Employers across the country are increasingly choosing subcontractors and/or self-employed specialists to fulfill the fluid nature of their business needs. From IT specialists and software designers to trades people and marketing consultants, there are a growing number of individuals who are employed on a per-contract basis.
Employers like to hire independent contractors for a number of reasons; hiring a contractor means a lot less investment on the part of the business to utilize staff to interview, hire and train. Additionally, those working on a defined contract basis do not require benefit packages or pensions and pay their own CPP/QPP contributions. Finally, employers of independent contractors don’t have to withhold income tax or pay a share of CPP/QPP or EI and are often free from liability to third-parties.
The Canada Revenue Agency (CRA) currently uses a four point test to define whether a person is a contractor or an employee. RC4110 sets out a method that should, in most cases, allow the employer and workers to determine the nature of their relationship; the four key points are: control, ownership of tools, chance of profit/risk of loss, and integration.
While this may have served employers well in the past for clarifying the relationship between employer and contractor, there is an increasing concern among employers that the four points do not adequately address the shifting nature of the work environment, particularly with respect to the “ownership of tools” and “integration” components vis a vis technology and the internet. Actual employees are telecommuting more frequently with the changing business landscape and thus “integration” is no longer a defining factor.
With respect to the issue of ownership, the threshold for determining whether a person is a contractor or employee has traditionally been limited to anyone who provides their own tools to complete a project.
However, in this modern age of online activity, a growing number of employers are cognizant of the need to ensure that their networks remain secure (both intranet and internet) so that data, research and system operations remain inoculated from viruses, espionage , criminal and terrorist activity. As such, many firms are requiring that contractors forgo using their personal devices in favour of company hardware
(laptops, desktops, tablets) to complete contract projects.
Additionally, companies have specialized tools and licenses that contractors may not be able to afford or have access to. For example, certain software applications may be required by the company but the contractor may not have “ownership” of these tools simply because they cannot purchase them. It is not feasible that contractors would have “ownership” of all potential tools and software that may be required to complete each contract position.
As for the issue of integration, the concept has typically been decided through the prism of whether any of the worker’s activities are integrated into the commercial activities of the employer. Unfortunately, exactly how one would determine such integration is not laid out and RC4110 seems to treat this point as a summary category calling for a review of the other three.
That the federal government:
1. Review the current four point test that the CRA uses and consider the influence of technology and the online environment as it relates to changing business needs by December 2012, and;
2. Immediately convene a parliamentary committee to meet with employer groups to assess the necessity of updating each concept – with particular emphasis on “tools” and “integration” aspects.
Submitted by the Greater Sudbury Chamber of Commerce