Workforce Misclassification in Canada
Think That You're Immune to Workforce Misclassification in Canada? Think Again!
"Taxman cracks down on IT consultants
Government ignoring committee’s call to recognize realities of ‘modern labour market’
Thousands of local IT consultants are facing hefty tax reassessments as the Canada Revenue Agency reexamines their relationship with staffing agencies that help connect them to the federal government, experts say.
In recent months, the CRA has started “aggressively” auditing these incorporated businesses and ruling their role is more like an employee of a staffing firm than an independent contractor.
The financial stakes for these consultants are said to be high, with some facing reassessed tax bills of up to $50,000, say those involved in the fight with CRA." Read more...
Comment
The "test" has been in place for some time but CRA hasn't aggressively pursued it in a category that is so key to most users of independent contractors, and that is Information Technology.
It is easy to determine if someone is a full time equivalent, in part based on the number of hours that they work for any one company, and the number of weeks per year they are expected to work. It now appears that IT will no longer be exempt from the same rigor applied to all other skill categories. The message to staffing firms and other's that engage these resources, if they work 37.5 hours a week and 50+ weeks a year for the same company, and don't have multiple customers, they are probably full time equivalents in the eyes of CRA. If you don't classify these contractors accordingly and they can't meet the tax obligations the obligation could be met by the client's of those resources and or the staffing companies that misclassified them in the first place. Workforce misclassification is costly!
Do the diligence on the front end. If it looks like a T4 with 37.5 hours a week and one customer for 2+ years it probably is. Eventually this skill classification will have to do what every other skill classication does and that is be subject to source deductions. Professional support in workforce classification and payroll deductions could save your company from significant fines or tax penalties.