Employee or Contractor?

The desired objective is to have all of your team members considered to be self-employed. If you think life is complicated now, try having 6-8 employees. If you’ve never been an employer, ask any business owner and let them tell you how complicated it is.

As an employer you are responsible to withhold and remit taxes, Employment Insurance, Canada Pension Plan and distribute T-4 slips. I won’t even touch on the scenario of someone becoming pregnant or requiring long term disability.

OK, I think I have you convinced, but how to you justify having self-employed people come into your home?  Below, I have provided some links. Read them and apply them to your circumstances. Remember your Consultant is providing the training and direction for your therapists, not you!

Whose opinion actually matters in determining employment status?

Ultimately, the federal government is the one that matters. The provincial government may have some issues and Worksafe BC may dictate some rules, but the feds are the ones who really matter. If a therapist quits and tries to claim for benefits, it’s the federal government that is concerned. It’s Revenue Canada or CRA that collects the taxes, CPP and Employment Insurance.

Are there any precedents?

The Joris decision (no longer available online) was a victory as Revenue Canada sided with the parent who considered the therapists to be self-employed. The Hookham decision had the opposite ruling.

One of the key factors in that ruling was that the relationship between parent and therapist was not specified in writing prior to commencement of therapy. I’m not saying that if an agreement had been signed, it would have made the difference because each case is based on its own merits. It would however provide one more piece of evidence for the court to consider. See the links below for more information.

How do I determine the therapist’s status?

One of the biggest factors is the understanding that you and the therapist have regarding their employment status. You need to come to an agreement with your therapists before they start working. Self-employment status entitles them to write off expenses such as mileage, cell phones and reinforcements. On the other hand they don’t qualify for any employment insurance benefits.

If you employ one therapist full time for your child and you control their schedule, the therapy and reimburse them for all expenditures, then there is no question; the therapist is an employee. On the other hand if the therapist works for numerous families, tells you when he/she is available, provides some of their own reinforcements and provides the expertise for the therapy, then this person is clearly a self-employed contractor. The true status is often in a grey area between the two extremes.

After an understanding is reached, a contract or agreement should be signed by both parties detailing the relationship. If there is any doubt, you can apply to Revenue Canada for a ruling. If the therapist believes that they are entitled to be an employee, don’t hire them unless a ruling is given. To do otherwise is asking for disaster.

What if I am tempted to hire them without a clear understanding?

Remember that an employer who fails to deduct the required CPP contributions and EI premiums must pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus penalties and interest. Don’t let things get this far.

What do most parents do?

I wish I could present a black and white answer, but this is the reality of the situation. If someone tells you the situation is clear, they are wrong. Every situation is different and what applies to one scenario may not apply to the next. There are numerous factors to be considered, including the experience of the therapist, the number of families they work for and the degree of control that the therapist has.

Most parents treat their therapists as self-employed and most have no problems with this arrangement.  On occasion things go wrong when a therapist tries to claim for EI benefits. Having a good understanding of the employment situation and a clear contract are tools the parent can employ.

Some parents take the cautious approach and treat their team members as employers. To do this, you will have to register with CRA as an employer, remit taxes, EI and CPP on a monthly basis and prepare T-4 slips every year. This is a lot of work; however you can employ a payroll service to do most of it for you.

You should steer clear of demanding a minimum time commitment for your therapists. This includes the ads you run to hire therapists and the agreement that you will sign before they start working. A minimum commitment implies a degree of control which only an employer has.

The service agreement

A sample service agreement is available for download on my Files page, however I take no responsibility for its legality. The parents and the therapist should both very carefully review every item in the agreement.

There is a lot of misunderstanding amongst parents about what a contract accomplishes. Firstly, you can’t make a person stay with your family if they want to leave. It’s a shame that you have wasted money training the therapist, but the bottom line is that you will have to suck it up. It also doesn’t change reality. If the true situation is different than the agreement implies, this does not help your case.

The contract does not provide for the final word regarding the employer-employee relationship.  It does however provide strong evidence for you if you end up in tax court. It shows that the issue was raised and provides more information for the court.

Links