Human Resources 101

Another of the regular questions I get deals with the distinction between an employee and an independent contractor. As with so much in the Human Resources’ field, there’s not a simple black and white answer. Here are some of the tests which are commonly applied to make a determination.

N.B., this is my understanding, from a Canadian perspective. As always, when in doubt, get legal advice.

Control Test

Does the worker or the employer outline what is to be done and how it is done? If the employer has this control, it will be deemed an employer-employee relationship.

This was once considered a conclusive test, but is no longer. In many cases, because of the nature the work, it is difficult or impossible for an employer to exercise any control over the manner in which work is performed. This is specifically true in connection with professionals and highly-skilled trades people, as employers generally lack the expertise required to direct the activities of these workers. However, this would not necessarily mean the worker is an independent contractor.

Integration or Organization Test (The “Duck” Test)

This test examines whether an individual is part and parcel of an organization by considering:

• the relationship of the work performed to the overall business;
• how the worker is presented to the public;
• how standard organization policies are applied to the individual;
• the percentage of the individual’s total income provided by the employer.

If the worker is dependent upon the employer, is presented as part of the organization, is governed by organizational policies and practices, and performs work that is critical to overall organizational effectiveness; the individual will be viewed as an employee.

In other words, if it walks like a duck and sounds like a duck, it’s a duck.

Economic Reality Test

This test focuses on the following dimensions of the relationship:

• control
• ownership of tools
• chance of profit
• risk of loss

In cases where the worker supplies no funds, takes no financial risks, and has no liability, the worker will be deemed an employee.

Specific Rule Test

• Is the worker providing their services for a specific purpose with a specific result in mind? Example: contracted to negotiate a collective agreement
• Is there time-specific completion of the work time specific or is it ongoing?
• Is the worker contracted for a specific project?

If the work contracted is specific in nature and short term the worker will likely be deemed an independent contractor.

Relevance of the Decision

Why is it important to make sure you’ve placed the worker in the correct category?

• Employers are responsible to make source deductions for employees but are not responsible for making them for independent contractors.
• Failure to make required source deductions for employees can result in significant fines.
• Employers are responsible for meeting Employment Standards legislation for employees whereas applicability is limited with a contractor.