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Are you an Employee or Independent Contractor

A recent presentation to the SKGABC by the Rulings Division of the Federal Government's Canada Revenue Agency indicated that in almost all circumstances, guides are employees.

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Summary of the results of our meeting in late June 2005 with the Manager of Revenue Collections from the Vancouver Island Tax Services Office and three of his Rulings Officers from Canada Customs and Revenue Agency (CCRA) to get a ruling on whether a guide is considered by the Federal Government to be an employee or independent contractor.

A printable PDF version is available here.

According to CCRA, in almost every circumstance, a guide is considered to be an employee and the employer must make source deductions. This applies to every sea kayak guide in Canada. The clear exemption is if the guide is billing through their corporation - then they are considered an independent contractor.

The SKGABC was told by CCRA that while they deem that all guides to be employees, the only way to determine this is if a guide or a company calls CCRA and ask for a ruling.

CCRA suggested that all guides who do not receive vacation pay or have source deductions made on their behalf should call their office for a ruling. Guides can request a ruling before June 30th of the year following the year to which the question relates. The ruling can go back 2 years from their last date of employment. If the government deems that a guide was an employee, the company must pay the CPP, EI and Vacation Pay of the employee for up to 2 years. The employee will have CPP, EI paid by their employer retroactively. An employee will likely also receive a cheque for accumulated vacation pay. The company will likely face penalties and interest as well. Companies who knowingly or unknowingly paid their guides as independent contractors face what's called an unfunded liability.

If a company cannot make their obligations to pay restitution to their employees and to CCRA, the company cannot simply go bankrupt. Directors of the company are personally liable for outstanding employment contributions. According to the CCRA, violation of employment law is taken very seriously by the Federal Government.

To ask for a ruling, simply call: Rulings (250) 363-0367 or Richard Soderquist, Manager, Revenue Collections, Vancouver Island Tax Services Office at (250) 363-3676. If you'd like to speak with someone in the Office of the Minister of National Revenue, call Germain Ouellette at (613) 995-2960.

Background:

It came up at the Fall 2004 Guides Exchange that one of the fundamental questions for professional sea kayak guides in British Columbia is whether they should be paid as an employee or as an independent contractors when they work for a sea kayaking company. To answer this question and to respond to the needs of our members, the SKGABC Executive contacted the Federal Government's Office of the Minister of National Revenue in Ottawa to help our members clarify this question. Germain Ouellette from the Minister's Office put us in contact with Richard Soderquist, the Manager of Revenue Collections at the Vancouver Island Tax Services Office. Mr Soderquist and 3 of his staff met with the SKGABC in Port Alberni in late June to help members understand the government's interpretation of employee vs independent contractor.

The result of this meeting was clear: in almost every circumstance, guides are considered by the Government of Canada to be employees, not independent contractors. The only clear cut way in which a guide is considered to be an independent contractor is if the guide issuing the invoice has a corporation and is billing through their corporation.

Even if a guide only works for a week, the Government of Canada considers this to be employment, not casual labour.

Mr. Soderquist and his staff made it clear that even though it is highly likely that guides are employees, the only way to ensure that the employer/employee relationship is established is to ask for a ruling from the Federal Government Vancouver Island Tax Services. An employer or and employee can contact their office and ask for a ruling. The ruling is binding and supersedes any legal contract that is currently in place which attempts to define the work relationship.

According to the Canada Revenue Agency, the primary benefits of being an employee are substantial:

1. The employer is responsible for submitting tax your behalf - including a record of employment and a T4 at tax time. This simplifies most peoples' tax situation.


2. The employer submits CPP and EI on your behalf - if you qualify, you can claim EI benefits when your work is completed at the end of the season while you transition to your winter work.


3. The employer has to pay Vacation Pay.

There are supplementary benefits to being paid as an employee:

1. Most liability insurance documents for companies include that employees are covered under their insurance. Independent contractors typically are not covered. Insurance companies try to limit risk and most are reticent to cover the risk of subcontractors whom they have not vetted. This is not to say that a company can't bind insurance to a subcontractor/independent contractor - they can. In order to do so they must specifically name the independent contractor in their insurance documents.

If you are working as an independent contractor and have an accident that results in a lawsuit, if you are not named under the owners' insurance, you will likely be sued and will have to hire a lawyer to represent your interests. If you are found negligent without insurance, you will be in an awkward position.

2. All employers have to pay WCB premiums for their employees. As an employee, you will be covered by your employer's WCB insurance.

3. As an employee, you cannot have deductions made from your pay if you damage or lose gear.

4. If you are working for a company in a geographic area that the company does not have a valid permit for, it will be the company that has to deal with the authorities, not you as an independent contractor.

