PSC Blog - Contractor Misclassification Risks and Labor Law Compliance

Worker Misclassification in Canada: Current Realities

 Email Article  

Tweet  

  

  

 delicious  

  

Is Your Companies Independent Contractor Management Program Sufficient?

A recent PSC post dealt with the escalation of penalties and fines relating to misclassification of workers in the US. But how does this relate to Human Resource practices in Canada? Is Canada Revenue Agency (CRA) as zealous as the Department of Labor down south? Any industry or company that uses independent contractors can be the subject of an audit by the CRA. While there have been many other industries facing penalties, here are two recent examples of how worker misclassification is affecting the bottom line of some Canadian companies.

Construction Industry

It appears as though CRA and some provincial governments are very serious. The provincial government in British Columbia has been targeting the construction industry for several years. According to the Journal of Commerce more than $1.6 billion in tax assessments were levied from 2000-2008 relating to unreported or under-reported contractor income in the construction industry. In 2009 alone that figure was $26 million in B.C. The industry uses legitimate subcontractors for many jobs. But an absence of permanent or part-time employees will likely get some negative attention. The penalties are high for those companies that find themselves on the on the wrong end of a judgement.

Direct Sales

Is this the kind of publicity you imagined for your company? Are you willing to shell out big money for big legal bills? Since the answer is likely no to both of these questions then your HR department needs to be up-to-the minute on Canadian labour laws. This case, from January 2012, highlights the seriousness of the government in investigating all aspects relating to employee/contractor designations. The direct sales company, Integranuity Marketing, appealed a previous judgement against them and lost in the higher Tax Court of Canada. It’s not enough to say that a consultant is performing tasks differently from that of a permanent employee. The courts will look at the contract between the independent consultant and the employer. Then a comparison will be made between the contract and the reality of the working environment. In the case of Integranuity Marketing, the working relationship laid out in the contract differed greatly from the daily tasks that the employee was asked to perform. Having a contract is not enough to clear a company of wrong doing. The burden of proof is in the actual experiences of the contractor/employee.

Risk Mitigation

Clearly Canada is following in the footsteps of our southerly neighbours. The government is very serious about pursuing the lost revenue from unpaid taxes, pension contributions and employment insurance premiums in all industry sectors. Human resource risk management needs to be approached with diligence and attention to detail. As with our American counterparts, it doesn’t matter if the misclassification results from honest mistakes or intentional negligence, the financial penalties are real and devastating. Here are some steps your Human Resources personnel can take to independent contractor risk.

Use this calculator tool to gain insight into your company's potential risk!