Will hiring contractors save your company money?

Sep 25, 2012

Often times, companies will consider hiring external contractors to reduce various costs and liabilities instead of hiring regular employees.  Having no objections to that and while paying less tax, contractors are content with this arrangement.  Some employers make deal with their employees to fire them  and then hire them back as contractors, while the work being performed would stay the same as when they were employees.  However, the problem occurs when these arrangements are challenged and a court finds that these contractors were actually employees.  Even with a signed agreement between the employer and the contractor, the court will consider the nature of the employer’s control and the employee’s vulnerability in the relationship and find that contractor to be an employee.

So, what can be done if you’re considering hiring or becoming a contractor?

Toronto Employment Lawyer, Daniel Lublin offers his advice in his latest article, Think you’re cutting staff costs with a contractor? Think again published in the Globe and Mail.

Even though it is always best to consult with an expert, here are few things to consider if you decide to hire or become a contractor:

  • Have a clear separation between the employer’s business and the contractor.  Permit the contractor to perform services for others and to maintain genuine discretion over how and when he or she performs the job.
  • Use a third-party company to act as the notional employer.  These companies are becoming increasingly relevant, and most are adept at designing an arrangement that will hold up in court.
  • Ensure that contractors do not receive any of the benefits given to regular employees, including health benefits, statutory holidays and overtime pay.
  • Do not allow a contractor to continue in the job indefinitely.  Courts and government tribunals tend to focus mostly on permanency and dependency in declaring whether a contractor is truly independent.  The longer he or she stays, the more likely he or she will be viewed as an employee.

 

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