Operating as an independent contractor in Canada involves the same amount of business savvy and personal commitment as anywhere else in the world.
As a contractor, you owe it to yourself to manage responsibilities, such as contractual obligations, income taxes, acquiring your own tools, and the monitoring of your own payment schedule and finances.
While these responsibilities are fairly standard for contractors across the globe, there are certain region-specific signifiers one must take on when looking to operate as a successful contractor in Canada.
However, before starting your path to success as a Canadian contractor, there is a little bit of homework to take into account in order to identify what separates you from other members of the Canadian workforce.
Luckily, we here at Borderless are here to help.
In this article, we’ll take a look at the differences between traditional employee and employer working relationships in Canada, and specifically, how they differ from the kind of standard contractors abide by.
Independent Contractors vs. Standard Employees
Like many countries, Canadian employee standards differ whether the employee in question is a full-time team member, part-time worker, freelancer or contractor. In terms of Canadian employee regulations, it’s crucial you know the difference and understand the dynamic of the employment relationship, regardless if you are a potential employer or prospective employee.
Luckily, much like the internal revenue service (IRS) in the US, the Canada Revenue Agency (CRA) has detailed the key differences in employment statuses nationwide.
To help break it down, we are going to go over the big differences between employees and contractors as dictated by the Canada Revenue Agency. This will assist independent contractors in Canada or organizations looking to incorporate their services, get a better understanding of how contractors operate in the expansive ecosystem that is the Canadian workforce.
Employees
For any Canadian contractor — or business looking to implement their skills — It’s important to know the fundamental building blocks that make up a traditional registered employee before we dive into the inner workings of how contractors tick. Specifically, how they operate in terms of workplace implementation and execution.
- Here are a few examples: Work for one specific company or a specific client.
- The company, client, or client has direct control over how the employee conducts their work.
- Workplace tools, equipment and resources are supplied to the employee directly by the company or client. Any maintenance or replenishment of these materials is strictly covered by the company or client.
- Any workplace equipment or resources can be redistributed or recalled by the company or client.
- Workplace equipment and resources may also be supplied by the employee, however, this does not grant them contractor status.
- Employees must complete the work assigned to them by their paying company or client and cannot outsource any work-related duties unless given the green light by their employer.
- In the event of an out-of-pocket expense, the company or client will reimburse the employee directly. This is one of the major perks of traditional employment that benefits employees.
- Employees are not responsible for operating any financial or expense-related obligations.
- Employees are not financially responsible in the event of non-fulfilment as dedicated by their contract.
- The relationship between an employee and their paying client is assumed to be perpetual unless dictated otherwise.
- Traditional employees are not relieved of duties upon task completion.
- Employees are entitled to benefits, regular pension plans and medical and dental insurance.
If any of the above-listed materials apply to you in relation to prospective employment, you are likely looking into working as a full-time employee and not a contractor.
Contractors
- A self employed worker shares a lot of DNA with traditional employees, especially when it comes to the completion of delegated duties. However, a Canada independent contractor functions as an independent free agent who is not as tied down to employers in the same way as full-time employees. Even with these differences in implementation, their commitment to professionalism never suffers as a result of their contractor status. Traditionally, you may hear contractors be referred to as ‘self-employed’ or ‘freelance’ individuals, and while both of these descriptors are correct, in this report we’ll be directly designating this kind of worker as a ‘contractor’ as that is the more commonly used descriptor in international commerce. ’ So how does an independent contractor function in Canada? An independent contractor can work for many clients at the same time, with no risk of penalty or risk to job security.
- In terms of client control, Canadian independent contractors are not under any sort of obligation to complete work in a detailed timeframe as dictated by the client. Work duties operate on deadline, but a client cannot direct the contractor on daily work hours.
- In terms of tools, supplies or resources, independent Canadian contractors typically use their own. Contractors are also responsible for any potential costs surrounding repairs should any damages incur.
- Contractual obligations surrounding a lease or rental for equipment or property are monitored by the Canadian contractor.
- Canadian independent contractors do not have to carry out any assigned work themselves, as they can call upon an outside party to complete any assigned tasks if they desire.
- The client has no say in dictating what kind of outside help a contractor may seek.
- The degree of financial risk for contractors is greater than for traditional employees.
- Contractors can have either fixed operations costs or adjust rates depending on the task dictated by the client.
- The employer employee relationship between a Canadian independent contractor and a client usually concludes upon task completion or when the contract ends.
- Independent Canadian contractors are not entitled to benefits or employment insurance. They do need to manage their own income tax and are responsible for securing their own legal or tax advice.
Hiring a Contractor
Now that we know the crucial differences between regular employees and contractors in Canada, it’s time to look into the process of bringing one on. If you are an employer who is looking to staff a certain project (or a whole team) with Canadian contractors, it’s best to know the details of that process.
Here is a step-by-step breakdown of how to engage a contractor when looking to bring them on for a project.
