Worker's employment status
What you need to consider to determine a worker's employment status
To determine if a worker is an employee or a self-employed individual, examine the relationship between the worker and the payer by considering the factors included below. This determination will help you with WSIB and payroll accounting.
To help you make a determination, we give an explanation for each factor and show some indicators that the worker may be an employee or a self-employed individual. The importance of each factor depends on the circumstances of each situation. All factors must be considered in the context of the relationship as a whole.
Control is the ability, authority, or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done.
Degree of control or autonomy
Consider the degree of control held by the payer or the degree of autonomy held by the worker. The actual degree of control will vary with the type of work and the skills of the worker.
The determination of the degree of control can be difficult when examining the employment of professionals such as engineers, doctors and IT consultants, because of their expertise and specialized training, they may require little or no specific direction in their daily activities.
When examining the factor of control, it is necessary to focus on both the payer's control over the worker's daily activities, and the payer's influence over the worker.
Payer's right to exercise control
It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right. It is the control of a payer over a worker that is relevant, and not the control of a payer over the end result of a product or service that he or she has purchased.
Subcontracting or hiring assistants
Consider if the worker can subcontract work or hire assistants. This factor can help determine a worker's business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss.
Responsibility for investment and management
Consider the degree of responsibility for investment and management held by the worker. Is the worker required to make any investment in order to provide the services? A significant investment is evidence that a business relationship may exist. You should also consider if the worker is free to make business decisions that affect his or her profit or loss.
Tools and equipment
Consider if the worker owns and provides tools and equipment to accomplish the work. Contractual control of, and responsibility for, an asset in a rental or lease situation is also considered under this factor.
What is relevant is the significance of the investment in the tools and equipment along with the cost of replacement, repair, and insurance. A worker who has made this significant investment is likely to retain a right over the use of these assets, diminishing the payer's control over how the work is performed. In addition, a significant investment in tools and equipment and the maintenance and replacement costs associated with these assets may place the worker at the risk of a loss.
Items considered as tools and equipment can vary widely in terms of value and can include everything from wrenches and hammers, to costumes, appliances, stethoscopes, musical instruments, computers, and vehicles such as trucks and tractors.
Self-employed individuals often supply the tools and equipment required to complete a contract. As a result, the ownership of tools and equipment by a worker is more commonly associated with a business relationship. However, employees can also be required to provide their own tools. The courts have acknowledged that a worker being required to provide his or her tools of the trade does not, by itself, place that worker in the status of a self-employed individual. For example, many skilled trades people, such as auto mechanics, are required to supply their own tools, even if they are full-time employees.
Consider the degree of financial risk taken by the worker. To do this, determine if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed. Usually, employees will not have any financial risk as their expenses will be reimbursed, and they will not have fixed ongoing costs. However, self-employed individuals can have financial risk and incur losses because they usually pay fixed monthly costs whether or not work is currently being performed.
Employees and self-employed individuals may be reimbursed for business or travel expenses. Consider only the expenses that are not reimbursed by the payer.
Opportunity for profit
Consider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. To have a chance of a profit and a risk of a loss, a worker must have potential proceeds and expenses, and one could exceed the other.
Employees normally do not have the chance of a profit and risk of a loss even though their remuneration can vary depending on the terms of their employment contracts. For example, employees working on a commission or piece rate basis, or employees with a productivity bonus clause in their contract can increase their earnings based on their productivity. This increase in income is not normally viewed as a profit, as it is not the excess of proceeds over expenses.
Employees may have expenses directly related to their employment, such as automobile expenses, board and lodging costs. Normally, expenses would not place employees at risk of incurring a loss because it is unlikely that the expenses would be in excess of their remuneration.
Self-employed individuals normally have the chance of profit or risk of loss, because they have the ability to pursue and accept contracts as they see fit. They can negotiate the price (or unilaterally set their prices) for their services and have the right to offer those services to more than one payer. Self-employed individuals will normally incur expenses to carry out the terms and conditions of their contracts, and to manage those expenses to maximize net earnings. Self-employed individuals can increase their proceeds and/or decrease their expenses in an effort to increase profit.
This factor must be considered from the worker's perspective, not the payer's. It is, for the most part, an assessment of the degree to which the worker can control his or her proceeds and expenses. Employees generally do not share in profits or suffer the losses incurred by the business.
The method of payment may help to determine if the worker has the opportunity to make a profit or incur a loss. In an employer-employee relationship, the worker is normally guaranteed a return for the work done and is usually paid on an hourly, daily, weekly, or similar basis. However, some self-employed individuals may be paid on an hourly basis. When a worker is paid a flat rate for the work performed, it generally indicates a business relationship, especially if the worker incurs expenses for performing the services.
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