Independent Contractors or Employees? New legislation has something to say about that
In Ontario, Bill 88: Working for Workers Act has introduced new changes to the criteria for who is covered under the Employment Standards Act (ESA) and who is not. As of January 1, 2023, the ESA now applies to certain business and IT consultants, which would categorize them as a traditional employee rather than an Independent Contractor.
The business or IT consultant must meet all of the following criteria to be classified as an Independent Contractor:
Provide services through a company where they are an owner, director, or shareholder (includes corporations and sole proprietors);
Have a legal agreement for services that sets out when the consultant will be paid and the amount they will be paid as an hourly rate that must be greater than $60 per hour (excluding bonuses, commissions, expenses and travelling allowances and benefits); and
Be paid the amount set out in the agreement for services.
Follow this link to the ESA for a more detailed definition of a business or IT consultant: https://www.ontario.ca/document/your-guide-employment-standards-act-0/
These new changes are now in place
If any of the following statements do not align with your current contractor relationship, you may need to update your Independent Contractor Agreement.
You do not pay statutory deductions on the individuals’ behalf, such as Employment Insurance (EI), WSIB, or Canada Pension Plan (CPP);
You do not have to collect and pay income taxes on this in individuals’ behalf;
This individual is not integrated into the company culture – for example they do not wear company uniforms;
This individual typically works offsite and uses their own tools and equipment;
This individual can work for more than one company at a time;
This individual sets their own hours;
This individual does not participate in performance reviews similarly to traditional employees.
Common Exceptions: Barbers and Hairstylists
Much like the new changes around business and IT consultants, there are other unique rules that apply in certain Independent Contractor relationships as set out by the Canada Revenue Agency based upon the type of profession or vocation and a business’ established industry. For example, did you know that even if an individual performing as a Barber or Hairstylist rents a chair or has an agreement for services as an Independent Contractor, the business they serve is still responsible to collect and submit both employee and employer contributions for Employment Insurance (EI) and the Canada Pension Plan (CPP)?
Employers must be aware of new changes involving business and IT consultants, as well as demonstrate a clear understanding of the distinctions between a traditional employee and an Independent Contractor to avoid any misclassification or liabilities under Ontario’s ESA.
Do you need to refresh your employment contracts or Independent Contractor Agreements? Your HR business partner, or services like our 4-Hour Monthly HR Advice Package, can help you navigate your determination between employees and Independent Contractors and apply it to your unique organization and jurisdiction.
For professional HR advice that you can trust, contact us today!
Lisa Isaac HR Professional Services
From the LIHR team and lead collaborator, Rebecca Wilkinson, HR Consultant