Talent Development Centre

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All Talent Development Centre posts for Canadian technology contractors relating to risk.

Bill 148: What Independent Contractors Need to Know

David O'Brien By David O’Brien,
Vice President, East Region & Government Services at Eagle

The Ontario Government introduced a sweeping legislation last fall regarding work and the ESA (Employment Standards Act). Many of the changes came into effect on January 1, 2018 with additional pieces that took effect April 1, 2018 and more to come on January 1, 2019.

Bill 148 covers an array of components. In addition to the headline-grabbing dramatic increase of minimum wage, there are changes to vacation entitlement, personal emergency leave, equal pay and termination of assignment pay for temporary employees, union certification rules and many others. All of these components have very significant impacts to employers and employees alike.

However, another very significant impact of Bill 148 that directly impacts independent contractors is employee misclassification. The new bill introduced a reverse onus provision whereby employers must demonstrate that any independent contractors they have engaged are not in fact employees.  Bill 148 shifts a substantial new burden of risk to employers and employment staffing agencies and will potentially have several unintended consequences as a result. As is often the case with activist governments, it is the unintended consequences of legislation that can be the most impactful.

In Ontario, it is estimated that about 12.5% of the total workforce of 5.25 million identify as self-employed, which is about 630,000 contingent workers. It is further estimated that of this group about 55,000 are knowledge workers in the IT, Engineering, Finance and Healthcare sectors, who bring significant economic impact to many of Ontario’s private and public sector organizations. The majority of these knowledge workers are independent, incorporated contractors. As the nature and notion of work transforms to a more project or engagement-based ideation, these knowledge workers are critical. With the modernization of our economy and overall productivity and competitiveness, our governments should be looking for ways to adapt to this new reality.

With the new legislation, when there is a question about whether an individual is an employee or independent contractor, the reverse onus provision is triggered. This means the burden lands on the employer or agency to prove the individual engaged with them is an independent contractor, not an employee and as such would be excluded from ESA coverage. As experience indicates, work moves offshore when employers are faced with impediments like this. Employers losing access to these valuable resources on a contingent basis should be very concerned.

Employers and staffing agencies are now looking at ways of assessing individuals to understand the true nature of relationships early on in engagements to ensure this risk is mitigated. These early assessments will help determine whether such individuals are properly classified as independent contractors.

As an independent contractor, there are a number questions you can ask to help establish the nature of your relationship with your clients. Here are a few of them to keep in mind:

  1. Are you providing services through a corporation?
  2. Have you registered with CRA for GST/HST?
  3. Do you carry business insurance, such as commercial liability or errors and omissions insurance?
  4. Do you market your services as a business, for example with a website, business cards, etc.?
  5. Do you have a corporate bank account, use business invoices in the corporate name and maintain corporate books and records?
  6. Do you have a written contract engaging your business? Is it for a fixed term period or completion of a project?
  7. Do you have the ability to determine how the services are provided?
  8. Have you invested his or her own financial resources into their business?
  9. Is there risk of loss or financial loss if the services are not successfully completed?

The answers to these questions will also help employers and agencies assess an individual’s status. There are numerous others that will have to be asked to help ascertain answers for all parties and ensure against employee misclassification. And just as important, independent contractors will need to be prepared to self-assess. Those who wish to be independent incorporated contractors should seek advice. Govern yourself as a business would and avoid acting or being treated as an employee.

Quick Poll Results: Taking Steps to Prove Independence

Being able to distinguish yourself as an independent contractor as opposed to an employee has been an ongoing issue in our industry for years. Sometimes certain headlines and trends bring it to the front-line of concerns and that’s exactly what happened when the Ontario Government’s Bill 148 became law in late 2017.

As the topic regained popularity and concerns once again grew relevant, we decided to ask our readers to review what they’re doing to protect themselves and make it part of our February quick poll and the results are positive. Although there is no single step that every independent contractor takes, it’s clear that many professionals are already doing some great things!

Quick Poll Results: How do you show that you're an independent contractor?

The Significance of Supply Arrangements to Contractors

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

What are Supply Arrangements and Why Should a Staffing Agency’s Matter to IT Contractors?

