contractor vs employees

Benefits of Hiring Contractors vs. Employees

The benefits of hiring contractors vs employees have been long-debated by a number of companies. As businesses begin to resume operations post-COVID-19, employers will be reassessing how to structure their workforce to ensure sustainability in a slow market.

One consideration may be to hire contractors instead of employees. In doing so, businesses may hope to decrease uncertainty while providing work flexibility, which may or may not be helpful, depending on the structure of the business. Nonetheless, the ultimate decision should consider the purpose of hiring and the long-term goals of the business.

This article outlines the  benefits of hiring an employee vs a contractor, depending on the business type.

Independent Contractors vs Employees

Independent contractors are individuals who are hired to carry out a specific service. They pay their own taxes and are technically not entitled to any employer-sponsored benefits or pensions.

Employees agree to the employer’s work conditions and the employer provides the employee with payroll, deduct Canada Pension Plan Contributions, Employment Insurance Premiums, and income tax.

Even though there are many benefits to hiring contractors, there are some disadvantages as well. Before deciding how to staff a particular job, businesses should weigh the benefits of hiring an employee versus a contractor, and how this decision will affect their business.

Employment agreements differ from contractor agreements, which ultimately change the types of obligations each party has to the other. An employee requires training for the role, whereas contractors are already trained, which may assist businesses in saving on the associated training and onboarding expenses for an employee.

Employees are typically hired for an indefinite period unless the agreement is for a specified amount of time, whereas  a contractor is hired for a set period of time or for a specific role. Most importantly, employees receive employment benefits whereas contractors are not qualified to receive company benefits.

Benefits of Hiring Independent Contractors

There are a number of benefits to enlisting the assistance of a contractor.

  • It is favourable for small businesses and startups, as there is less paper work and they can fill the talent gaps in their workforce.
  • Allows businesses greater flexibility by doing business with contractors, which can be especially advantageous for employers with fluctuating workloads.
  • It helps cut labour costs, as businesses do not have to provide the employees with employment insurance, training and development, or severance pay.
  • It is less expensive and offers reduced risk to the business.

Benefits of Hiring an Employee:

It is generally beneficial to hire an employee when the job entails work that needs to be done under the employer’s supervision. Moreover, work that is long-term by nature and not tied down to a particular task may also be a reason to hire an employee, where a long term relationship and a well-formed understanding of the business is required.

Hiring an employee also provides the employer with control in respect of the hours of work as well as the tools and equipment used by the worker. Jobs that are not peripheral and are considered an essential part of the business should typically be staffed by an employee to ensure consistency and for the employer to retain control over some of the important aspects of the job.

Misclassification:

Both the Employment Standards Act, 2000, and the Canada Labour Code prohibit the misclassification of employees for provincially and federally regulated employees, respectively.

If a contractor claims to be an employee, then the onus is on the business to prove otherwise. If an employee is found to have been misclassified as a contractor, the employer will likely have to pay for unplanned damages and expenses.

Employees and contractors are taxed differently which makes the Canada Revnenue Agency particularly sensitive to this area. It is essential for the businesses to do a proactive review of their workforce and contracts to ensure their workforce is classified correctly.

In Warren v 2006515 Ontario Inc, 2005 CanLII 1757, theOntario Labour Relations Board held that the claimant was an employee of the company even though the business had classified her as a contractor, since the business had control over her activities, provided her with equipments for work, and had ultimate control to determine what product would be stocked. As a result, the claimant had essentially no opportunity for profit or risk of loss.

Conclusion

The decision to hire a employee or independent contractor is done on a case-by-case basis. Some businesses will thrive and blow past their competition by using contractors. Others may end up finding themselves being audited and failing to satisfy their clients. Making the decision to hire a contractor or an employee will ultimately depend on the business type, financial constraints, type of job, and the amount of control an employer needs to have over the particular job.

Contact Us for Help

If you are an business who needs advice or would like an agreement drafted or updated, or a contractor or employee seeking to clarify your rights or have your agreement reviewed, our team of experienced employment and human rights lawyers are happy to help. Contact us at 1 (800) 771-7882, or email [email protected] and we would be happy to assist.

If you are a small or medium-sized company looking for full-service support, visit our CLO program page for our strategic solutions.

*******************

Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].