You're an Employee, Huh?
I met a person at a convention recently who described
herself as a consultant. Danielle said she had a permanent, full-time
contract with a well-known non-profit organization. She told
me she was an employee. In pleasant conversation, it all seemed
to make sense. Later, when I thought about it, her description
didn't make any sense at all. At least not legally. When I tried
to picture the kind of working relationship Danielle might be
describing, I really didn't have a clear idea.
Once upon a time, almost all those who worked had a normal job,
got a pay cheque, and called themselves employees. All that has
changed. Part-time workers, consultants, term employees, and
temporary part-time are common labels for working relationships.
But these designations certainly don't give a clear mental image
of the work relationship. And when there is uncertainty about
a legal relationship, trouble is bound to follow. For many people
involved with non-profit organizations, "who and what are
employees?" are often unanswered questions.
What is an Employee?
Employment law has a long history; its origins are in some of
the earliest English statutes setting down the rules between
master and servant. For non-union situations, the
law now speaks about individual contracts of employment. If there
is no written arrangement, the law provides the essential details
of the employment relationship. Perhaps the most important of
these terms is who is an employee and how that person stops being
employed.
An employee is a person who provides his or her labour in an
ongoing way for pay, either money or other compensation. The
law presumes an employee continues to be an employee until he
or she is terminated or quits. Termination happens when the employer
gives notice, telling the employee when the employment is finished.
This notice period is the interval between when the person is
first told the job is over until the date when he or she is no
longer working. Every employee is entitled to a period of notice
roughly equal to the time the law says it would take to get a
similar job. If notice isn't given, people are entitled to their
normal pay as if they worked the period of notice. An employer
can do away with notice or paying instead of notice only where
there is cause. Cause is a legal reason that justifies an employer
immediately dismissing an employee; things like theft, too many
days away from work, lying to the boss, and so on. But there
isn't an exhaustive list. The courts are continually devising
new causes.
The important point is that without a written arrangement setting
out the terms of the work arrangement, the law will substitute
its own, standard version. So it is important both as an
employer and an employee to pay careful attention to the
terms of the employment relationship and to write the details
down in a clear, legally enforceable way.
But I'm a Consultant
An increasingly common alternative to employee status is the
consultant or independent contractor. The person who otherwise
would be the employee often gains access to income tax and GST
deductions not available to the employee. The employer is no
longer responsible for employment-related deductions like UIC,
CPP and tax remittances. And the overhead costs associated with
tracking payroll deductions and preparing the necessary reports,
including T4s, are no longer incurred. But and it is
a tremendously important but the relationship between
the person working and the person or company paying must reflect
the law's requirements. The person must truly be independent
and not an employee. Otherwise, past payroll deductions must
be made as required for both the employee and the employer.
There are two necessary features to document the independent
contractor status: the person must be able to perform work for
others (even though they might not actually be doing so) and
the basic expenses relating to the person's business or being
an independent contractor must be paid for by them (Wiebe
Door Services, 1986). These overheads can be built into the
fee but cannot simply be passed on as a contractor expense. It
goes without saying that the contractor must send an invoice
and not receive what looks like a pay cheque. As one commentator
has observed, setting up an independent contractor arrangement
may actually end up as a win/win situation for the parties, but
often Revenue is the big loser. That being the case, the private
parties should be extremely careful to ensure the arrangement
is genuine in execution as well as documentation. (Arthur Drache.
The Independent Contractor. 1994, p. 181).
Laird Hunter is a lawyer with the firm of Worton and Hunter
in Edmonton, Alberta
