2018-03-07 13:44:32 Accounting News English Learn how Ontario Bill 148 imposes the burden of proof on employers to show an independent contractor is not an employee, how either party... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/Bike_Courier_Works_As_An_Independent_Contractor.jpg Accounting Tip: Amended Ontario ESA and LRA Places Burden on Employers to Prove Worker Is Independent Contractor

Accounting Tip: Amended Ontario ESA and LRA Places Burden on Employers to Prove Worker Is Independent Contractor

1 min read

The Ontario government wasn’t joking in January 2017 when it proposed sweeping changes to the province’s labour laws and told employers to start budgeting. Workers got some early Christmas presents when the proposed amendments became law in November. Among the revisions are an increase in the minimum wage from $11 to $14 per hour, an increase in mandatory paid vacation time from two to three weeks, and extensions for family leave and deaths in the family.

The revised laws also change the ways of settling disputes over whether a worker is an employee or an independent contractor. Under the amended statutes, the burden of proof now falls on the employer to prove a worker is an independent contractor and not an employee.

Even though most misclassifications are accidental, employers have an incentive to frame relationships with some workers as independent contractors. Canadian laws require them to pay employees wages along with sick time, holiday, and vacation pay. They must also pay a portion of the employee’s Canadian Pension Plan and Employment Insurance premiums. Employers have no obligation to pay these costs for independent contractors.

Penalties

Employers that classify workers as independent contractors must pay:

  • All back wages, vacation, and medical leave time
  • Both the employee’s and employer’s share of Canadian Pension Plan contributions and Employment Insurance premiums
  • Interest, taxes, and penalties

Another portion of the revisions makes employers that misclassify employees as independent contractors subject to criminal prosecution.

Classification Rulings

If a worker’s classification is unclear or in dispute, either party can request a classification ruling from the Canada Revenue Agency. The CRA tries to determine each party’s intentions but makes a determination based on the conditions as they actually exist. Some of the things considered include:

  • The degree of control the employer exercises over the worker and whether the worker is free to hire subcontractors
  • Ownership of the tools and equipment used to perform the work
  • Whether the worker has a risk of profit or loss
  • How the worker is integrated into the employer’s system and whether the worker performs work for other employers

The CRA also provides a free publication entitled “CRA Publication RC4110 – Employee or Self-Employed?“ that describes the guidelines for deciding if a worker is actually self-employed or an employee, and how parties can request an appeal if they disagree with a ruling.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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