It is very important to understand the difference between an employee and an independent contractor. Knowing the difference and understanding which category you fall under will determine what benefits and protections you are entitled to under the law and the characterization of your income, whether it be employment income or business income.
Some of the perks that come with being an employee include employment insurance, vacation pay, extended health benefits, pension plans, and severance pay. As an independent contractor, you may not be entitled to all the same benefits. However, there are different perks that come with self-employment, including greater tax deductions, working as you please, working for multiple clients, and maintaining control over your work and profits.
Many times the Court must determine whether an individual is an employee or an independent contractor in their work relationship. The question to ask is whether the working relationship is a contract of service, which establishes an employer-employee relationship, or a contract for service, which indicates the party being paid is an independent contractor. To answer this question, the Court looks at the following factors:
- Ownership of Facilities, Supplies, Tools, and Equipment
- Chance of Profit or Risk of Loss
In considering the first factor, the question to ask is: how much control does the alleged employer have over the alleged employee? To answer this, we must look to see whether or not the employer can require attendance, require notice for sick days, or require you to obtain permission to work for another party. If the answer to any of these questions is yes, the relationship is likely to be viewed as an employer-employee relationship. The method of payment is another factor that may be considered, as well. If you are being paid on an hourly, weekly, or monthly wage or a salary, then you are likely to be viewed as an employee. However, if the payment is made in lump sum or installments after you send an invoice, you are likely to be viewed as an independent contractor. The amount of control in the service itself also plays a role in making this determination. If the payer requires a specific result but does not dictate the method to achieve that result, then you are likely to be viewed as an independent contractor. If the payer does give instruction as to how and when work is to be done and supervises the worker throughout the service, then it is likely an employer-employee relationship.
Ownership of Facilities, Supplies, Tools, and Equipment
The second factor to consider is the ownership of the facilities, supplies, tools, and equipment. If the owner is the party being paid, then this will be indicative of an independent contractor. If the owner is the party paying for the service, then this will strengthen the argument for an employer-employee relationship.
Chance of Profit or Risk of Loss
Where a worker has the opportunity to earn more by completing projects quicker to take on more projects or by finding ways to limit expenses, they will be viewed as an independent contractor. In this case, the worker is in control of their profit, by taking appropriate steps, and by working more or less, they can influence their profits and losses. Employees typically do not have the ability to earn more by completing projects quicker than expected, they may earn bonuses by doing so, but this does not mean they can increase their profits or mitigate losses from their income as their remuneration is usually a set wage or salary.
The final factor to look to is the integration of the worker in the payer’s business. Where the worker is not self-employed, it is a part of the payer’s business and depends on that one particular income source; they are likely to be viewed as an employee. Furthermore, the more integral a worker is to the payer’s business, and the longer the working relationship is, the more likely the individual will be considered an employee. An independent contractor will rely on several income sources and act on his or her own behalf.
All the factors listed above are to be considered collectively in determining whether you are an employee or an independent contractor. Although there may be a written contract, this does not dictate what the relationship is. Signing a contract that states you are an independent contractor does not disentitle you to the rights and protections you would have as an employee. If by applying the factors above, your relationship is indicative of an employer-employee relationship, the Court may disregard your written agreement.
Please contact Osuji & Smith for all your employment law-related inquiries.