If you require additional help to operate your business, you may have questioned whether to hire on employees or contractors and what the benefits of each are. Below we have included some information on what the responsibilities of the business are when hiring on an employee versus hiring on a contractor.
- The relationship is an employer-employee relationship in which the employee is a subordinate
- Provide an adequate employment contract stating the terms, pay, policy, reviews etc.
- The employer then controls schedules, tasks, workplace etc.
- The employer must pay and remit CPP, EI and Income tax (CPP employee portion, EI employee portion and Income tax come off the employee’s paycheque, however there is an employer portion of CPP and EI that the employer must pay) – typically would run this through a payroll system
- Employer would provide equipment etc.
- Employer must abide by employment laws (breaks, scheduling, holiday pay etc.)
- Employer and/or employee must provide adequate notice when terminating employment
- Must provide/file ROEs and T4s
- The relationship is a business-business, contractor works independently
- Provide an adequate contract stating the terms, duration, pay etc. of their work
- The contractor controls schedules, tasks, workplace etc.
- No withholding tax responsibilities (CPP, EI, Income tax)
- Contractors would provide invoices to payer for work done and payer would pay that amount however is agreed upon
- Some contractors may charge GST/HST, in which the payer could claim ITCS
- Contractors typically are responsible for own equipment & operating expenses
- Contractor and/or payer can terminate the contract at any point without notice
- In some cases, can provide/file a T4A
The most important piece of hiring a contractor or employee is establishing the boundaries of the relationship. Maintain consistency and know your obligations to avoid any rulings from CRA. At Jibe Accounting we handle many businesses that have hire on employees or contractors or both. We can help with the bookkeeping, T slips and your T2 Corporate Tax filing to ensure these situations are handled properly.