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Differentiating Yourself as an Independent Contractor NOT an Employee

I should preface this post by admitting that I am not a lawyer or accountant and therefore can offer no legal advice on this subject.  The following is merely my opinion based on  more than 14 years owning and operating my own staffing company, and having served for 9 years on the staffing industry association board (including a year as President).

A current topic of conversation in the world of independent contractors (ICs) is a potential “focus” by (Canada Revenue Agency (CRA) on determining the true independence of people operating as “independent contractors”.   A couple of bad things that can happen to an IC are (a) they are deemed to be an employee; or (b) they are deemed to be on a personal services contract.

Neither is good because it is likely that, in either case, any and all tax deductions will be denied (back for several years) and if deemed an employee there will be messy fines for non-deduction of normal employee deductions etc.  Not good for the independent contractor.  Not good for the staffing industry.  Not good for the staffing industry’s clients … and by definition, not good for the Canadian economy.

The purpose of this blog is to talk about the kind of things that ICs can do to prevent this situation … I can blog another time about why they (and their status) is important to Canada’s economy.

Things to be cognizant of when operating as an IC.

  1. You need to think and operate like a business owner … NOT an employee.

  2. You should read up on the rules that CRA use to determine independence (pay particular attention to “control”)

  3. Incorporate as a company!

  4. You should do anything you can to differentiate yourself from the employees that you will invariably working alongside.  You should NOT look, act or “feel” like an employee.  Some thoughts on that:

    • Pay for any training you take … it doesn’t need to be a lot of money, but pay something.

    • If you go to an employee social event paid by the employer, pay something towards your attendance … it could be a donation of a door prize?

    • Try to dress just a little smarter than the average … not out of place, just always professional.  Dress shirt instead of golf shirt; tie versus no-tie etc.

    • Don’t keep regular “employee hours” … get there a little earlier (even 15 minutes) and leave just a little later.

    • Do NOT get involved in office politics.

    • Have an accountant that understands the IC world.  Note that they all know it to some extent, but someone who really understands it is invaluable.  This person needs to ensure you are staying onside with the tax rules.

    • Have a lawyer that also understands it … can ensure you are set up correctly.

    • Work with (register with) several agencies … you do not want an exclusive arrangement with any one agency.

    • Have your own tools … most likely you won’t be bale to use your own computer on the job for many business reasons … security, access to systems etc.  However you can use your own tools to manage your business, your own pda to manage your schedule etc.

    • Be a good corporate citizen … give back to the community.   (It makes you look and act like a business).

    • There are no rules with CRA about how long you can work at any one client.  However … the longer you are on a contract the more you start to look like an employee, and the harder you will need to work to look like a business.

    • If you can demonstrate obvious risk of income it helps … fixed price, deliverables based contracts are one good way.  You do have risk of payment because if the client doesn’t like your work in any given pay period they can choose not to pay you.  As a business that is a good thing, you need to deliver good work and you will be paid.

    • If you can take on other clients with your business it helps … even charitable work that is unpaid.  You can do work. Provide an invoice and credit the work … might even be tax deductible.

This is not exhaustive but gives you a picture.  You do NOT want to look like an employee.