Contractor, agent roles should be clearly defined
Businesses employ a variety of different individuals and other corporations to work on their behalf. The most common form of this relationship is the employer/employee link but many businesses also engage two other types of workers: agents, and independent contractors.
Agents are primarily individuals or companies that are authorized to act on behalf of another individual or company. When you appoint an agent, their authority is generally limited in scope: A corporation might engage an agent to act as a salesperson in a particular area or region and for a limited number of products or services. Often, remuneration is based on commission or draws.
Independent contractors are generally individuals or companies that are engaged by another party and who have the right to control or direct the result of the work done by the contractor but not necessarily the means and the methods used to accomplish the result(s).
The key here often stems from the amount of control the engaging party has over the activities of the contractor. For example, if you have a person who works in your office, on your computer, is engaged in tasks primarily for you and keeps hours that are defined by you, then you have an employee rather than an independent contractor.
The reason why I raise this is that businesses often bring on associates in a loose manner and they define themselves as agents or independent contractors. While this is fine, the business needs to carefully define this relationship; otherwise, they may find the government views the association differently.
As you may know, if you are an employer, you are responsible for government remittances to Canada Pension Plan, Employment Insurance, Worker’s Safety Insurance Board and Income Tax. Even if your agent/contractor provides you with a guarantee (often known as an indemnity) you can still be audited, which in and of itself can be a painful process, and if the auditor finds an employment relationship the business can be found responsible for remittance of arrears — especially for the employer contributions to WSIB and CPP.
So, businesses must be very careful when they bring on new associates and form new business relationships.
Agents and contractors improperly retained can lead to troubles with the authorities.
Jeffrey D. Cowan, B.A., B.Comm, LL.B., M.B.A., is the Principal of Cowan & Taylor, Barristers & Solicitors which practises in the areas of business and real estate law. Cowan appears in Your Money every other week. E-mailjeff@cowanandtaylor.comor call 416-363-5046 with questions for future columns. The information contained in this article should not be relied upon as legal advice.
