Just Because They Are Incorporated Doesn't Mean They Are Independent

We have repeated this article in our newsletter and thought we should blog it too,  as just when you are sure your are safe paying an incorporated company as an independent contractor, along comes a curve ball. We have been receiving a lot of inquiries about paying Indpendent contractors lately - so here is the article.

In a recent case that went to Appeal Court, Canada Revenue Agency won a decision against an employer who had hired an individual through his Incorporated Company.

In Ontario there was an individual named Gordon Braiden who "contracted" through his limited company to perform services for La-Z-Boy Furniture. Apparently the written contract between La-Z-Boy and Gordon's company made it clear that the services were being provided by and as an Independent Contractor.

During the course of duties performed by Mr. Braiden, he attended trade shows and went to locations designated by La-Z-Boy. He paid some of his own expenses, but in other respects, the court ruled he acted like an employee. He had no other business of his own. He did share office expenses with other sales reps, but the company selected his sales territory, told him what products he was to sell, where he was to sell them, what promotional methods he could use, and his sales performance was also measured.The court ruled that Braiden in fact acted like an employee in every respect, and the fact that he was incorporated made no difference.

If you need further clarification, both the employer and the employee can apply to Canada Revenue Agency for a ruling where there may be doubt about the status as an independent contractor. CRA has put out this guide to assist in defining an employee vs. a contractor.   An employer who fails to deduct the required Canada Pension Plan contributions and Employment Insurance premiums has to pay both the employer's share and the employee's share of any contributions and premiums owing, plus penalties and interest.  Where the area is gray and you don't get a ruling, err on the safe side and pay as an employee. In the long run, it will likely be cheaper.