Chapman

The Effective Subordination of Work: What Does It Consist Of?

Work Subordination and Tax Authorities

The question of effective work subordination, that is, the “control test” on the worker, is a crucial subject, particularly for the Quebec tax authorities. It is incredible but true that sometimes the Quebec and federal tax authorities do not reach the same conclusion on the status of a worker using identical facts. Although these situations are rare, they can cause problems for both the payer and the worker when facing the tax authorities.

 

Complexity of the Distinction between Employee and Self-Employed Worker

There is no magic solution to easily determine whether a worker is an employee of a payer or a self-employed worker. The line is often very thin, for example in the financial sector, where some commission-based investment advisors are considered self-employed workers, while others are considered employees. This difference is sometimes due to different laws, regulations, and organizations governing the nature of their respective investment advisor activities, as well as the latitude they have in carrying out their tasks. These differences are sometimes minimal for workers in the transportation and delivery industry (especially trucking), certain sectors of construction and installation, as well as in the consulting, services, and sales sector.

 

Choice of Status and Importance of Clarity

Despite a common belief, the worker cannot choose their status by opting for one or the other at their discretion. It is the facts applicable to their situation that determine whether they are self-employed or an employee. The best advice is therefore to ensure that the worker’s status is as clear and transparent as possible, as problems often arise when the worker is dissatisfied with their status.

 

Worker Complaints and Government Investigations

Experience shows that investigations conducted by tax authorities or other government agencies often begin after a worker has filed a complaint. For example, a self-employed worker may want to benefit from certain social benefits (such as employment insurance, paid vacation, or benefits for a workplace accident) following an event that has occurred or is to come. Since their self-employed status generally does not allow them to benefit from such social protections, they may be tempted to demonstrate to government agencies that their “true” status is that of an employee. This is when an investigation begins, which can be long and arduous for the parties involved.

 

The Importance of a Written Contract and Other Laws to Consider

Drafting a written agreement (a contract) between the parties from the beginning of the hiring process can greatly help clarify the situation from the start. However, it is essential that the facts actually experienced by the parties thereafter reflect what is written in the agreement, otherwise it may have little value in the face of government authorities. Such a written contract does not necessarily have to be a multi-page document, especially when it comes to a relationship with a self-employed worker. Indeed, the more detailed and voluminous the written agreement is, the more it generally includes restrictions and limitations (in short, control!) by the payer over the worker. However, a self-employed worker is supposed to benefit from a certain degree of freedom of action and be subject to a minimum amount of control by the payer. A highly detailed agreement containing several restrictions and limitations could often lead to the conclusion that the worker is an employee instead. It is important to note that in case of doubt about the relationship between a payer and a worker, it is possible to request a decision from both federal and Quebec government authorities.

The fact that a worker is recognized as an independent worker for the purposes of the Canadian Income Tax Act, the Quebec Income Tax Act, Employment Insurance, and the Quebec Pension Plan does not automatically guarantee that he or she will be considered the same for other laws. For example, Section 9 of the Act respecting industrial accidents and occupational diseases (L.A.T.M.P.) provides an exception for an independent worker who is a natural person (not incorporated) and who has no workers in his or her employ. However, the payer will still have to bear the cost of premiums for workplace health and safety with the CNESST for such an “independent worker” to the extent that he or she engages in activities similar or related to those of the payer. This independent worker will then be considered an employee for CNESST purposes. Such situations have been encountered notably in the trucking and forestry industries with unincorporated independent workers. The payer may then face unpleasant surprises (in the form of significant notices of assessment from the CNESST).

It is also important to note that the Pay Equity Act provides a similar presumption to that mentioned for workplace health and safety with respect to certain independent workers. In short, a company must check all the laws it may be subject to in order to ensure that no contributions or deductions are payable.

 

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