Employers 2018-05-17T19:28:40+00:00

Think about it.

How valuable is your contingent workforce to your organization?

Increasing Risk

Don’t risk losing this essential workforce by remaining status quo. Legislative changes are increasing the scrutiny on employers. Today there are significant risk factors at play. If your organization uses contractors you are at greater risk than ever before and need to take action to protect yourself.

Total Protection

What if we said there was a way to protect both your organization and your contractors from all the issues that are threatening the contractor model as we know it in Canada? Engaging with PCSI will dramatically reduce your risks. We ensure both you as the employer and your contractors are protected. Its like insuring your contractor model.

PCSI Mitigates Your Risk of the Following Happening to Your Organization:

Canadian Courts

Being charged with a massive severance liability upon ending a relationship with a contractor who takes you to employment court and is deemed as dependent on your organization.

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CRA

Should your contractor be reclassified as a PSB by the CRA they are exposed to tremendous financial risk upon assessment. That contractor can take your organization to court claiming they are dependent seeking that you cover their resulting tax bill and related penalties.

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WCB

An injured worker believed to be a contractor but deemed an employee by the Workers’ Compensation Board will at minimum result in retroactive payment by the organization of unpaid premiums, interest and fines.

Read more.

Ontario Legislation

Being found guilty of misclassifying employees as independent contractors upon workplace inspection or a claim being filed against you by a contractor.

Read more.

Alberta Legislation

Your dependent contractors unionizing in Alberta.

Read more.

Think about it.
Can you really afford these risks?

Impact on Your Organization’s Bottom Line

Severance and potential legacy tax obligations,
legal fees, misclassification fines/penalties and lost productivity.

Impact on Your Organization’s Reputation

Exposure in the press and bad word of mouth.

Remaining Status Quo is not
Mitigating Your Risk

Unfortunately, there are several common misconceptions of how employers believe they are mitigating their risk in relation to the employee misclassification/dependent contractor issue when in fact they are still very much at risk.

Many employers think they are mitigating their risk if they:
  • Engage their contractors through an intermediary/staffing agency.
  • Simply terminate their contractors after a 2-year period.
  • Apply restrictions on their contractors that distinguish them from their full-time employees.
  • Use a “Formal Contract”, even one provided by CRA.

At PCSI we commonly compare these risk tactics that have become the “status quo” to rolling the dice, flipping a coin or even crossing your fingers. None of these tactics are an effective risk mitigation strategy. Especially when it comes to business.


What is Happening to the
Contractor Model in Canada?

Independent Contractors (IC’s) have been an integral part of the Canadian economy for decades. The employment relationships as well as the circumstances and factors related to traditional work models and definitions have shifted significantly over the past 2 decades across Canada.

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Canadian Courts

Over the last decade, the Canadian courts have created a massive potential severance liability for companies that utilize independent contractors by deeming many of these resources to be “dependent contractors”. Additionally, a worker who was improperly classified as an independent contractor may also be eligible for overtime pay, statutory holiday pay and vacation pay that the employee was not compensated for because he or she was paid as a contractor.

These judgements are made public affecting not only the reputation of the employer, but possibly triggering domino claims by workers retained under similar terms.

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Canada Revenue Agency

Over the past few years Canada Revenue Agency has introduced significant changes to the business criteria and classifications that directly impact independent contractors, exposing them to tremendous financial risk upon assessment. And most recently in 2016, CRA added 700 more tax auditors (making a total of 1000) to specifically target PSBs.

The goal is revenue generation for the Federal Government via unpaid taxes:

  • Auditors are conducting targeted reassessments to identify and secure unpaid taxes
  • CRA’s PSB Project revenue target is $1 Billion minimum per year

Strategies used by the CRA:

  • CRA completes a payroll/accounts payable audit at a sizable company allowing them to identify a mass number of contractors in one exercise
  • CRA audits individual contractors to explain how they are justifying their Small Business Tax Deduction and then if assessed as a PSB, they look to whom the “employer” is (and complete a payroll/accounts payable audit to find more guilty contractors)

This matters to employers. Employers are legally obligated to deduct, contribute, and remit payroll deductions on behalf of their employees. Such deductions include income taxes, pension contributions, and insurance premiums. No such obligation exists for independent contractors. However, failure to properly identify a worker as an employee may lead to liability on the organization to pay income tax, CPP and EI contributions on behalf of the employee, in addition to significant penalties, interest and legal fees. The CRA will pursue payment directly from the employer, which is a much easier task than tracking down and suing dozens of defaulting contractors.

Alternatively, when a contractor has a large tax bill to pay due to reclassification as a PSB they may look to the organization to cover the overwhelming tax bill; taking them to court claiming they are dependent. And in case you didn’t know, the criteria used by the CRA for PSB classification is almost identical to the criteria used in Employment Court for deeming someone as dependent.

Click here to compare criteria.

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Workers’ Compensation

Worker’s Compensation eligibility decisions have also started to shift. First, we observed Worksafe BC refuse coverage to “Independent Contractors” stating they viewed them as a Personal Services Business (PSB). Shortly after Ontario, Alberta and Saskatchewan Workers’ Compensation Boards followed suit.

