Dental employers may think that hiring independent contractors is easier than hiring an employee and less expensive. Although it may seem like a good idea, the risks are very high and you can take a big hit if you do something wrong.
Independent contractors don’t get benefit packages, vacation pay, maternity leave or statutory holidays. As a principal retaining an independent contractor, you don’t have to withhold income tax or pay a share of CPP or EI. There is also a tax advantage for the independent contractor, because of the potential for tax deductions. Generally, a self-employed person can deduct all reasonable business expenses incurred to earn business income. It may sound good on the surface, but if a business hires an independent contractor who is later deemed to be an employee, both parties lose big as unpaid taxes, penalties, interest, CPP and EI premiums will all have to be paid. From the principal’s perspective, there are also tens of thousands of dollars in potential liability arising from Ministry of Labour claims, and wrongful dismissal or other Court claims.
Despite the intentions to characterize the relationship as that of an independent contractor, if the dentist has significant control over the workers’ work and hours then the relationship is closer to employer-employee than independent contractor. If the dentist has the majority of control of the contractor’s hours and work duties, it may be considered an employee-employer relationship.
Below are some issues that need to be considered. It is important to understand that no single criterion will be dispositive. However, the more criteria that point toward either status, the more likely it is that the relationship will be characterized as such at law.
Ask the following questions to determine if an employee-employer relationship exists or is she a true independent contractor Employee-Employer Relationship Independent
Contractor
Does the worker come to your staff party/ eat in your staff room?
Yes No
Does the worker wear the same uniforms and have the same identity as the employees of the practice?
Yes No
Is the worker responsible for her own expenses?
No Yes
Is the worker entitled any benefits?
Yes No
Is the worker free to arrange her own hours of work?
No Yes
Does she bring in her own instruments?
No Yes
Does she rent the chair and equipment?
No Yes
Does she make her own appointments?
No Yes
Is the entitled to define who does the work and hire their own employees?
No Yes
Is the worker is paid an hourly rate?
Yes No
Is the worker supervised by you?
Yes No
Does she pay for her own training and development?
No Yes
The Canada Revenue Agency uses a “four-point test” to determine which type of relationship exists. “Employee or Self-Employed?” (RC4110) “sets out a method that should, in most cases, allow payers and workers to determine the nature of their relationship.” The method is based on four key points:
1.Control
2. Ownership of tools
3. Chance of profit/risk of loss
4. Integration
1. Control
An independent contractor decides how the work will be performed. If the dentist is the person responsible for planning the work to be done, choosing the hours of work, and/or setting the standards to be met, for example, an employer-employee relationship is more likely to exist.
Does the independent contractor have the right decide on the time, place, and manner in which the work is to be done? If not, then an employer-employee relationship is more likely to exist.
2. Ownership of tools.
An obvious point is that an independent contractor would supply her own tools. An independent contractor would also incur losses when replacing or repairing their equipment. It’s customary for independent contractors to supply their own tools or purchase or rent equipment from the dentist.
3. Chance of profit/risk of loss.
The independent contractor also must have a chance of making a profit and run the risk of incurring losses due to bad debts, or damage to equipment or materials. An independent contractor would also cover the operating costs of her activities.
4. Integration.
The Canada Revenue Agency states, “Where the worker integrates the payer’s activities to her own commercial activities, a business relationship probably exists… Where the worker integrates her activities to the commercial activities of the payer, an employer-employee relationship probably exists.”
If the contractor only has one client or works regular hours that you have set for the contract, it is likely that CRA would perceive that an employer-employee relationship exists.. What this means to a dental office is that the independent contractor must set their own hours and work for several offices, not just yours. Then there is a question about who owns the chart? Does the independent contractor have the right to see a patient at a different location?
The relationship of parties who enter into a contract is generally governed by that contract. An employer-employee or an independent-contractor relationship, is not a matter which the parties can simply stipulate in the contract. In other words, it is insufficient to simply state in a contract that the services are provided as an independent contractor to make it so. In other words, the parties’ stated intentions are not enough to override the true characteristics of the relationship, if those characteristics point sufficiently in the opposite direction.
What if you currently have an independent contractor in your practice? The best advice is to have all of your employees work under employment agreements (contracts) and quietly transition the “independent contractor” to employee status at the same time. There are many traps for the unwary in this specialized area of law, so be sure to work with someone who practices exclusively in employment law, and ideally has extensive experience with dentists. Your office should also have an Employee Policies Manual that clearly defines the terms and conditions of employment at your office. Your specialized lawyer should take a comprehensive approach and integrate your contracts with all workers with your policies to ensure that you do not run into difficulties down the road.
Employers can have a difficult time determining whether a worker is an employee or an independent contractor. It is best to undertake an objective analysis of the position in question before attempting to fill it with an independent contractor. An employment lawyer may be better poised to perform such an analysis. It is most important to get the proper professional advice before entering into an arrangement that could cost you and your practice much more in the long run. It is worth the investment and can protect your practice from unnecessary risks.
This article was co-authored with Mariana Bracic, BA (Hons), JD, Partner, MBC Legal, President, MBC Information Solutions Inc. She may be reached by telephone at 905-825-2268 or by email at mbracic@mbclegal.ca and she would love to hear from you.
