of tools, chance of profit/risk of loss, and integration. 

Staffing Firm Named in Lawsuit for Misuse of Independent Contractors
Associates classified as employees DO NOT have to be full-time, permanent workers.  They can be contract or temp workers.  Employees are protected by the Employment Standards Act in their province of work and have mandatory taxes and other deductions withheld from their paycheques and are granted certain protection and benefits, such as: leaves, overtime pay, notice of termination, vacation pay, employment insurance and minimum wage.

Misclassification:

As a staffing agency owner, it is vital that you avoid the misclassification of the workers you send out to your clients. The significant penalties, fines, and tax liabilities you risk getting for misclassification can not only be devastating to your bottom line, but it can ruin your reputation and even force you to shut your agency’s doors for good.

Though all companies are scrutinized by the CRA for employee misclassification, the staffing industry in particular is under the government’s microscope when it comes to this issue due to some contract staffing agencies grossly misusing the independent contractor classification for their own gains. It may seem simpler to classify all employees as independent contractors; in fact, it can save a lot of money and hassle. But doing so can lead to even bigger problems down the line.

Why Would Companies Misclassify Independent Contractors?

Companies may consider classifying workers as independent contractors instead of employees for the following reasons; to save money, to save on administrative costs such as remittances, vacation and statutory holiday pay.  Even slim client margins may even tempt contract staffing firms to go this route as clients do not want to pay the additional fees.

Outsourcing to Help You Ensure Compliance

Complying with current Canadian employment laws is a time-consuming and complex job for even the most experienced and talented staffing agency owner. If you don’t want to risk the penalties and tax liabilities that come with worker misclassification, consider outsourcing the task to a back office service provider.

The service provider will have the experts on staff needed to ensure that all laws are being followed and all classifications are made correctly and in compliance with Canadian employment legislature. Your back office service provider can help minimize your risk of error. It will ensure all of your paperwork is accurate and detailed so if you do get audited by the government, you will have nothing to worry about.  

Don’t Take the Risk—Stay in Compliance

If you’re misclassifying employees as independent contractors to avoid paying employer taxes or to lower your bill rates, you’re going to get into trouble—if not now, then down the line. The Canada Revenue Agency has your staffing agency under its watchful eye, and the money you save now simply won’t be worth the trouble that will find you later on.

If you are unsure of your classification process feel free to contact The Staffing Edge for coaching on the CRA’s independent contract compliance rules and regulations. 

Topics: independent contractors independent contractor compliance

Contract Staffing Firms: Independent Contractors or Employees?

Posted by Stacey Duggan

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May 8, 2014 12:02:00 PM

In the past few years, The Canada Revenue Agency has held a magnifying glass on the staffing industry due to past abuse of ‘encouraging’ workers to become independent contractors so the agency could avoid paying employer taxes or to meet the client’s expectations for a cheaper bill rate. 

Misuse of placing independent contractors who didn’t qualify to be paid as such, triggered audits of staffing firms across Canada who received not only fines and a reprimand but caused those agencies who are compliant in there qualification process when engaging with independent contractors to be under the watchful eye of the CRA.  

Many agencies are now in fear of placing independent contractors at all - even if they do meet compliance. This leaves the contract staffing agency unable to service their clients who look to their competitors to provide candidates with that level of expertise that only a qualified independent contractor can provide. 

The importance of employment agreements and independent contractor agreements are of paramount significance when placing candidates for temporary and contract staffing orders. Many employers and recruiters find it frustrating that many employees use the title of self-employed worker until it no longer suits them when their business relationship ends with the contract. In this case, many independent contractors will come back and request employment insurance benefits or severance pay when they are simply not entitled to them as independent contractors.

Contract Staffing Firms: Use the Four Point Test

The Canada Revenue Agency has a four point test method to help contract staffing agencies decipher between a self-employed individual and an employee; control, ownership of tools, chance of profit/risk of loss, and integration. Let’s look at each of these from an independent contractor perspective vs. an employee perspective:

Independents Chart resized 600

 

For further reading on this issue see Lexology.com “Independent Contractors: A Different Perspective” by Blaney McMurtry and William D. Anderson:

“Mr. Rennie was a helicopter maintenance engineer and maintained helicopters owned by VIH Helicopters Ltd. Both Mr. Rennie and VIH Helicopters considered Mr. Rennie to be an independent contractor. Other similar individuals chose to be employees. Mr. Rennie took the position that it was to his advantage not to be an employee. For the purpose of filing his income tax returns Mr. Rennie reported business income and deducted the expenses associated with running his business. In matrimonial proceedings with his former spouse, affidavits were filed which expressly stated that Mr. Rennie was self-employed, which apparently suited his purposes during those proceedings too. Upon termination of his business relationship with VIH Helicopters, however, Mr. Rennie came to the opposite conclusion and stated that he was really an employee. Mr. Rennie sought certain legal remedies available only to employees under the Canada Labour Code.

