What
you need to consider to determine
a worker’s employment status
To determine if a worker is an employee or a self-employed individual, examine the relationship between the worker and the payer by considering the factors included below.
To help you make a determination, we give an explanation for each factor
and show some indicators that the worker may be an employee or a self-employed
individual.
The importance of each factor depends on the circumstances of each situation.
All factors must be considered in the context of the relationship as a
whole.
Control
Control is the ability, authority, or right of a payer to exercise control
over a worker concerning the manner in which the work is done and what
work will be done.
Degree of control or autonomy
Consider the degree of control held by the payer or the degree of autonomy
held by the worker. The actual degree of control will vary with the type
of work and the skills of the worker.
The determination of the degree of control can be difficult when examining
the employment of professionals such as engineers, doctors and IT consultants,
because of their expertise and specialized training, they may require little
or no specific direction in their daily activities.
When examining the factor of control, it is necessary to focus on both
the payer’s control over the worker’s daily activities, and
the payer’s influence over the worker.
Payer’s right to exercise control
It is the right of the payer to exercise control that is relevant, not
whether the payer actually exercises this right. It is the control of a
payer over a worker that is relevant, and not the control of a payer over
the end result of a product or service that he or she has purchased.
Subcontracting
or hiring assistants
Consider if the worker can subcontract work or hire assistants. This factor
can help determine a worker’s business presence because subcontracting
work or hiring assistants can affect their chance of profit and risk of
loss.
Responsibility
for investment and management
Consider the degree of responsibility for investment and management
held by the worker. Is the worker required to make any investment
in order to provide the services? A significant investment is evidence
that a business relationship may exist. You should also consider
if the worker is free to make business decisions that affect his
or her profit or loss.
Tools
and equipment
Consider if the worker owns and provides tools and equipment to
accomplish the work. Contractual control of, and responsibility
for, an asset in a rental or lease situation is also considered
under this factor.
What is relevant is the significance of the investment in the tools
and equipment along with the cost of replacement, repair, and insurance.
A worker who has made this significant investment is likely to
retain a right over the use of these assets, diminishing the payer’s
control over how the work is performed. In addition, a significant
investment in tools and equipment and the maintenance and replacement
costs associated with these assets may place the worker at the
risk of a loss.
Items considered as tools and equipment can vary widely in terms
of value and can include everything from wrenches and hammers,
to costumes, appliances, stethoscopes, musical instruments, computers,
and vehicles such as trucks and tractors.
Self-employed individuals often supply the tools and equipment
required to complete a contract. As a result, the ownership of
tools and equipment by a worker is more commonly associated with
a business relationship. However, employees can also be required
to provide their own tools. The courts have acknowledged that a
worker being required to provide his or her tools of the trade
does not, by itself, place that worker in the status of a self-employed
individual. For example, many skilled trades people, such as auto
mechanics, are required to supply their own tools, even if they
are full-time employees.
Financial
risk
Consider the degree of financial risk taken by the worker. To do this,
determine if there are any fixed ongoing costs incurred by the worker or
any expenses that are not reimbursed. Usually, employees will not have
any financial risk as their expenses will be reimbursed, and they will
not have fixed ongoing costs. However, self-employed individuals can have
financial risk and incur losses because they usually pay fixed monthly
costs whether or not work is currently being performed.
Employees and self-employed individuals may be reimbursed for business
or travel expenses. Consider only the expenses that are not reimbursed
by the payer.
Opportunity
for profit
Consider whether the worker can realize a profit or incur a loss,
as this indicates that a worker controls the business aspects of
services rendered and that a business relationship likely exists.
To have a chance of a profit and a risk of a loss, a worker must
have potential proceeds and expenses, and one could exceed the
other.
Employees normally do not have the chance of a profit and risk
of a loss even though their remuneration can vary depending on
the terms of their employment contracts. For example, employees
working on a commission or piece rate basis, or employees with
a productivity bonus clause in their contract can increase their
earnings based on their productivity. This increase in income is
not normally viewed as a profit, as it is not the excess of proceeds
over expenses.
Employees may have expenses directly related to their employment,
such as automobile expenses, board and lodging costs. Normally,
expenses would not place employees at risk of incurring a loss
because it is unlikely that the expenses would be in excess of
their remuneration.
Self-employed individuals normally have the chance of profit or
risk of loss, because they have the ability to pursue and accept
contracts as they see fit. They can negotiate the price (or unilaterally
set their prices) for their services and have the right to offer
those services to more than one payer. Self-employed individuals
will normally incur expenses to carry out the terms and conditions
of their contracts, and to manage those expenses to maximize net
earnings. Self-employed individuals can increase their proceeds
and/or decrease their expenses in an effort to increase profit.
This factor must be considered from the worker’s perspective,
not the payer's. It is, for the most part, an assessment of the
degree to which the worker can control his or her proceeds and
expenses. Employees generally do not share in profits or suffer
the losses incurred by the business.
The method of payment may help to determine if the worker has the
opportunity to make a profit or incur a loss. In an employer-employee
relationship, the worker is normally guaranteed a return for the
work done and is usually paid on an hourly, daily, weekly, or similar
basis. However, some self-employed individuals may be paid on an
hourly basis. When a worker is paid a flat rate for the work performed,
it generally indicates a business relationship, especially if the
worker incurs expenses for performing the services.