Layout Your Project
When engaging a contractor, outline your project or assignment’s scope, goals, and budget to establish a preferred timeline for completion.
Research
Ask associates about potential Employers of Record (EOR) or known quality contractors. EORs are a great tool that can help you manage contractors who may not be operating in your specific region but are still located in Canada and fit your job criteria.
Verify Licensing
Ensure the contractor is licensed to work in your province or territory. Verify that they have liability insurance and workers' compensation coverage. Additionally, an EOR can function as the legal entity to pay your contractor, which will help ensure legal compliance.
References
Request references from the contractor and contact past clients to inquire about their experience. This is normally done during the interview process and can include requests for samples of past work as well.
Interview
Meet with potential contractors and discuss your project in detail. Don’t forget to ask questions about their experience, qualifications and how they would approach the kind of work you are offering.
Contract Review
Once you've selected a contractor, review the contract thoroughly and make sure it includes project details, timelines, costs and payment schedule. Additionally, both you and the contractor should clarify any concerns or questions before signing.
Payment
Make sure you and the contractor have gone over payment details as well as payment delivery. Matters surrounding contractor payment should be airtight once the contract is signed and work has begun
Benefits of Hiring a Contractor in Canada
When it comes to the positives of hiring independent Canadian contractors, there are almost too many. Contractors in Canada are helping numerous businesses, both big and small, grow at an exponential rate while simultaneously diversifying workplace duties with expert input and dynamic idea generation.
Some of the clear upsides to hiring an independent contractor in Canada include:
Cost-Effectiveness
Contractors often have diminished overhead costs than traditional employees which makes their services cost-effective. The ideal rhythm of contractor work is on a project-by-project basis, which eliminates the need for long-term employment commitments.
Specialized Workers
Independent contractors often display expertise in specific areas, and as a prospective employer, you can find contractors with the exact qualifications and experience needed for your project. This guarantees you an efficient team member and a worker who is specialized for the task at hand.
Flexibility
Independent contractors are usually more flexible in terms of assignment deadlines and arrangements concerning workloads. They can adapt to your project's needs and often work outside regular office hours to meet deadlines.
Reduced Administrative Stress
By bringing on an independent contractor you can minimize administrative tasks associated with hiring and managing employees. You don't have to worry about payroll, taxes, or providing office space. An Employer of Record can function as an administrative extension for any of your contract-based staff.
No Training
Independent contractors operate as self-starters and require minimal training, if any. They can quickly integrate into your project and start delivering results.
Access to a Vast Talent Pool
Canadian contractors often work remotely, which allows you to tap into a diverse pool of talent from different provinces across the country. This can be particularly advantageous for projects requiring specific skills or languages.
Scalability
You can easily scale your workforce up or down as needed when working with independent contractors. This flexibility is especially valuable for businesses with fluctuating workloads.
Faster Project Implementation
Independent contractors can often start working on your project immediately, without the delays associated with traditional hiring processes, this means you can see a substantial boost in project completion when bringing on contract workers.
Commitment
Contract agreements are typically short-term, which gives you the freedom to employ different experts for different projects. This minimizes long-term commitments and obligations and frees you up to engage in other workplace duties.
Focus on Core Operations
When you outsource tasks or projects to contractors, you can focus on your core business activities and strategic goals, thus increasing overall efficiency.
Diverse Perspectives
Contractors bring a fresh perspective to your projects, potentially offering innovative solutions and ideas.
Competitive Advantage
Leveraging specialized independent contractors can give you a competitive edge, without the costs and complications of hiring full-time employees.
Reduced Risk
Since contractors are not traditional employees, you have less risk in terms of labor regulations, employee disputes, and severance costs. A third-party service, like an Employer of Record, can function as your administrator.
Improved Time Management
Contractors can help you manage your workload more effectively, allowing you to concentrate on high-priority tasks.
Results
Independent Canadian contractors are often highly motivated to produce quality results, as their reputation and future work opportunities depend on client satisfaction.
EORs and Contractors
An Employer of Record is a third-party service that functions as an administrative extension for your business. As a business looking to hire independent Canadian contractors, an EOR can facilitate HR requirements, payroll duties and ensure legal compliance.
Employers of Record are purpose-built to help businesses utilize contractors to the fullest extent. An EOR service can help a business hire a contractor and organize its hiring materials, payroll information and additional administrative requirements to help alleviate the stress of the hiring process.
In essence, having an EOR service in your corner will make hiring independent contractors — or operating as one — in Canada as simple as ever.
How Borderless Can Help
Borderless is here to serve your business as your go-to Employer of Record. We have an entire team dedicated to studying and executing regulatory compliance when it comes to Canadian regulations.
When looking into a new client, inquire as to whether they operate through an Employer of Record. If they do, you’re in luck, as you will have more freedom operating through the legal entity status of an EOR. EORs can ensure compliance for both you and your client, efficient payroll management and a digital platform to manage your materials.
If you are a business looking to branch out into the world of contractors or are a contractor yourself, contact our team at Borderless today!