In its decision, the Court clearly disapproved of Mr. Rennie’s duplicity in referring to his relationship with VIH Helicopters as an independent contractor for some purposes, but as an employee for others. The court decided before answering the question of whether Mr. Rennie was or was not an employee at law first whether or not Mr. Rennie was “estopped” from asserting that he was an employee. That is: (1) did Mr. Rennie lead VIH Helicopters to understand that their relationship was not that of an employer and employee? (2) Could he change his position?; and, (3) Did VIH Helicopters alter its legal position to its own detriment as a result?”

Needless to say the court ruled that Mr. Rennie was in fact a self-employed individual and could not pick and choose his status between self-employed and employee now that his contractor agreement had ended. Candidates and recruiters have to weigh their options carefully as both titles  come with their  own set of pros and cons. Staffing firms engaging in the services of independent contractors should be well aware of the rules and regulations and have a solid process in place to ensure their compliance when placing them. 

The Staffing Edge has a solid, CRA approved, checklist when it comes to placing independent contractors so their member firms can be assured of expert advice and compliance. Contact us today for  more information on how we can ensure your independent contractor compliance so you can compete in the busy contract market.

Competing with the BIG multi-national agencies?

Topics: independent contractors independent contractor compliance Staffing Industry Expertise CRA CRA Independent Contractor Re-classification

For a Start Up Staffing Firm, It’s Hard to Know What You Don’t Know

Posted by Stacey Duggan

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Mar 20, 2014 11:26:00 AM

intercast staffing case study

Starting a new business is always exciting. New staffing firm owners are motivated by their desire to help others, both candidates and companies, and being well-rewarded for their efforts at making effective placements by leveraging their self-identified skills and industry knowledge.

But as the saying goes, though, “the job ain’t over until the paperwork is done”.

Many staffing firm startups might never have gotten off the ground if, before getting started, they had known all the risks and operational requirements of running such a business. As they soon learn, the administrative realities of the staffing business can be daunting, dampening even the most vibrant entrepreneurial spirit.

Take David Machlis of Intercast Staffing. When he launched his agency focusing exclusively on Cisco Certified Resources, he knew little about the business of actually running a staffing firm. He did not even know, for instance, that he was responsible for paying the contractors he placed.

“When I started my business I was quite young, I was pretty new to staffing, and I was not really thinking about a lot of the operational things,” he says. “I just thought, as I need to know, I’ll find out what I need to do, and how to do it, as I need to.”

Fortunately, he ran into The Staffing Edge’s Ray Gonder at a networking event. “I probably would not have been as successful as I am today if I had not been introduced to TSE”.
Intercast Staffing has thrived placing IT professionals,both perm and contract, across Canada and the United States, largely due to the on-going support he has received from TSE. Among the things Machlis needed to learn about was the potential pitfalls of placing independent contractors.

“They have a very good handle on tax law, and are very familiar with independent contractor tax policies on both sides of the border, especially as it relates to independent contractor misclassification, which in the States the IRS is much more aggressive about… they’ve been invaluable, and have been a tremendous partner for my US business.”

Also a big surprise for Machlis was the paperwork minutiae – he was unprepared for the time-consuming adminisitrivia of contracts management, time sheets and payroll processing. Never mind dealing with the CRA and HRDC. He is very grateful for how TSE takes care of all of this for him, freeing him up to concentrate on what he loves and does best, successfully placing
candidates. TSE is “very diligent and detail-oriented – they catch the little mistakes I wouldn’t catch, like on time sheets. They even have a process to validate the HST and registered Business Numbers of my candidates.”

Machlis appreciates not being on his own during his learning. “TSE shares my entrepreneurial attitude. If they don’t know the answer, they’ll find out, exploring new uncharted territory with me, expanding their knowledge while assisting my business."

He also enjoys his interactions with TSE.

