March 19, 2020
by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP, Basil Nicastri*, CPA, CA and Eugene Chu, CPA, CA
Dental offices in coping with Coronavirus, can expect many staff members to be off work for some period of time. The Record of Employment (ROE) will assist staff to apply for Employment Insurance (EI) benefits. Note that only staff members who are considered “employees” of the dental office (i.e. those who have CPP/EI premiums and income taxes withheld from their pay) are actually eligible to receive EI benefits.
Those workers who are paid on the subcontract basis, sometimes referred to as “independent contractors”, are not eligible for any EI benefits except if they have registered under the Canada Employment Insurance Commission, as they are not required to pay any premiums into the EI program. As many independent contractors who work in dental offices happen to be hygienists, many of whom work in more than one dental office, the current situation resulting from Coronavirus may mean that these individuals will not be entitled to any kind of remuneration or benefits in the foreseeable future. This will likely cause some undue hardship for many of these individuals. As a result, we expect some may still be encouraged to apply for EI benefits on the basis that they should have been treated as employees. We have seen this happen in the past where the self-employed independent contractor was successful in convincing the government that they should be entitled to EI benefits. Although there are guidelines and cases distinguishing an employee from an independent contractor, the outcome is not black or white. Dentists could be in for a nasty surprise should this occur as the dental office could be liable for all the CPP and EI source deductions that should have been deducted from the worker’s pay going back up to the last 3 years. This could potentially result in an additional tax bill to the dental office in the tens of thousands of dollars.
Because of these potential problems, even before Coronavirus, dentists should re-evaluate those workers who are treated as independent contractors instead of employees. To avoid these problems, treating all workers in the dental office as employees is the safer route and eliminates this potential risk. Unfortunately, some dental offices have been attracted to hiring independent contractors given the potential “savings” of the employer portion of source deductions (CPP, EI) and vacation pay. Should the tax department subsequently review the situation and deem the worker to be an employee, the dental office would then not only be liable for the employer’s portion of the source deductions, but also those of the deemed employee.
At this point, nothing can really be done for independent contractors who have been paid in the past. Should the tax department investigate, it will then be up to the dental office to prove that the worker was not an employee. This may be difficult in many situations. Please consider the above potential risks before continuing to pay independent contractors or hiring any new independent contractors in the future.
About the Authors
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP, Basil Nicastri*, CPA, CA and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or email email@example.com / firstname.lastname@example.org / email@example.com /firstname.lastname@example.org. Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas, and is not intended to replace professional advice.
Please visit www.dcy.ca for more information!