Employee Versus Contractor: Part 2
Part 2: How is it Different for the Worker?
In this entry of our series on exploring the difference between employees and contractors, we are going to explore some of differences that the worker experiences. The simplest way to do this is to compare the two of them side by side:
|At the end of the year, receives a T4 with all the relevant information on it||The worker may receive a T4A or a T5013 (depending on the working relationship). With or without, everything needs to be tracked with bookkeeping then reported in detail on the personal tax return|
|Taxes, CPP and EI are withheld from each paycheque. This sometimes means that there are no taxes owing each year (or even a small refund)||The worker is responsible for paying all taxes and remittances, based on their own deadlines and reporting requirements|
|If a corporation is working as though it were an employee, it becomes a Personal Services Business (we discuss this in Part 4)||Can be a corporation, typically without any negative side effects|
|Protected by the rules, laws and regulations laid out in provincial labour laws regarding payment and other terms (like vacation pay or termination)||The relationship is governed solely by the contract, which often sets out certain terms including cancellation clauses|
|Often entitled to vacation pay, overtime, statutory holidays, etc||Only benefits specified in the contract will be provided|
|Expenses are only deductible for tax purposes if the employer required the employee to make the purchase, and if it meets certain criteria||As a business owner, most any reasonable expense that was made with the intention to earn additional business income is deductible, even if the results didn’t come (such as advertising)|
|Some expenses – even if mandatory – cannot be claimed or are restricted (such as internet costs for a home office)||As above, if a reasonable expense helped earn additional business income, then it (or a portion of it) may be deductible, with very few restrictions compare to an employee|
|If employment is lost, may be entitled to collect Employment Insurance benefits||If work is lost (or no new work can be found), they do not qualify for Employment Insurance. Certain EI programs are available, but only with an irrevocable opt-in|
A quick review shows that employees receive significant additional benefits, from vacation pay to EI to labour law protection. These benefits often come at the cost of freedom – employees usually have less freedom than a contractor in a variety of ways. Remember that what you are is not choice – it is based on the facts of the situation (as we covered in Part 1). That doesn’t stop people from trying to go against the facts though.
Why would someone who is an employee want to be assessed as a contractor?
- Perhaps the worker believes that by becoming a contractor they can earn additional income since their employer won’t need to pay employer portions of CPP or EI remittances
- They can also deduct more of their expenses related to work, and don’t need their employer to sigh off on them (via a form T2200 normally)
Why would someone who is a contractor want to be assessed as an employee?
- Often, the biggest on here is Employment Insurance. In addition to the typical EI coverage, this program also has additional benefits that can be obtained, such as maternity benefits
- It is much easier to do record keeping as an employee, so the worker may not want to spend any time doing books and would rather be an employee, so they just get a T4