“They are always helping me resolve a conflict rather than creating one. They have people with a very personal high human touch, like Starbucks Baristas, with happy out-going personalities.” 

The degree TSE goes above and beyond for him has become commonplace “I just take it for it granted. They answer quickly, and they can always do their best to accommodate me if I need to adjust a deadline – very understanding and flexible, especially when it comes to things like custom invoicing.”

Intercast Staffing’s growth has been an adventure in learning – especially for its founder understanding what it is he didn’t know he needed to know via the support he continues to receive as a Staffing Edge member. 

“They have the ability to handle large clients because of the infrastructure they have built, like their insurance coverage, financing services, and payroll processing. But they do it with a very small town feel, with very responsive customer service. They are a real rarity.”

David Machlis thinks any staffing firm could benefit from being a TSE member. “I’ve referred them probably a dozen times over the past couple of years. They are too much of a secret. People don’t know about them. People who have been in the business for years don’t know about them.” Machlis adds, “I knew nothing about the concept of outsourced payroll and operations administration before I started out. But I wouldn’t be where I am today without TSE."

Starting a Staffing Agency

Topics: contract staffing workforce compliance Statutory Requirements independent contractors The Staffing Edge

Temp Agency Danger - CRA Independent Contractor Re-Classification

Posted by Stacey Duggan

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Jan 23, 2014 9:00:00 AM

Temp Agency Danger CRA Independent Contractor Re ClassificationAmong the regulations enforced by the CRA is the difference between an independent contractor and an employee. Unfortunately, qualifying someone into one classification or another can be confusing, and if the Canada Revenue Agency determines that you have misclassified workers, there are repercussions for both your staffing firm and the worker. The key to staying on the right side of the CRA is to correctly identify when an independent contractor actually qualifies to be paid as such.

CRA Independent Contractor Re-classification

To figure out if you need to take care of CRA independent contractor re-classification, use the following four-point test to determine if you are paying independent contractors who would actually be considered employees. 

1. Control. Who has control in the business relationship? In an employer-employee relationship, the employer determines the wage or salary, the time and place where the work will be done, and the manner in which the work will be done. In an independent contractor situation, the worker decides how, where, or when the work will be done and what the standards will be.

2. Tool and Equipment Ownership. Who pays for the tools and equipment? When employees work for employers, the employers provide tools and equipment, generally at the place of business. Independent contractors, however, supply their own tools, even if that means renting them. Independent contractors are also responsible for the maintenance and repair of their own tools.

3. Opportunity for Profit/Risk. Employees show up for work and get paid for the time they put in. They don't have to worry about the financials of the company they work for; they don't take risks, and they also don't reap the rewards of risk. Independent contractors run the risk of incurring losses due to delays, damage to tools, equipment and materials, and bad debt. Independent contractors also assume operating costs, which employees don't have to think about.

4. Integration. Another factor in CRA independent contractor re-classification is integration into the organization. The CRA states, "Where the worker integrates the payer's activities to his own commercial activities, a business relationship probably exists." Another way to put this is, "does the independent contractor have other clients besides the one in question?" If the worker has only one client for a long period of time, they may be re-classified as an employee.

After reviewing this four-point test, you may find that you need to take a closer look at your independent contractor classification process. 

Why is it so important to get this distinction right? Because if the CRA re-classifies someone as an employee, you will not only have to pay back taxes for the length of their employment but could lose your good reputation in your client’s eyes in the process.

Financial Repercussions for the Employer:

  • CPP and EI employer and employee contributions for both the current and previous year.
  • 10% penalty on the total assessment as well as interest of approximately prime plus 1% from the date each of the contributions were due.

It's easy to see how these fines could severely impact all parties involved including your client. Qualifying independent contractors correctly from the get go is more important than ever as the CRA focuses its efforts on staffing firms who specialize in sending out those that are incorporated or are a sole proprietorship. 

It's wise to establish and maintain a relationship with experts in the Canadian temp staffing industry like The Staffing Edge to keep you up-to-date on issues that may affect CRA independent contractor re-classification. 

