Misclassification can lead to charges, fines, safety liability
Recent complaints brought forward by two Vancouver-based workers at Shaw Communications brought the issue of determining a worker’s employment status to the forefront.
Independent contractors don’t automatically become full-time employees. But if the relationship looks like an employer-employee relationship, the worker may be considered an employee for the purposes of employment legislation, wrongful dismissal actions, EI, CPP and income tax, regardless of how the parties have chosen to characterize the work arrangement, said Carla Nassar, a lawyer at Filion Wakely Thorup Angeletti in Toronto.
The Canada Revenue Agency (CRA), “will closely scrutinize these relationships to ensure that it is really an independent contract and not an attempt to mischaracterize an employer-employee relationship,” said Nassar.
A number of factors are taken into account when determining whether a worker is a full-time employee or a contractor. Both the CRA and Revenu Québec have clear steps and criteria for determining employee status, said Rachel De Grâce, compliance services developer at the Canadian Payroll Association (CPA) in Toronto.
It’s not a matter of an employee becoming full time after a certain amount of hours working for a particular client, she said.
“It really does come down to the nature of employment and what’s really important for payroll and organizations to recognize is that it’s not the worker, it’s the nature of the employment that has to be analyzed.”
At a very basic level, if an employer has control over a worker, determining their next projects and their training, this could point to an employer-employee relationship.
There are quite a few repercussions to paying an employee as a contractor when they should have been considered full-time, said De Grâce.
In terms of fines and penalties, or financial repercussions, three of the biggest ones are CPP or QPP in Quebec, EI and Québec Parental Insurance Plan (QPIP), she said.
“And that’s because, according to the legislation, if the employer was supposed to treat a worker as an employee and therefore deduct CPP and EI... then by law the employer is now responsible to pay the employees portion plus the employer’s portion plus fines for not deducting and interest.”
This can add up. The maximum this year for CPP is more than $2,300, which would be doubled if the employer was responsible for both portions.
“And that’s just for CPP,” she said. “For EI its another almost $1,250, so that type of thing really adds up, especially if a company has several of these workers that they’re treating as self-employed when they really should be treated as an employee.”
Having a misclassified employee can also be problematic when it comes to workplace safety liability, said De Grâce.
If a worker has an accident and doesn’t have worker’s compensation coverage because she was considered a contract employee, but was later determined to be full-time, then the company could be liable for disability claims.
The employer opens itself up to litigation, said De Grâce.
Mistakes can be costly, which is one of the reasons Nassar advises asking legal counsel for guidance if employers are unsure of what type of relationship they have with a worker.
“Employers should make sure that independent contractors are actually operating independently and should seek legal advice if they have any concerns about the arrangement,” she said.
De Grâce suggests payroll professionals arm themselves with the CPA’s guidelines for determining an employee’s status or the CRA’s guide RC4110 Employee or Self-employed? when they go to an employer to challenge what a worker’s status may be.
“Oftentimes the powers that be may challenge the payroll professional saying, ‘No you don’t have the correct facts,’ or, ‘Trust us we know what we’re doing,’ and so this way payroll can really arm themselves with the actual interpretation of the income tax act,” she said.
If a payroll professional fails to properly classify an employee, she isn’t likely to be held personally responsible by the CRA.
“I would not think that an employee could be held personally liable for the company’s contractual relationships,” said Nassar. “However, if a payroll or HR professional is responsible for making deductions or ensuring that contracts are properly characterized, he or she might be held responsible for any mistakes by the employer. If an error is discovered, it is always a good idea to bring it to the employer’s attention.”
In general, it usually is the company’s responsibility, said De Grâce.
“Is the payroll professional ever held personally liable? Not according to the CRA, not according to actual government liabilities,” she said.
The CPA does have a code of conduct and it expects its members to promote the law and be compliant, said De Grâce.
“Worst-case scenario, you could lose your designation,” she said.
