If the CRA determines that a staff member has been improperly treated as a self-employed person, you can be charged both the employer’s and the employee’s share of EI premiums and CPP contributions for the period in question.
Employees and employers contribute equally to the Canada Pension Plan. As of 2011, the rate is 4.95% of earnings over $3,500. Self-employed individuals pay the entire amount – that is, 9.9% of earnings over $3,500.
The Canada Revenue Agency provides definitions that help you determine whether your staff should be treated as employees or self-employed. Review this material.
Only staff on payroll, who contribute to the Employment Insurance plan, are eligible to apply for benefits. Freelancers are not covered.
If you have both freelance and employment income, you may want your employer to withhold and remit extra income tax, to cover the taxes due on your freelance income. Provide this direction to your employer on page 2 of the TD1 Personal Tax Credits Return.
Canada’s Employment Insurance (EI) plan provides support to unemployed individuals. Employees pay a premium, up to an annual maximum. Employers pay $1.40 for each $1.00 contributed by the employee. Self-employed individuals generally are not covered by EI. For complete details on EI, click here.
Summer’s coming and we’re all looking forward to long weekends. Know your province’s public holidays, and employment standards for public holiday pay, especially for part-timers and hourly-paid staff. Each province’s Employment Standards Act sets out the minimum requirements.
Personal income tax returns for 2011 are due Monday, April 30, 2012. Freelancers can take advantage of a later deadline: they have until Friday, June 15, 2012 – but any tax owing must be paid by April 30.
Staff Post
By Heather Young
From time to time I will share stories from the field – names and details obscured!
One company went through a nerve-wracking time when a former worker – who had been hired on a fee-for-service contract as a freelance consultant – tried to claim EI and insisted to the folks at HRSDC that s/he had been an employee.
The government responded by notifying the company that they were responsible for remitting both the employer and the employee portions of EI and CPP for the duration of the contract. It was up to the company to appeal this decision, and prove that the worker had been properly treated as a freelancer.
To help the organization prepare its appeal, the government provided a lengthy questionnaire, much of it based on concepts you can read about in the CRA publication Employee or Self-employed?, published online.
The company also did some research, including checking the former worker’s social networking activities, where the individual clearly self-identified as a consultant for hire. It’s unclear whether that influenced the happy ending – but I can tell you that in at least one comparable case the defendant’s Facebook page did him in.
After many hours of work and months of waiting, the company finally received the happy news that their appeal was successful.
The CRA ruling made a strong effort to be balanced, stating that “the parties did not share a common intention as to the worker’s employment status” – although the company feels the status was always clear. It outlined all the terms of employment in some detail, noting that the level of “control”, or supervision, of the employee and ownership of tools and equipment were neutral factors – they could have been interpreted to either party’s benefit. The fact that the worker was providing services personally and was not able to subcontract assigned work was deemed consistent with the worker’s contention that s/he was an employee, but the fact that the worker was free to take on other projects for personal profit, and promoted him/herself as a freelance communication consultant suggested to the CRA that s/he was “embarking on a business enterprise on his/her own account.” Weighing all factors, the CRA ruled in the company’s favour: but in reading the written ruling, it looks like it was a close call.
Arts organizations and charities secure all sorts of services on part-time, part-year contracts. It’s worth the effort to research how a particular position should be treated (employee or self-employed?), and to be crystal-clear with the worker both verbally and in a written contract.