Being paid as a contractor? Whats the deal?

gixxer_flexx

gixxer_flexx

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After working at my current job for several months I was suddenly changed to being paid as a (independent?) contractor. This kind of came out of the blue for me and I find it a little weird and abrupt. I work in his store and I have a set schedule on a weekly basis. As far as i know the major difference is that I am now responsible for claiming my own taxes. Also i have read that he(company) is no longer responsible for paying payroll tax.

I find this a little weird as this is the first time i am under this type of pay system.


Can anyone shed a little bit of light into this as i am a little unnerved about it and i would like to find out some more clear details as he is not being very open with me about it. Is it weird to be suddenly changed to an independent contractor? Is there anything i should be concerned about?


Thanks. :)
 
How big is this company and were you told this was happening ahead of time?

Being an independent contractor could give you avenues through which you can save on income tax and other surcharges like EI, benefits and medical, etc.
 
http://www.taxtips.ca/personaltax/employees/employeevscontractor.htm

Employee advantages

  • qualify for employment insurance
  • Canada Pension Plan premiums paid 50% by employer
  • participation in employee benefits, including:
  • vacation pay
  • provincial medical plan
  • extended health benefits - medical, dental, vision care
  • disability insurance
  • pension plans
  • workers' compensation coverage
  • higher rate of pay for overtime hours
  • more difficult to be terminated
  • severance pay if terminated
  • no record keeping required

Employee disadvantages


  • must pay employment insurance premiums - see EI premium rates
  • very few expenses are tax-deductible - see our article on deductible employment expenses
  • less control over working conditions and hours

Self-employed advantages


  • no employment insurance premiums, unless voluntarily paid
  • more expenses are tax-deductible - for example, expense of travelling to and from clients' places of business is tax-deductible
  • more freedom to choose own working hours
  • can work for more than one client
  • in first year of operation, income tax not payable until April 30th following first year end - see choosing a year-end on our Small Business page
  • opportunity for increased profits

Self-employed disadvantages


  • no severance pay if terminated
  • cannot collect employment insurance, except special benefits
  • must pay employee and employer portions of Canada Pension Plan contribution - see CPP contribution rates
  • more record-keeping required
  • often work longer hours with no extra pay
  • cost of purchasing and maintaining own equipment
  • risk of loss
  • liable if contract obligations not fulfilled, thus liability insurance may be needed
  • no employee benefits
  • after first year-end, usually must make income tax installment payments
  • must register to collect GST, except for small suppliers - see who has to collect GST on our GST page
  • must register to collect PST in most provinces - see our PST page.
  • cash management and planning required to ensure funds available for tax remittances
  • may require services of bookkeeper or accountant for the record-keeping and government reporting

I would have a detailed discussion with your employer. I would be very concerned with their intentions and motivation for the sudden change.
 
Sounds like the relationship was imposed on you. Hope you got a raise to cover payroll costs, employer health tax, WSIB, vacation, severance, benefits and administration costs for the increased paperwork and record keeping. You may not have to pay some of them, but you should charge for it anyway. Anyway, the shift from employee to contractor may be attacked by the CRA, as a number of tests need to be met. If the CRA deems you to be an employee, your employer will get dinged for late/deficient payroll taxes, interest and penalties. There needs to be a written agreement that sets out who is responsible for what. As a professional employee, you're limited to salaries and payroll taxes as deductible expenses.
 
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By what ypu are saying, you are NOT a contractor. In tax laws there is "self employment" test... and you have already failed it.
http://www.hmrc.gov.uk/employment-status/index.htm#1

From CRA RC4110(E) Rev. 10
Indicators that the worker is an employee

The payer directs and controls many elements of how the work is performed (such as what, who, where, when and how).
The payer controls the worker's absences, such as sick leave or vacation leave.
The payer controls the worker with respect to the results of the work and the method used to do the work.
The payer creates the work schedule and establishes the worker's rules of conduct.
The worker has to perform the work.
The worker has to remit activity reports to the payer.
The worker's activities are reserved to a single payer (exclusivity of services).
The payer can impose disciplinary actions on a worker.
The worker receives training or direction from the payer on how to perform the work.
The worker accepts integration in the payer's business to have the latter benefit from his work.
The parties have inserted a non-competition clause in their written contract

Indicators that the worker is a self-employed individual

The worker is usually free to work when and for whom he or she chooses and may provide his or her services to different payers at the same time.
The worker does not have to perform the services personally. He or she can hire another party to either complete the work or help complete the work.
The worker can generally choose the time and the manner the work will be performed.
The worker does not need to be at the payer's premises.
The worker can accept or refuse work from the payer.
The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship.

So, if you're doing the same job, in the same place, for the same guy, you're still an employee.
 
Assigning the OP "contractor" status is just a cheesy way of ducking an employer's legally-required payroll tax (UIC, CPP, Ontario health care tax etc) and severance pay responsibilities when it comes to regular "employees". Contract status usually means no benefits, no employer contributions to a retirement savings plan, etc. It also makes it much easier to get rid of the OP without, as others have said, having to pay any severance pay.

