The Test of Independence

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The use of an “independent contractor” can appear to be a hassle-free alternative to hiring an employee.

There’s no need to worry about deductions for such things as income tax, Employment Insurance (EI), Canada Pension Plan (CPP), Quebec Pension Plan (QPP) or Workplace Safety and Insurance Board (WSIB) contributions. Such deductions become the responsibility of the independent contractor, who also has the opportunity to claim business-related expenses. Nor do those who contract the service need to remit their share of CPP/QPP contributions or EI premiums to Revenue Canada and le ministere du Revenu du Quebec.

Yet the process of convincing a driver to set up a so-called “single-driver service” as a means to avoid such charges can be costly – particularly since government agencies may not recognize the independent status, and could come looking for unpaid taxes, premiums and other financial penalties.

“It’s mainly the ma and pops,” says Global Driver Services vice-president George Iacono, referring to smaller fleets that attempt the practice. “The for-hire sector is so competitive. The companies doing it are offering low-ball rates.”

A variety of deductions can account to 15% to 20% of a driver’s salary, and some of the savings are passed on to shippers to help secure contracts, he says.

But if a government agency determines the trucker should be defined as an “employee,” unpaid deductions will need to be paid.

Every government body has its own checklist for determining whether a driver is truly an independent contractor. However, bodies such as the Canada Customs and Revenue Agency (CCRA) tend to apply a “four-part acid test”, says industry consultant Blair Gough, who has written extensively on the issue.

That agency looks at:

1. Control – The more control a carrier has over the individual, the more likely the relationship is employer-employee in nature. For example, can the individual turn down loads or work for additional carriers? Who decides on the route that must be taken?

2. Ownership of tools – Does the “independent contractor” own the tools of the trade? It’s also important to look at whether the equipment is leased, and who is responsible for maintenance. The CCRA, for example, will consider whether the fleet is responsible for costs related to the use of equipment, such as repairs and insurance.

3. The chance of profit or risk of loss – Employees are entitled to their wages regardless of the financial health of the business. Independent contractors won’t enjoy the same security. And independent businesses that charge more than $30,000 per year need to file for a GST number and charge the appropriate taxes on behalf of the government. Meanwhile, who is responsible for covering costs associated with benefits?

4. Integration – This issue is considered from the worker’s point of view. “Where the worker integrates his activities to the commercial activities of the payer, an employer-employee relationship probably exists. The worker is acting on behalf of the employer, he is connected with the employer’s business, and is dependent on it,” the CCRA notes.

It’s easy to see why drivers may try to register for the status of an independent operator, says Michel Blaquiere, president and COO of Drakkar Human Resources in Montreal. “Some people don’t see further than their weekly income. They don’t realize that most of them are not covered by workman’s comp … they have developed a short-term vision.”

Since independent operators aren’t required to have WSIB coverage, they could be left without any income in the event of an injury, he says.

Fleets are also at risk if one of their owner-operators attempts to hire additional workers in this way. “If you hire an independent operator who hires his/her own workers/helpers but does not register with the WSIB, you as the principal may be held responsible for the operator’s premiums and the cost of any injury,” notes Ontario’s WSIB.

“Go beyond the contract to how it will work in practice,” Gough adds, noting that it isn’t enough to simply suggest independence in the lines of a contract. “If there are considerations to move in this regard, I’d be awful cautious.”

(Details in this article are for information purposes only and should not be considered as a replacement for professional legal advice.)

The Canadian Trucking Human Resources Council (CTHRC) is an incorporated non-profit organization with a volunteer Board of Directors that is representative of stakeholders from the Canadian trucking industry. With the conviction that the best human resources skills and practices are essential to the attainment of excellence by the Canadian trucking industry, the mission of the Council is “to assist the Canadian trucking industry to recruit, train and retain the human resources needed to meet current and long-term requirements”

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