Topics: Outsourced Back Office independent contractors Back Office Service Provider Staffing Agency CRA CRA Independent Contractor Re-classification

Contract Staffing Firms Walk a Fine Line with Independent Contractors

Posted by Shannon Dowdall

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Dec 10, 2013 10:00:00 AM

Contract Staffing Firms Walk a Fine Line with Independent ContractorsCorrectly determining whether a worker is an employee or an independent contractor can mean the difference between staying compliant, or coming under the scrutiny of the CRA or Ministry of Labour. Misclassifying an employee as an independent contractor can lead to fines, penalties, the owing of back taxes and employee benefits, and possibly even the loss of your good reputation. Clearly, when you're in the contract staffing business,misclassifying employees as independent contractors is a big mistake. But how can you be sure to get it right?

That's a good question, and the answer isn't as simple and straightforward as business owners and managers would like, but it all comes down to one basic tenet: is the worker in question in business for himself or is he working for someone else? This was recently reinforced by a decision of the Federal Court of Appeal, in which the court called for a two-step inquiry. You can use this two-step inquiry yourself when you have questions about a worker's status.

  1. What is the subjective intention of the parties?
  2. Does the objective reality of the situation reflect the subjective intent?

Yes, these questions sound highly philosophical, but you can apply them in your business to stay out of trouble with the CRA. Here's how.

Intention

When a court looks for evidence of intention, it cannot look into a person's mind. It must look for physical evidence. For example, if a worker has been filing income tax returns as an independent contractor, is marketing their services, and making their own schedule, the court can feel confident that the person intended to be in business for himself or herself, not for an employer.

Another piece of evidence the court may look for is invoices with the appropriate taxes charged. Invoices indicate that the worker is an independent contract rather than an employee on the payroll. Invoices are not used by employees when they receive their pay cheques, but they are used in business-to-business transactions, which would indicate independent contractor status.

Objective Reality of the Situation

After establishing the concerned parties' intentions, the second step is for the court to examine the objective reality of the situation, and this usually takes the form of investigating control, provision of tools, and risk & opportunity for profit and integration.

Who has control in the relationship? Does the "independent contractor" retain autonomy? Does the worker in question have his own tools and supplies, or does he have to rely on an employer for tools, workspace, and supplies? Does the "independent contractor" retain any risk in the relationship or opportunity for profit? Regular employees don't assume risk, but they also don't profit beyond their regular pay cheques. The answers to these questions help the court to determine the objective reality of the work relationship.

Precautionary Measures

One of the best things you can do to avoid questions about worker status is to draft an agreement at the beginning of the work relationship stating the nature of the relationship. If the worker in question will be engaging with your staffing firm as an independent contractor, get it in writing, ensure the contractor provides invoices for their services, and ensure that the independent contractor remains in business for himself or herself.

If you still have questions, talk with a back office provider like The Staffing Edge. Consulting with experts in the contract staffing industry can help you to avoid the perils and pitfalls inherent with running a staffing business.

Topics: ministry of labour Temp Staffing Agency independent contractors Back Office Service Provider Payroll Financing independent contractor compliance Contract Staffing Agency Contract Staffing Firm CRA

More Canadians Are Joining the Ranks of the Self-Employed

Posted by Stacey Duggan

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Nov 11, 2013 9:30:00 AM

contract staffingStaffing firms who utilize the services of the self employed need to take note of these significant risks and need to be even more diligent with their compliance process as the CRA continues to take a magnifying glass to the contract staffing industry.

As seen on Lexology.com by Ruth Thomlinson LLP and Christine Thomlinson

According to a report released last week, more Canadians are joining the ranks of the self-employed, with self-employment climbing 3.6% in the last year.

It seems that are reluctant to offer permanent positions and expand payrolls in times of economic uncertainty. In addition, many older workers seem to like the idea of being their own boss. Self-employment often comes with more flexibility, but it can also bring with it the absence of retirement or health benefits and some other potentially lesser-known legal risks.

For “true” self-employed professionals, who, for example, own their own business and do projects for multiple employers, this is unlikely to pose much legal risk. However, what is more prevalent is the practice of camouflaging what is really an employment relationship by calling it a “contract” and treating the individual as an independent contractor. Why does this matter?

Because the legal risks can be significant.

Employers have a responsibility to deduct and remit income tax from their employees’ pay; a failure to do so can result in a tax re-assessment, and a requirement to remit with interest and penalties to boot. Similarly, employers are required to deduct and remit premiums on account of Canada Pension and Employment insurance for their employees and a failure to do so can have equivalent consequences. Employees also have entitlements to things like paid vacation, overtime and potentially significant severance when the relationship concludes.

Just because someone asks to be self-employed does not make it so, nor does the fact that they have an incorporated company or they have signed a fancy“Independent Contract.”

