Independent Contractor or Employee in BC? Why the Contract Label Isn't the End of It

Many small businesses bring in help on a contractor basis: no payroll deductions, an invoice each month, and a short agreement that says the person is self-employed. It feels simpler, and sometimes it is the right arrangement.

But the label in the agreement is only the starting point. Three different bodies can decide the question for their own purposes, and each one looks at how the work is actually done. This article explains the tests and the practical steps that reduce the risk of a costly reclassification.

Why the label is only the starting point

Whether someone is your employee or an independent contractor affects payroll deductions, minimum employment standards, workplace insurance and what you owe if the relationship ends. A written agreement that says "independent contractor" is evidence of what you both intended. It is not the final word.

In BC, at least three bodies can decide the question for their own purposes: the Employment Standards Branch, the Canada Revenue Agency and WorkSafeBC. They use different tests, and they do not have to agree with each other. If you are hiring for the first time, our legal checklist for hiring your first employee covers the employer side. This article focuses on the line between the two.

The Employment Standards Act definitions

The Employment Standards Act sets minimum standards such as minimum wage, overtime, statutory holiday pay, vacation pay and compensation for length of service. Its definitions are broad. Under s 1, "employee" includes:

• a person receiving or entitled to wages for work performed for another, and
• a person an employer allows, directly or indirectly, to perform work normally performed by an employee.

"Employer" includes a person who has or had control or direction of an employee, or who is responsible, directly or indirectly, for the employment of an employee.

Two other provisions matter here. Section 4 says the Act's requirements are minimums, and an agreement to waive them generally has no effect. So a clause in which a worker agrees to give up vacation pay or overtime does not by itself protect the business. And s 3.1 treats online platform workers as employees for the purposes of the Act, and the platform operator as their employer, for prescribed work, whether or not they are employees under any other law.

If a worker complains, an employee whose job has ended generally has six months after the last day of employment to file (s 74), and the wages the Branch can order are generally limited to those that became payable in the 12 months before the complaint or the end of employment, whichever is earlier, plus interest (s 80).

How the CRA decides

For CPP and EI purposes, the CRA uses a two-step approach for contracts formed outside Quebec. First, it asks what the parties intended: a contract of service (employment) or a contract for services (a business relationship). Second, it tests that intention against the facts, looking at:

• Control over how, when and where the work is done
• Tools and equipment, and who pays for them
• Subcontracting work or hiring assistants
• Financial risk the worker carries
• Investment and management responsibility
• Opportunity for profit or risk of loss

The CRA states that the status the parties choose must reflect the actual working relationship. If the facts point the other way, the stated intention will not carry the day. If either side is unsure, the worker or the payer can ask the CRA for a CPP/EI ruling.

How WorkSafeBC looks at it

WorkSafeBC makes its own decision for workers' compensation coverage. The Workers Compensation Act defines "worker" to include a person working under a contract of service, whether written or oral, express or implied. WorkSafeBC's guidance says contractors would be your workers if they do not operate as an independent business. Signs that point toward a worker include supplying only labour, or labour and minor materials, and working regular hours for you on an ongoing basis. Signs of an independent business include having contracts with several clients, advertising to the public and providing major equipment.

Even when a contractor is properly independent, WorkSafeBC warns that if a registered contractor is not paying its premiums, you could be liable for premiums relating to the work done for you. Getting a clearance letter before and after the work is the usual safeguard.

What misclassification can cost

If someone you treated as a contractor turns out to be an employee, the consequences can include:

• Employment standards claims for unpaid overtime, statutory holiday pay, vacation pay or compensation for length of service.
• CRA reassessments for CPP contributions and EI premiums that should have been deducted and remitted.
• WorkSafeBC premiums for workers who should have been covered.
• Termination claims. A court deciding a claim for notice on termination applies its own common-law analysis, which looks at the same kind of factors.

Structuring a contractor arrangement that holds up

A well-drafted agreement helps, but only if it describes the relationship as it really works. Practical steps:

• Define deliverables and results rather than hours and supervision.
• Let the contractor decide how and when to do the work, within the project's needs.
• Expect the contractor to supply their own tools and cover their own business expenses.
• Allow the contractor to work for other clients and, where appropriate, to use helpers.
• Pay against invoices, with GST if the contractor is registered.
• Ask for a WorkSafeBC clearance letter and proof of the contractor's own coverage where relevant.
• Review the arrangement as it evolves. A short project that becomes a full-time, open-ended role under your direction may no longer be a contractor relationship.

If the role you need looks like a job, with set hours, your equipment and your direction, it may be simpler and safer to hire an employee with a clear written employment agreement.

Bringing someone on as a contractor? Set it up properly from the start

Our business lawyers can review how the work will actually be done, advise whether a contractor arrangement fits, and draft a contractor agreement or an employment agreement that matches the relationship.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.