A current topic of conversation in the world of independent contractors (ICs) is a “focus” by Canada Revenue Agency (CRA) on determining the true independence of people operating as “independent contractors”. A couple of bad things that can happen to an IC are (a) they are deemed to be an employee; or (b) they are deemed to be on a personal services contract.
Neither is good because it is likely that, in either case, any and all tax deductions will be denied (for several years back) and if deemed an employee there will be messy fines for non-deduction of normal employee deductions etc. Not good for the independent contractor. Not good for the staffing industry. Not good for the staffing industry’s clients.
Here are a few things independent contractors should be know in order to prevent these situations:
- You need to think and operate like a business owner NOT an employee.
- You should read up on the rules that CRA uses to determine independence (pay particular attention to “control”)
- Incorporate as a company!
- You should do anything you can to differentiate yourself from the employees that you will invariably working alongside. You should NOT look, act or “feel” like an employee. Some thoughts on that:
- Pay for any training you take. It doesn’t need to be a lot of money, but pay something.
- If you go to an employee social event paid by the employer, pay something towards your attendance. It could even be a donation of a door prize.
- Try to dress just a little smarter than the average; not out of place, just always professional. Dress shirt instead of golf shirt; tie versus no-tie etc.
- Don’t keep regular “employee hours” get there a little earlier (even 15 minutes) and leave just a little later.
- Do NOT get involved in office politics.
- Have an accountant that understands the IC world. Note that they all know it to some extent, but someone who really understands it is invaluable. This person needs to ensure you are staying onside with the tax rules.
- Have a lawyer that also understands it and can ensure you are set up correctly.
- Work with (register with) several agencies. You do not want an exclusive arrangement with any one agency.
- Have your own tools. Most likely you won’t be able to use your own computer on the job for many business reasons — security, access to systems, etc. However, you can use your own tools to manage your business, your own Smart Phone to manage your schedule, bring your own supplies such as pens, stapler, etc. to the job site.
- Be a good corporate citizen and give back to the community. (It makes you look and act like a business).
- There are no rules with CRA about how long you can work at any one client. However, the longer you are on a contract the more you start to look like an employee, and the harder you will need to work to look like a business.
- If you can demonstrate obvious risk of income, it helps. Fixed price, deliverables-based contracts are one good way. You do have risk of payment because if the client doesn’t like your work in any given pay period they can choose not to pay you. As a business that is a good thing, you need to deliver good work and you will be paid.
- If you can take on multiple clients concurrently it helps. Even charitable work that is unpaid. You can do work, provide an invoice and credit the work. This might even be a tax deductible.
This is not an exhaustive list but gives you a broad picture. You do NOT want to look like an employee. If you haven’t already, it’s a good idea to get in touch with your lawyer and your accountant to make sure you’re doing everything properly. Of course, if you have any other questions, you can leave them in the comments section below and we’ll guide you in the best direction.