Supply Arrangements: What are they and why should they matter to IT contractors?Within the staffing industry there are a dozen or more business models employed by various employment agencies.  There are the smaller staffing agencies who focus their marketing efforts on smaller companies, on very specialized niches, with a handful of very strong relationships they might have, or a combination of these.  There are the huge international recruitment agencies that tend to focus on companies with international operations and may be generalists in the sense that they support multiple lines, from casual labour to general staffing positions to professional positions to technical positions, in an attempt to serve companies that want a single vendor to handle all of their contingent workforce needs.  Between these two extremes, there are the Regional and National staffing agencies that often service or specialize in only one or two different types of hiring needs, but often limit these to provide the level of expertise/focus that means so much to their clients.  Then there are mixtures and blends of the above.

The one thing that most recruitment agencies have in common is that they work to put formalized Supply Arrangements in place with the clients that they service.  A supply arrangement is simply an agreement that defines the relationship between the agency and the company that they serve/support.  Typical to most supply arrangements are the following:

  • Term of Agreement (date range within which the agreement will be valid)
  • Definitions (define the terms used in the agreement)
  • Commercial Terms (concerning insurance, rates, timesheets and invoicing)
  • Performance (defines the service the agency will be providing)
  • Termination (terms under which the agreement might be concluded)
  • Confidential Information (how to manage and keep safe important company data)
  • Indemnity and Limitation of Liability (keeping each party “safe” and legally separate from each other)
  • Signatures/Sign-Offs/Dates/Etc.

If these look familiar, they should!  They are the very same components that incorporated contractors find in any sub-agreement that they would sign with a staffing agency. After all, we jointly enter into a company-to-company relationship, so the terms should include the same content.  In fact, a good number of the terms that a contractor finds in their sub-agreement with their staffing agency are actually “flow-down” terms from the agency’s own supply arrangements with the end client.  That is often the reason why agencies cannot be very flexible with the terms — they have committed contractually to work with their clients in certain ways and must, legally, have their sub-contractors comply to the same terms.

Despite a lot of similarities in the terms between supply arrangements, it is extremely rare that any two supply agreements would be exactly the same.  Employment agencies are required to be chameleons, adapting perfectly to the business requirements of each of their clients.  The best agencies have detailed processes to ensure their compliance across many different agreements. For example, Eagle has tools and processes dedicated to this and is part of our ISO 9001:2008 quality framework.  That big stack of paperwork that we present to contractors at the beginning of each assignment is part of that process.  In this way, we ensure that both Eagle and our sub-contractors stay “on-side” of our supply agreement Terms & Conditions.

So, why should this matter to independent contractors?  Well, that’s a question with many answers. Here are just a few of the reasons why contractors should want to work with agencies that A) create good supply arrangements with their clients and B) have strong mechanisms in place to ensure adherence to the terms (both on their side and by their sub-contractor partners):

  • Legitimacy – Having an official supply agreement in place signifies a deep level of commitment between staffing agencies and their clients. It suggests that the company is committed to using the agency and that there will be a certain level of exclusivity.  If a technology contractor is working with a recruiter that has a supply arrangement in place, you can be confident that the recruitment agency has the right to represent you and that there will be some standardization in place to manage the hiring process.
  • Access to the Best Companies/Jobs – The best staffing agencies have the best relationships. Often there is a barrier to entry for agencies who do not have supply arrangements in place with companies.  By partnering with staffing agencies with many supply arrangements, it means that you will have access to suitable roles that come available at these companies.
  • Confidence in Staffing Agency Rates – Supply arrangements often define what levels of profit are associated with the services provided (also defined), so recruiters are working off a prescribed methodology for setting their rates. Companies agree to pay staffing agencies “X” for their services should they identify, qualify and place top resources into their open roles. For contract work, that means that independent contractors set their rates “Y” and the client is charged “X+Y” (or “X x Y” if “X” is a %).
  • Risk Mitigation – Working for a recruitment agency with a supply arrangement in place ensures that the “rules of engagement” have been set out. Working with recruitment agency who has strong compliance mechanisms in place means that the recruiter will set you up for success and ensure that you are protected against potential missteps.  Be aware of the 2 to 3 page Sub-Agreement contract!  Eagle’s sub-agreements are typically 8 pages at a minimum, but depending on the flow-down terms and requirements, it could add up to 20+ pages for your review.  Ultimately, this all protects you from risk.

