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In the Canadian workforce, there are two types of workers: employees and contractors (also commonly referred to as independent contractors). Often, businesses use a combination of both employees and contractors to accomplish their goals. But – what exactly is the difference?
In short, an employee has more restrictions but is reliably compensated. On the other hand, a contractor is free to work how they’d like, but bears financial risk. Neither option is superior, it all depends on how you prefer to work, what skills you can provide and what opportunities are available to you. To explore more about employee and contractor divergences, keep reading.
You have likely heard of both employees and contractors but may not know the technicalities. The two worker categories are mutually exclusive meaning you cannot be both at the same time with the same employer. In addition, they have practical differences that impact both the worker and the business. Let’s explore these differences in depth below.
Getting approved for a loan as a contractor isn’t impossible, click here to learn more.
The fact of the matter is, being an employee isn’t better than being a contractor and being a contractor isn’t better than being an employee. Determining to be an employee or a contractor is entirely a personal choice based on corresponding advantages and disadvantages. To understand which would suit you better, consider the pros and cons below.
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In general, businesses prefer contractors over employees because there is less work and responsibility involved. When a business has employees, they need to abide by employment laws, keep adequate records, provide tools or equipment for the job, train employees, the list goes on. As you can imagine, this is a lot of work which most businesses would prefer to avoid if they can.
Because there is a clear motive for businesses to favour contractors over employees, it’s important to remain vigilant as a worker. Businesses sometimes take advantage of contractors by providing them with the work of an employee, but compensating them or classifying them as a contractor. It’s in the business’ best interests to do so, but not in yours.
Are you self-employed? These are the tax issues you should be aware of, click here.
Knowing whether you’re an employee or a contractor can be difficult as there are a lot of grey areas in the world of work. There are some simple ways to determine your employment status, for example checking your pay statement for income taxes or evaluating the restrictions on the work you perform. If you still can’t figure out if you’re an employee or a contractor, consider the following criteria below used by courts in Canada in relation to the matter.
As mentioned, both worker types have their pros and cons, so why does it matter how you’re classified? The biggest reason it matters is related to Canadian income tax. Employees and contractors are taxed differently which makes the CRA particularly sensitive to this area. Employers are responsible for classifying their workers properly and so are the workers which is why it’s important to make the distinction.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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