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What
you need to consider to determine
a worker’s employment status
To determine if a worker is an employee or a self-employed individual,
examine the relationship between the worker and the payer by considering
the factors included below.
To help you make a determination, we give an explanation for each factor
and show some indicators that the worker may be an employee or a self-employed
individual.
The importance of each factor depends on the circumstances of each situation.
All factors must be considered in the context of the relationship as a
whole.
Control
Control is the ability, authority, or right of a payer to exercise control
over a worker concerning the manner in which the work is done and what
work will be done.
Degree of control or autonomy
Consider the degree of control held by the payer or the degree of autonomy
held by the worker. The actual degree of control will vary with the type
of work and the skills of the worker.
The determination of the degree of control can be difficult when examining
the employment of professionals such as engineers, doctors and IT consultants,
because of their expertise and specialized training, they may require
little or no specific direction in their daily activities.
When examining the factor of control, it is necessary to focus on both
the payer’s control over the worker’s daily activities, and
the payer’s influence over the worker.
Payer’s right to exercise control
It is the right of the payer to exercise control that is relevant, not
whether the payer actually exercises this right. It is the control of
a payer over a worker that is relevant, and not the control of a payer
over the end result of a product or service that he or she has purchased.
Subcontracting or hiring assistants
Consider if the worker can subcontract work or hire assistants. This factor
can help determine a worker’s business presence because subcontracting
work or hiring assistants can affect their chance of profit and risk of
loss.
Responsibility
for investment and management
Consider the degree of responsibility for investment and management held
by the worker. Is the worker required to make any investment in order
to provide the services? A significant investment is evidence that a business
relationship may exist. You should also consider if the worker is free
to make business decisions that affect his or her profit or loss.
Tools
and equipment
Consider if the worker owns and provides tools and equipment to accomplish
the work. Contractual control of, and responsibility for, an asset in
a rental or lease situation is also considered under this factor.
What is relevant is the significance of the investment in the tools and
equipment along with the cost of replacement, repair, and insurance. A
worker who has made this significant investment is likely to retain a
right over the use of these assets, diminishing the payer’s control
over how the work is performed. In addition, a significant investment
in tools and equipment and the maintenance and replacement costs associated
with these assets may place the worker at the risk of a loss.
Items considered as tools and equipment can vary widely in terms of value
and can include everything from wrenches and hammers, to costumes, appliances,
stethoscopes, musical instruments, computers, and vehicles such as trucks
and tractors.
Self-employed individuals often supply the tools and equipment required
to complete a contract. As a result, the ownership of tools and equipment
by a worker is more commonly associated with a business relationship.
However, employees can also be required to provide their own tools. The
courts have acknowledged that a worker being required to provide his or
her tools of the trade does not, by itself, place that worker in the status
of a self-employed individual. For example, many skilled trades people,
such as auto mechanics, are required to supply their own tools, even if
they are full-time employees.
Financial
risk
Consider the degree of financial risk taken by the worker. To do this,
determine if there are any fixed ongoing costs incurred by the worker
or any expenses that are not reimbursed. Usually, employees will not have
any financial risk as their expenses will be reimbursed, and they will
not have fixed ongoing costs. However, self-employed individuals can have
financial risk and incur losses because they usually pay fixed monthly
costs whether or not work is currently being performed.
Employees and self-employed individuals may be reimbursed for business
or travel expenses. Consider only the expenses that are not reimbursed
by the payer.
Opportunity
for profit
Consider whether the worker can realize a profit or incur a loss, as this
indicates that a worker controls the business aspects of services rendered
and that a business relationship likely exists. To have a chance of a
profit and a risk of a loss, a worker must have potential proceeds and
expenses, and one could exceed the other.
Employees normally do not have the chance of a profit and risk of a loss
even though their remuneration can vary depending on the terms of their
employment contracts. For example, employees working on a commission or
piece rate basis, or employees with a productivity bonus clause in their
contract can increase their earnings based on their productivity. This
increase in income is not normally viewed as a profit, as it is not the
excess of proceeds over expenses.
Employees may have expenses directly related to their employment, such
as automobile expenses, board and lodging costs. Normally, expenses would
not place employees at risk of incurring a loss because it is unlikely
that the expenses would be in excess of their remuneration.
Self-employed individuals normally have the chance of profit or risk of
loss, because they have the ability to pursue and accept contracts as
they see fit. They can negotiate the price (or unilaterally set their
prices) for their services and have the right to offer those services
to more than one payer. Self-employed individuals will normally incur
expenses to carry out the terms and conditions of their contracts, and
to manage those expenses to maximize net earnings. Self-employed individuals
can increase their proceeds and/or decrease their expenses in an effort
to increase profit.
This factor must be considered from the worker’s perspective, not
the payer's. It is, for the most part, an assessment of the degree to
which the worker can control his or her proceeds and expenses. Employees
generally do not share in profits or suffer the losses incurred by the
business.
The method of payment may help to determine if the worker has the opportunity
to make a profit or incur a loss. In an employer-employee relationship,
the worker is normally guaranteed a return for the work done and is usually
paid on an hourly, daily, weekly, or similar basis. However, some self-employed
individuals may be paid on an hourly basis. When a worker is paid a flat
rate for the work performed, it generally indicates a business relationship,
especially if the worker incurs expenses for performing the services.
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