Eagle has numerous supply arrangements in place with many of Canada’s largest companies across multiple industry sectors and across all levels of government.  We are national leaders in Oil & Gas, Energy, Telecommunication, Education, Health Care as well as having 3 of Canada’s 5 big banks as our clients.  Our Supply Arrangements with our clients are often 80+ pages long and our sub-agreements to our sub-contractor partners are often 10+ pages long. Although more work to put in place, this is a good thing.  Through this process we ensure our contractors’ success and, in doing so, our own as well.

Next time you’re interviewing recruiters to decide on your preferred staffing agency, remember to ask how many supply arrangements they have. A response to that simple question will speak volumes in terms of their legitimacy, access to opportunities, rates and risk mitigation.

Tenure Limits on Independent Contractors

David O'Brien By David O’Brien,
Vice President, East Region & Government Services at Eagle

Do Tenure Limits Really Mitigate an Independent Contractor’s Risk with the CRA?

Do Tenure Limits Really Mitigate an Independent Contractor's Risk with the CRA?The issue of “tenure limits” or contract length has been coming up again lately, as clients start to debate whether or not it is a necessary way to mitigate risk against co-employment concerns. This means that many large organizations across Canada are implementing a maximum length of time they’ll keep a contractor. Regardless of the status of an IT project, once this time period is reached, the independent contractor can no longer work on that project. The theory being that by limiting the amount of time an IT professional is on contract, the lower the co-employment risk for the organization.

As an independent contractor, you too want to be familiar with all risks that may see you deemed a Personal Services Business (PSB) by the CRA, and how high of a threat they actually pose to you. On this subject, while there are a number of ways clients can minimize such risk, implementing tenure limits is not one of them; in fact, it is not based in law or even precedent in Canada.

The issue of tenure limits is an interesting one as it has been around for a number of years. I believe it can almost be traced back to one of the big US Consultancies who, years ago, started advocating that their clients use two-year time tenure limits to mitigate risk. The key here was that this was likely specific to US, where tax code is extremely specific.

The reality here in Canada is quite different for a number of reasons. At the industry association level, the NACCB’s experience in working with clients, contractors and the CRA on the Personal Services Business (PSB) issue (the one that put the microscope on independent contractors) was that tenure or contract length on its own was largely irrelevant in the assessment process. There are a multitude of other factors to consider in the actual assessment of co-employment that clients and contractors alike should be aware of. A strong contract that outlines the intent of the parties and is descriptive of the work is but one. In addition, this document from the CRA describes some other factors to consider.

As you can see, there are many factors involved, some of which include: control of the work, ownership of tools, financial risk of profit or loss, degree of integration of work and of course the written contract. It is abundantly clear that there is no rule that suggests 2 years is a magic time period.

There is not even much precedent to base this theory. There have been instances of issues and risk for contracts less than 2 years, and yet many IT contractors have been on site for much longer than 2 years. A recent decision saw a contract that initially was for 6 months extended several times to 5 years not deemed a PSB, based on the overall consideration of these other factors.

Perhaps more importantly in determination of status is the issue of control, which is shown in documents such as the contracts. Also of interest to CRA (and other agencies) is (a) how the individual is treated, as in are they treated like an employee, and (b) how they act, as in do they act like an employee.

The other key consideration based on recent industry experience is the issue is very much less likely to affect clients than the contractors.  It is more likely a contractor will be deemed to be on a Personal Services contract as opposed to being deemed an employee and to date, we have not seen any negative result for clients.

Finally, it is important to note that many large organizations have walked away from tenure limits realizing much of the aforementioned but additionally realizing how detrimental the churn is to the success and outcomes of projects as key resources are moved out at critical times arbitrarily. Clients may now begin to walk away from tenure limits as a hard rule as having realized it is not a singular factor in risk together with the adverse effects it has had on projects (taking off key consultants at critical times) . The reality is that many IT projects by their very nature are longer than 1, 1.5 or 2 years and need to have the skills required through the duration for successful outcomes.