Rather, any governing body considering whether someone is truly an employee or an independent contractor will consider all of the elements of the relationship and make a determination. No one element is likely to be determinative of the relationship; rather there will be a consideration of all elements and a decision as to whether the existing categorization of the relationship is appropriate.  As we like to tell our clients, “if it walks like a duck and talks like a duck, it’s probably a duck”, or in this case, the individual is probably an employee.

So the trend towards self-employment is an interesting one, as long as everyone goes into this with eyes wide open.  Employers would be short-sighted to use self-employment as a means of avoiding employment-related obligations without giving serious thought to the work that the individuals in question will be doing and the manner in which they will be doing it. It is worth asking themselves if this is just a way of masking what is otherwise a true employment relationship.  Similarly, the fact that an individual likes the perceived freedom of self-employment should not be enough to persuade an employer to treat the individual as a contractor, again without considering if this is an appropriate categorization of the relationship.  If the employer is really trying to avoid costly obligations like benefits or severance, these can often be avoided in far safer ways with clever drafting of term or temporary employment contracts.

Read the Full Article 

For help identifying your risks when sending out independent contractors or to put together a solid qualification process, call The Staffing Edge.

Topics: contract staffing workforce compliance independent contractors

The Top Three Things That Put Staffing Firms Out of Business

Posted by Ray Gonder

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Nov 1, 2013 10:14:00 AM

The Top Three Things That Put Staffing Firms Out of BusinessDemand is always high for good quality temporary workers and for staffing firms that consistently provide excellent service. It's not an easy industry, however, because of the constantly changing rules and regulations surrounding Canadian employment. In addition, staffing firms are low-margin, high volume businesses with a tricky cash flow situation.

There are typically three big obstacles every temp staffing firm must overcome to enjoy success in their industry:

  1. Independent contractor misclassification
  2. Ministry of Labour fines
  3. Payroll financing.

1. Independent Contractor Misclassification

Many employers feel that if they're going to give a person a job, they should be able to set the terms and make arrangements that best suit them and the employee in questions, but the CRA has set very specific rules about how employees must be classified. In some cases, both the employee and the employer would prefer to use an independent contractor status. This works well for the employer, who doesn't have to pay CPP, EI, income tax, pensions, and benefits to the employee, and it also works well for the employee, who can write off reasonable business expenses working as their own boss.

The CRA has developed a 4-point test to determine if an employee is indeed an independent contractor or an employee. It's imperative that staffing firms classify their employees properly because the CRA not only levies fines for misclassification but it also requires companies to pay back taxes, CPP contributions, and EI deductions for each misclassified employee. These finescan be overwhelming to staffing agencies that are already running on a tight
cash flow system.

2. Ministry of Labour Fines

The CRA isn't the only governmental agency that can fine your staffing firm. In an effort to make sure that Canadian business comply with HR policies, safety procedures, and harassment regulations, among others, the Ministry of Labour can and will fine staffing firms that have not taken care to become fully compliant.

Staffing firms deal with a great many workers, and it can be difficult to make sure each person is fully trained and documented. It's easy to overlook one or more of the many compliance details. For instance, each worker must sign documents stating they have read and understood
a variety of different policies, and you must keep these documents on file.

3. Payroll Financing

Perhaps the most harrowing obstacle for new staffing agencies is figuring out how to make financial ends meet. Staffing firms normally pay their workers on a weekly or bi-weekly basis, but this creates a cash flow gap when clients pay every 45 to 60 days. On top of this imbalance, staffing firms also have to handle remittance to several government agencies, and remittance is due on the government's schedule, not on a schedule that correlates with your cash flow. If clients are slow to pay, cash flow can be seriously disrupted, putting your company in peril.

Outsourced Back Office Support

You do not have to be on your own dealing with all of these issues. A back office service provider like The Staffing Edge can provide affordable payroll financing to help your staffing firm ride the unavoidable cash flow highs and lows. A back office service provider specializing in supporting staffing firms can also help make sure you're fully compliant with the Ministry of Labour and even keep you free from fines from the CRA by avoiding misclassification of
independent contractors.

Topics: ministry of labour Temp Agency Temp Agencies Temp Staffing Agency Outsourced Back Office independent contractors Temp Staffing Agency Payroll Back Office Service Provider Payroll Financing Back Office Payroll Financing independent contractor compliance cash flow Back Office

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