The bottom line is that you have to figure out your relationship with the company that your work for yourself. If you choose to work as an independent contractor, ensure that you contact a lawyer, accountant and an insurance broker to help you understand your legal and financial obligations. Ignorance will definitely not be an acceptable line of defense if you have to deal with any Federal or Provincial agency that has a financial interest in the business of commercial sea kayaking in Canada.

The SKGABC is presenting this information for our members as a result of our meetings and conversations with the CCRA. The SKGABC is not the agency to contact if you have any specific employee vs independent contractor questions. If you have any questions regarding this matter, please refer them to the CCRA

Employee or Self-Employed?

Presentation to Sea Kayak Guides Alliance of BC
by the Canadian Revenue Agency - June 2005

The Courts

Over time, the Courts have established principles on how to determine a worker's employment status. These principles were reconfirmed by the Supreme Court of Canada in the 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. decision.

The Canada Revenue Agency applies these principles when determining a worker's employment status.


The Principles

When determining the employment status of a worker, we apply the factors established by the Courts. The central question we address is as follows: Is the person who is engaged to perform the services performing them as a person in business on his/her own account or as an employee? In making this determination, the following factors are considered:

  • The level of control the payer has over the worker's activities.
  • Whether the worker provides his/her own equipment.
  • Whether the worker could subcontract the work or hire assistants.
  • The degree of financial risk taken by the worker.
  • The degree of responsibility for investment and management held by the worker.
  • The worker's opportunity for profit in the performance of his/her tasks.
  • Any other relevant factors (contract, intention of the parties, etc.)

It is the combination of all the relevant factors, considered together and weighted, that enables one to determine the employment status of a worker.

The CRA has no preference as to whether workers are employees or self-employed; the workers/payors can set up their working relationship as they see fit. However, they must ensure that the terms and conditions of their relationship are reflective of the status they have chosen.


The level of control the payor has over the worker's activities
Some points that are considered:

  • Who determines what and how work will be performed?
  • Is the worker told what equipment, tools and supplies to use?
  • Who establishes priorities and deadlines?
  • Does the payor give training or instructions to the worker?
  • Does the worker need the payor's approval to do things?
  • Who has the final say over how things are done?
  • Can the payor discipline the worker?
  • Who determines the amount of pay?
  • Can the worker refuse work?
  • Are the terms and conditions of the contract negotiated?


Whether or not the worker provides his or her own equipment
Some points that are considered:

  • What tools and equipment are required?
  • Who provides the tools and equipment?
  • Who pays for repairs and maintenance of the equipment?


Whether or not the worker could subcontract the work or hire assistants
Some points that are considered:

  • Can the worker choose and hire a substitute?
  • Can the worker choose and hire a helper?
  • Who pays for the helpers?


The degree of financial risk taken by the worker
Some points that are considered:

  • Are expenses incurred? Are they reimbursed?
  • Does the worker have expenses that are substantial enough so as to incur a loss?
  • Does the worker have expenses related to the running of a business?
  • Is the worker liable for negligence or inappropriate actions in the course of his work?
  • Can the worker negotiate his salary with the payor?


The degree of responsibility for investment and management held by the worker
Some points that are considered:

  • What capital investment does the worker have?
  • Does the worker maintain a workspace?
  • What kind of assets (related to the work) does the worker have?
  • Does the worker manage anyone?
  • Is the worker free to make decisions that affect his/her profit or loss?
  • Does the worker have a business presence?


The worker's opportunity for profit in the performance of his/her tasks
Some points that are considered:

  • Is the worker able to hire another person to perform the work at a lesser rate, thereby gaining a profit from the difference?
  • Can the worker negotiate with the payor in order to obtain a higher payment or additional benefits?
  • Is there a guarantee of work?
  • Is the worker responsible for liabilities resulting from the employment contract (ie. Health and safety issues, third party liabilities)?


Other relevant factors
Some points that are considered:

  • Intention of parties
  • Contracts


Need more information?

CRA has a website with additional information about rulings.

The link is as follows:
http://www.cra-arc.gc.ca/tax/home/cppeiexplain-e.html

You can always request an official ruling if you are not sure of the nature of an employment status.

To ask for a ruling, simply call: Rulings (250) 363-0367 or Richard Soderquist, Manager, Revenue Collections, Vancouver Island Tax Services Office at (250) 363-3676. If you'd like to speak with someone in the Office of the Minister of National Revenue, call Germain Ouellette at (613) 995-2960.

 


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The Sea Kayak Guides Alliance of B.C. operates in the traditional territories of the Coast Salish, Kwakwaka'wakw,
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