The Importance of a Solid Contract

Frances McCart By Frances McCart,
Vice-President, Business Development at Eagle

The Importance of a Solid ContractOne of the most common complaints I hear from contractors, especially those new to the world of being an independent contractor, is that contracts seem very complicated and onerous to review.  They also wonder why the contracts differ from agency to agency.  Many contractors in the past have told me they have started a contract with an agency/end client before reviewing or signing a contract!!  And worse… they have agreed to work at a client site based on an email exchange.

I often remind contractors that having a solid contract in place prior to starting any project is critical.  The contract protects both you, the independent, and the client from any potential legal issues that may later arise.  Most agencies have standard templates for contractors to review and sign off and these contracts are often drafted with client flow agreements in place.  Contracts will also vary depending on whether you’re Incorporated, a Sole Proprietor or part of a Partnership.  The contract is the basis for establishing the business relationship between the parties involved.

Key elements to a good contract agreement contain at least the following:

  • Start and end date to a contract;
  • Scope of services to be delivered;
  • Fees to be paid (ie. hourly, daily or on deliverables);
  • Payment terms (ie. monthly);
  • Payment process (ie. authorized time);
  • Confidentiality clause; and,
  • Termination clause.

Many client contract flow downs contain more robust information such as liability clauses, intellectual propriety rights, security clauses, non-compete and non-solicitation clauses.  Often these clauses can seem overzealous and off-putting, but a review by a lawyer can help alleviate and address any concerns.  At a minimum, all of these clauses should be taken seriously, and a contract that is lacking in the basics should cause the signer to beware.

Eagle has been involved in many instances where a client asked us to payroll a contractor from another agency.  As part of Eagle’s due diligence process, we review a contractor’s past contract.  We often find that some agencies have “treated” the contractor like an employee and have put them at risk of either co-employment with the agency or have failed to properly withhold proper taxes as in the case of sole proprietors.  Contractors should be wary of an agency or even an end client who “brushes” the importance of a sound contract aside.  Often, this is a tell-tale sign to potential issues to come (for example, having to chase down unpaid invoices).

On that topic, here is some advice to contractors when working with a new agency or client:

  • At the outset of the conversation, ask for a copy of the contract agreement so that you have plenty of time to review it prior to landing a new contract.
  • Take the opportunity to hire a lawyer to review the document if this is the first time dealing with the agency or the end client.  Even though a clause may look like the “standard” clause, often minor changes can make a huge difference in the intent of the clause (ie. replacing OR with AND).
  • Always keep a copy of your contract.

Above all, don’t be afraid to ask questions!  A reputable organization should have no problem clearly explaining the various clauses in their contract and the reasoning behind them.  If you have any hesitations, seek legal advice.

Independent Contractor Insurance Coverage

The Importance of Securing Errors & Omissions and Commercial General Liability Insurance

 Guest Post from LMS ProLink

Independent contracting provides some of the best employment and career perks imaginable as the job flexibility, independence and variety is unparalleled. However, at the end of the day you are still self-employed and should protect yourself and your family from lawsuits that may arise. If either you or your corporation should be named in a lawsuit having the proper insurance coverage is key to long-term peace of mind.

When considering insurance options it is important to note that both the Errors & Omissions (“E&O”) and Commercial General Liability (“CGL”) policies are required to adequately protect you if you are incorporated or a sole proprietor. The E&O (also called Professional Liability) coverage protects, as the name implies, for your professional advice given. CGL coverage is focused on protecting you from claims as a result of Bodily Injury or Property Damage to a third party for whom you are legally liable. As litigation continues to be on the rise it is recommended that limits of at least $2,000,000 for both Errors & Omissions and Commercial General Liability be secured.

It is important to note that purchasing insurance is a fully tax deductible business expense. Also, by securing insurance coverage as an independent contractor you are investing in your business as this coverage reaffirms your independent contractor status with respect to Canada Revenue requirements.