As a contractor, is the OP now working under a contract with a defined term, as in a six-month employment contract, one year employment contract, etc? Or is it an open-ended contract? If he is a contractor, there should be some form of contract terms that he is now working under.
 
If your boss wants you to be a contractor, then be one. Tell him the 1st thing the two of you are going to need to sit down and discuss your new company's price structure. It should be somewhere between 40-50% higher than what he was paying you when you were on salary. Also if he dictates more than 70% of your schedule, he must pay your WSIB contributions, whether you are self employed or not. And if he doesn't like the prices your new company has , then go contract your services to one of his competitors, or hell, all of them!
 
How badly do you want this job? Unless your position is unique most store employees are exactly that, employees. As stated there are pros and cons but mostly cons unless there is a written contract with a golden parachute.

People read about the contractor concept and think it's a way of beating the system but it's usually cheating not beating and it backfires. The Govies are A-holes but they aren't stupid A-holes and they see through this.

My biggest concern is liability. If you own stuff and an event occurs you could be named in a lawsuit. How deep are your pockets?
 
Wow amazing thanks a bunch.

So many to add a bit more info; essentially what im doing is working at a brand new clothing store owned by 1 investor and there are 2 people above me. So 4 people in this company total. its just a normal clothing store and i work there like 15 hours a week.

This change to "contractor" was sudden and i was not informed about it before hand. I STUPIDLY signed some papers agreeing to this but i have not received the copies although i have asked numerous times. **Read somewhere that if i dont get a copy i can possibly dispute anything that was written in that contract even though i signed it?**

Im going to take the time to thoroughly read your posts but seeing as im not exactly familiar with pay systems and all the complexities with it i am most likely going to give in my 2 weeks due to this being a random sudden change and its just something i dont feel comfortable being involved in.

Probably my biggest concern is the tax paying aspect and how the responsibility now falls on me; too much drama for a part time job during school.
 
Wow. Make sure you bill the clothing store all the payroll costs discussed above in addition to your hourly rate. Another issue is billing frequency and payment terms. Are you going to bill them every 30 days with another 30 days terms? You would be risking up to 60 days pay and out of pocket the money for that long or longer. If the owner goes bankrupt, you become a general creditor, last to get paid. Shouldn't your compensation increase to reflect the increased risk or burden, especially for a startup company? If certain things haven't been addressed in your contract, you need to draft a separate written addendum that will become incorporated as part of the original agreement. You've really made things complicated for yourself.

I could be wrong though. Another possibility is that you've misunderstood the contractual relationship. Could it be that your employer has hired you as an employee under contract - your employment is subject to a conditional probationary period? Still ******, but not nearly as onerous and costly as an independent contractor. If so, that's a common and entirely different arrangement, that I'm inclined to think you entered into. But find out for sure and don't get too excited until you do know.
 
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Quit. It's just a part-time job at a clothing store... you can find another with your eyes closed. Unless the pay is well above average, there's no point sticking around.
 
I'm not an employment lawyer, but I do believe you have been terminated, as you are no longer an employee of the company.

A valuable life lesson here is to never sign anything you don't understand.
 
mmmnaked said:
Quit. It's just a part-time job at a clothing store... you can find another with your eyes closed. Unless the pay is well above average, there's no point sticking around.
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Good advice - that's what I'd do. I'd doubt they'd go after you for damages.
 
Let's make this real simple for you.
You are an employee... and you're working for people that either don't know what they're doing or are **********.
 
This is not a legal arrangement. As bitzz pointed out above CRA will not accept that you are a contractor. You are being screwed out of benefits and the employer is just trying to skimp on paperwork. I've been in an arrangement like this myself and it's not worth it.
 
omnivore said:
If your boss wants you to be a contractor, then be one. Tell him the 1st thing the two of you are going to need to sit down and discuss your new company's price structure. It should be somewhere between 40-50% higher than what he was paying you when you were on salary. Also if he dictates more than 70% of your schedule, he must pay your WSIB contributions, whether you are self employed or not. And if he doesn't like the prices your new company has , then go contract your services to one of his competitors, or hell, all of them!
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this

my dad recently became a contractor after being a service tech employee of the company until it was bought out. He now makes a lot more money being a contractor than being an employee.
 
For 15 hours a week at a low pay level, I'm not so sure it's worth it as an independant contractor.
 
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Depending on the contract if it was even legal there can be other snags. I knew someone in the music business and she had a long term contract to perform at a hotel. If she wanted a day off or vacation or sick time SHE had to provide a suitable stand in at her expense.
 
nobbie48 said:
Depending on the contract if it was even legal there can be other snags. I knew someone in the music business and she had a long term contract to perform at a hotel. If she wanted a day off or vacation or sick time SHE had to provide a suitable stand in at her expense.
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this is not what he's talking about, he's talking about being paid as a contractor, you're talking about a contract
 
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