This matters to employers. An injured worker believed to be a contractor but deemed an employee by the Workers’ Compensation Board will at minimum result in retroactive payment by the organization of unpaid premiums, interest and fines. Additional exposure may include increased future premiums, legal costs and impacts upon your organization’s reputation.

If your contractors are declined WCB coverage for the reason of being viewed as a PSB it increases the visibility of you (the end employer) as a source of PSBs. This puts a target on your back as well as on the backs of all of your other contractors.

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Ontario Bill 148 – Employee Misclassification Offence

In any province a worker who was improperly classified as an independent contractor may make a claim to the Employment Standards Branch for overtime pay, statutory holiday pay and vacation pay that the employee was not compensated for because he or she was paid as a contractor.

On November 22, 2017, the Ontario Government passed Bill 148, the “Fair Workplaces, Better Jobs Act, 2017”. Bill 148 significantly amends the Employment Standards Act, 2000 (“ESA”), the Labour Relations Act, 1995 (“LRA”) and, to a lesser extent, other workplace legislation with the goal of protecting “vulnerable”  and “precarious” workers.

The Employment Standards Act now prohibits employers from treating an employee as an independent contractor – commonly referred to as a misclassification. The specific wording is as follows:

“An employer shall not treat, for the purposes of this Act, a person who is an employee of the employer as if the person were not an employee under this Act.”

Effective November 27, 2017 employers are prohibited from misclassifying employees as “independent contractors,” who are not entitled to the protections of the Employment Standards Act. If a dispute arises, the employer will have the onus of proving that the individual is not an employee. That’s right. The burden of proof now falls on the employer.

An employer that misclassifies an employee could be subject to penalties including prosecution, monetary penalties and disclosure of a conviction. In fact, the director of employment standards may make public (including via the Internet) the name of the employer and its contravention, if that employer is found in violation of employment standards legislation.

If found to have misclassified employees as independent contractors, the employer may be required to pay significant penalties, interest and legal fees, in addition to outstanding payroll deductions. Here are some of the costs an organization may incur:

  • Penalties of 10% to 20% on unpaid Income Tax, EI and CPP premiums, plus interest
  • Workers’ compensation premiums, plus fines and interest
  • Unpaid Canada Pension Plan premiums (workers’ and employers’ share)
  • Minimum wage, overtime, parental leave, vacation pay, and more
  • Potential claims for wrongful dismissal damages from early contract termination Also, the director of employment standards may make public (including via the Internet) the name of the employer and its contravention, if that employer is found in violation of employment standards legislation.

The Ontario government’s clear emphasis on enforcement includes plans to hire up to 175 more employment standards officers to investigate complaints and other matters under the Employment Standards Act and to launch a program to educate small and medium businesses and employees about the Employment Standards Act. This will allow officers to proactively inspect, on an annual basis, about 10% of workplaces. Given these circumstances, employers should be prepared for inspection blitzes and ready to demonstrate compliance with the new legislation.

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Alberta Bill 17 – Reclassified Contractors

In any province a worker who was improperly classified as an independent contractor may make a claim to the Employment Standards Branch for overtime pay, statutory holiday pay and vacation pay that the employee was not compensated for because he or she was paid as a contractor.

The new legislation in Alberta, under Bill 17, became law effective January 1, 2018.

Most importantly effective September 1, 2017 the definition of “employee” in the Labour Relations Code was broadened to include “dependent contractors”. This change now allows independent contractors, deemed to be “dependent” on the employer (in essence an employee of that organization) to unionize and collectively bargain in the future. What will you do when Unions approach your contractors?

This amendment clarifies the intention contained in the rest of the Bill to include dependent contractors under the Labour Relations Code.

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Testimonials

Every Independent Contractor in Canada should pay attention to this solution provided by PCSI if they and their accountant are concerned with the PSB issue. Finally, there is a CRA compliant solution that gives a contractor a stable tax structure and more importantly compliance reassurance. As a former CRA Auditor specializing in this area, I can tell you PCSI has done its homework and diligence. Employers also mitigate risk when it comes to the new Dependent Contractor classification.

David Inhaber (FCPA, FCGA)
Former CRA Auditor

Past court cases have shown that traditional approaches are no longer a viable safeguard against the rapidly escalating financial exposure relating to employment issues.By working with PCSI we are able to offer the only true risk mitigation strategy for Canadian companies engaging with
independent contractors.

Kerrianne MacMullin
Airswift Sales Director – Canada

Aly Bandali, CEO of Professional Contractor Solutions, gave a very educational presentation to our Branch. Aly has excellent knowledge of the independent contractor issues. His presentation provided a clear understanding of what the considerations need to be for both contractors and the companies that hire them for their services.

Patrick Landry
CIM Calgary Branch

Aly’s [PCSI] was an excellent session. He is articulate and knowledgeable, and I recommend PCSI’s expertise for any organization whose employees or members are connected in any way to contracting and consulting services, either as a client or provider.

Eric Morin
Association of Science and Engineering Technology Professionals of Alberta (ASET)

The APEGA Calgary Branch organized the presentation “Strategies for Independent Contractors, Employers and Progressive Organizations” by Professional Contractor Solutions. Their presentation was on topic, sometimes surprising, and conducted professionally by the speakers. I recommend these experts to persons or organizations contemplating their engagement.

Tibor Kaldor
APEGA Calgary Branch

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