LMS ProlinkLMS PROLINK Ltd. is an innovate and forward thinking insurance brokerage operating out of Toronto Ontario with satellite offices throughout the country.  We are an independent and a wholly Canadian operation that have specialized in professional insurance solutions for more than 30 years.  We understand the professions that we work with allowing us to provide industry leading coverage at extremely competitive prices.  Let our extensive knowledge work for you.

While prices can vary significantly at LMS PROLINK, there are a variety of independent contractor program options with rates starting at $24 month. Independent contractors working with a staffing agency like Eagle can get a customized insurance quote here. To learn more please visit https://Prolinkinsurance.ca/icp/apply or contact Celina De Bruge at celinad@prolink.insure or 1-800-663-6828

Differentiate Yourself as an Independent Contractor

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:

  1. You need to think and operate like a business owner NOT an employee.
  2. You should read up on the rules that CRA uses to determine independence (pay particular attention to “control”)
  3. Incorporate as a company!
  4. 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 professional with laptopsomething.
  • 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.

3 Social Media Rules for Independent Contractors

Cameron McCallum By Cameron McCallum,
Branch Manager at Eagle

There was a time not so long ago that businesses looked for ways to keep their staff away from social media.  Concerns with how it might waste employee time and decrease productivity, as well as fears that you could not control what employees posted, meant it was simpler to ban these activities.  All that has changed, of course, with corporations now investing in social media to help with everything from recruiting to building their online “Brand”.  In fact, more and more companies are training employees to be social media brand ambassadors, while ensuring that they put some parameters around the content.LinkedIn

But what if you are an independent contractor?  We all know the benefits of social media in helping you to get your credentials out to the market.  But what are the dangers and behaviors to avoid and what strategies can you apply to ensure you don’t leave yourself and your business open to the risk of unwanted attention.? Here are three rules I believe are in every independent contractors’ best interest to follow:

  1. Libel occurs when one party writes something damaging or insulting about another party which acts to harm that party’s reputation.  Today, Twitter, Facebook, LinkedIn and other social media expose business owners to that risk.  So Rule #1: Never, ever put anything on social media that could be construed as an accusation, criticism or complaint against a client, vendor or business associate.  A well-documented case of a Freelance Contractor who tweeted a complaint against a client who hadn’t paid him resulted in a lengthy court case.  The client had deeper pockets and was intent on protecting their reputation.  After a year, the case hadn’t even gone to court but the time spent preparing their case cost the contractor dearly.  While no one would argue that they didn’t have a case and that it would have cost them money to go the traditional route to sue for their fees, opening up their anger to social media likely triggered the client to go on the offensive and ultimately worked against the contractor.
  2. As social media use increases, it gets more and more difficult to stand out from the crowd.  Many advocate that you use the “wow” factor to make yourself more unique.  But how do you do that?  I was recently browsing LinkedIn and came across a posting from an individual who was flogging a solution to a particular business problem.  The solution looked reasonable; however, the individual posting decided that a picture of a scantily clad woman would really make the article pop.  It was not surprising and certainly deserved that the article received a large number of negative comments.  So Rule #2: Understand your audience!  It’s being seen by EVERYONE so keep things professional and if you are not sure that you might be insulting someone, ask a colleague or associate for some insight… once you hit send, it’s too late.
  3. No one would argue that the line between professional and personal social media has blurred.  As an independent contractor, your tweets, Facebook posts etc. all fall under your name and you don’t have the protection of separate corporate and personal identities.  And as mentioned previously, companies invest a lot of money in ensuring that their social media content is controlled.  As a small business it is even more important that you invest in a strategy to ensure that the message that goes out to the market is consistent and will enhance your branding.  I recently ran into a contractor website that spoke to that individual’s passion outside of work and while the activity described wasn’t illegal, it was “personal” and would certainly impact how others might view them.  It’s a free country and I’m not advocating censorship, but just as in rule #2, you have to be aware that if a potential client is looking at your LinkedIn page, they may get drawn to other pages or social media sites with your name.  So Rule #3: Protect your professional and personal identities.

