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Employee or Independent Contractor: Understanding the Key Differences (in Quebec)

When you're running a business, one of the key decisions you'll need to make is whether to hire employees or independent contractors to do the work you need to be done. While both types of workers can provide valuable services, there are some important differences to keep in mind when deciding which option is right for you. In this blog post, we'll take a closer look at the differences between independent contractors and employees, and what you need to know before making your decision.

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1. Control and Direction


One of the main differences between independent contractors and employees is the level of control and direction they receive from the business.

Employment relationships are generally covered by the Civil Code of Quebec (the "C.C.Q.") which defines the contract of employment as a contract by which a person, the employee, undertakes, for a limited time and remuneration, to do work under the direction or control of another person, the employer [1]. This means the employee typically works under the direction of a supervisor or manager, who sets their schedule, assigns tasks, and provides guidance on how to complete those tasks.


In analyzing the relationship between a business and a worker, the courts have traditionally held the existence of subordination as one of the most important elements in determining whether the worker is an employee or an independent contractor [2]. Some factors that are taken into account when making this determination include:

  1. The workers’ mandatory presence at work;

  2. The respect of a work schedule;

  3. The control of the quantity and quality of the work;

  4. Imposing methods to perform the work;

  5. The deduction of taxes by the employer;

  6. The declared status in fiscal declarations;

  7. The exclusivity of services for the employer [3].

Independent contractors, on the other hand, are generally given more freedom to determine how they will complete the work they've been hired to do. Oftentimes, they are also free to determine when they will work, giving them greater autonomy over their work schedule. However, in this type of relationship, the business can terminate the contract at any time while the independent contractor can terminate the contract for a serious cause but never at an inopportune moment [4].


2. Taxes and Benefits


Another key difference between independent contractors and employees is how taxes and benefits are handled. As an employer, the business is responsible for withholding income taxes and making the at-source deductions from the employees' paychecks, as well as contributing to their benefits. The business may also be required to provide other benefits, such as health insurance, and paid time off.


Independent contractors, on the other hand, are responsible for paying their own income and taxes, and they are not eligible for the same benefits as employees. In this scenario, the worker will declare being "self-employed" to the fiscal authorities. This means that they may need to charge higher rates to cover these costs, and they may not be able to work on a full-time basis. Additionally, as a service provider independent contractors generally need to register with Revenu Quebec for their GST and PST numbers and charge tax to the business.


As discussed above, the declared status in fiscal declarations is a factor that’s taken into consideration. In one case, the court confirmed that a person who unilaterally decided to be engaged as an independent contractor to benefit from fiscal advantages cannot afterward ask to also benefit from the advantages of being an employee [5]. The worker cannot have their cake and eat it too.


3. Liability and Insurance


As an employer, the business is generally responsible for any injuries or accidents that occur while the worker is on the job, and the business is required to carry workers' compensation insurance to cover these costs. Generally, as soon as a business that has an establishment in Quebec has hired at least one employee, they are required to register with the Commission des normes, de l’équité, de la santé et de la sécurité du travail (the “CNESST”). They must pay the occupational health and safety insurance premium through periodic payments to Revenu Quebec. These payments are made at the same time the business pays the source deductions and employer contributions.


With independent contractors, however, the responsibility for accidents or injuries generally falls on the contractor themselves, and they are required to carry their own liability insurance.



4. Duration of Employment


Another important difference between independent contractors and employees is the duration of their employment, and its termination.

In Quebec, employees can be hired for a definite or indefinite period [6] and can be terminated for cause or laid off if the business experiences a downturn. Either the employer or the employee in an indeterminate term employment contract may terminate it by giving notice of termination to the other party [7]. The notice of termination is given in reasonable time, taking into account, in particular, the nature of the employment, the specific circumstances in which it is carried on and the duration of the period of work [8].


Independent contractors, on the other hand, are generally hired for a specific project or task, or even on an ongoing basis. Despite this, the business may decide to terminate the contract at any time. However, the worker that is classified as an independent contractor, can only terminate the contract for a serious cause but never at an inopportune moment [9].


In some situations, the contract can be hard to categorize as either an employment contract or an independent contractor agreement as it has some attributes of the former and some of the latter. In these cases, the contract may belong to an intermediate category, a sui generis contract, which may give the right to reasonable notice to terminate the relationship [10].



5. Costs


Finally, it's important to consider the cost of hiring independent contractors versus employees. While independent contractors may charge higher rates due to their self-employment taxes and lack of benefits, they may also be more cost-effective in the long run if you only need their services for a short time.


Employees, on the other hand, may be more expensive up front due to the costs of benefits and taxes but may be a better choice if you need someone to work for you on an ongoing basis.


Conclusion


Ultimately, the decision to hire an independent contractor versus an employee will depend on your business's specific needs and circumstances. By considering the differences between these two types of workers, you can make an informed decision that will help you achieve your goals while minimizing your costs and risks.


If you are interested in exploring your options or are prepared to implement an employment contract or independent contractor agreement, we recommend seeking the counsel of a business lawyer as your initial step. At Astre Legal, we are available to discuss the optimal approach for your business and start working on realizing your objectives. To schedule a consultation, please contact us today.


 

[1] s 2085 C.C.Q.

[2] Leclerc c. Constructions Louis-Seize & Associés inc., 2012 QCCS 5885

[3] Vandrish c OF Internet Technology Consulting Inc., 2022 QCCS 1012

[4] ss 2125 and 2126 C.C.Q.

[5] Conseillers en informatique d’affaires CIA inc. v. 4108647 Canada inc., 2012 QCCA 535

[6] 2086 C.C.Q.

[7] 2091 C.C.Q.

[8] Ibid.

[9] Vandrish c OF Internet Technology Consulting Inc., 2022 QCCS 1012

[10] Ibid.

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