Social media is an extremely useful tool and it can be leveraged on many different levels to enhance your business.  As a small business with a limited marketing budget, social media represents the opportunity to reach a massive number of potential clients but you have to be careful and it pays to determine a strategy.  Once you’ve figured that out, stay consistent, be smart with the content and try to keep your professional and personal lives separate.  Do you have any other social media rules you follow?  Have you come across a contractor on social media who perhaps should have followed some rules.  Share your thoughts below!

3 Reasons Clients Prefer to Hire You through an Agency

We are sometimes given a hard time by independent contractors who feel that agencies “take money out of their pockets” or are making money off their backs, bringing little value to them.  There are countless benefits that contractors get when working with staffing agencies, but perhaps the single biggest benefit is access to jobs that are not available otherwise.

The fact is that most (almost all) large companies in Canada will avoid direct contractual People Working Togetherrelationships with independent contractors. Thus, in order to work at those companies, the independents need to contract through one of the agencies on the preferred supplier list.

There are two primary reasons companies choose this route: Cost and Risk. Plus a third factor not as important, but still relevant: Hassle!

1. COST.

Agencies can supply contractors cheaper than companies can get them themselves. Generally, agencies have large databases and existing networks so spend less time finding the right people and can provide more options.  Companies also tend to have less negotiating power when contracting directly with independent contractors and are in a better position to “squeeze” their suppliers.  Finally, when working with an agency, the client saves administratively.  This is especially true for clients who may have many contracted resources. Instead of creating hundreds of contracts and hundreds of payments each month, the client has only one contract with a few agencies and pays one cheque (with long payment terms).

2. RISK.

The big risk to clients is for an independent contractor to be deemed an employee. Agencies manage this risk for them, create a degree of separation contractually and create a difference between how contractors are treated and how the client’s own employees are treated. As we’ve mentioned in past posts, there are significant implications to both the client and the independent contractor if an employee/employer relationship is deemed to exist.


Clients use contractors for lots of reasons but a primary one is the access to flexible labour, with minimum commitment. By employing an agency to manage the relationship, the client is freed of many “hassles” (hiring and firing, payment, management issues, personal issues etc.) If there is an issue, they tell the agency, who then deals with it.

The benefits to clients working through agencies are compelling and, therefore, the only way to gain access to contract jobs with those companies is often through their supplier agencies.

Which Fallacy Do You Subscribe To?

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

Yesterday’s post discussed the implications of choosing to become an independent contractor.  The truth is, there is no right or wrong decision, but it may actually depend on your personality. It has been said that whether you are a “contractor” or an “employee” by nature depends in which fallacy you most strongly believe:

  • As a contractor, you have more say over how your time is spent; or
  • As an employee, you have job security

Many people have moved into the contracting world thinking that they would be their own boss only to find themselves working harder and longer hours than they ever have before.  Likewise, others have resisted the lure of contracting in the belief that as an employee, there is greater job security.  Downsizing/rightsizing/outsourcing have taken their toll on many Canadian organizations over the past number of years, taking the wind out of this argument.

There are legitimate reasons for choosing one path over the other.  Some considerations might include:  the importance of a benefits or employer-based retirement plan,  how quickly you get bored in one role or at one company and the importance of moving from role to role, avoiding office politics, etc. (the opposite is when one values putting down roots and building long term interpersonal relationships with your office peers).

The other big consideration is risk – not so much risk in the form of job security, but risk Business woman taking a riskfrom the aspect of “risk of loss”.  One of CRA’s tests to validate whether an independent contractor is deemed an employee or a personal services business is whether there is risk of loss.  This comes in several forms, performance guarantees being one of the most obvious, but it also includes the risks associated with running your own business, the chances that enough hours may not be available or that projects may be cancelled leaving the contractor with nothing to bill against.  Then there is the risk that there may include extended down time between contracts.  These scenarios may terrify the risk adverse and encourage people to remain employees; however, with the increased risk also comes increased rewards in the form of higher pay rates.

True-blue contractors often can’t see themselves doing it any other way.  They know that the quality of their work is their meal ticket, and that the additional risks are worth the additional compensation that they collect while on contract.

The world needs both types of people, employees and contractors — which are you?  What are your thoughts on this subject?  Share your ideas with your peers by leaving a comment!