Contract workers: managing employees in the new world of work.

Confusion over hiring contract workers is causing many costly legal errors for employers.

The popularity of contract work stems in large part from the flexibility and the reduced costs it can offer. But the benefits of these methods may be more illusory than real - in many cases they are legal time bombs ready to explode on unsuspecting employers.

Contract work can take several forms. You can hire employees on a temporary basis, either directly or through a temporary help agency, or you can hire independent contractors. Independent contractors provide services to your organization without being employees.

Independent Contractors

In an effort to reduce payroll costs, many managers have entered into independent relationships, often with former employees, Independent contractors like this arrangement as they are able to enjoy tax deductions to which they would not be entitled as employees. The organization benefits by reducing. many of the costs associated with having employees, such as benefits and payroll taxes, like employment insurance and CPP.

Unfortunately, the parties to these arrangements are often unaware of one very important point - the government and the courts don't care what you call your relationship. They look only to the true nature of the relationship and usually, they find it to be an employment relationship.

The test of whether you are in an employment or independent contractor relationship has sometimes been referred to as the "duck test". If a bird looks like a duck and acts like a duck, it's a duck. Likewise, if an individual looks like an employee and acts like an employee, he or she is an employee.

The consequences of inappropriately calling an employee an independent contractor can be quite significant. For example, you may have to:

* pay overtime and vacation pay that accrued during the term of the relationship

* provide notice of termination applicable to employees

* pay a fine of up to $50,000 for not complying with the Employment Standards Act

* pay the full cost of any accident benefits to which an employee would have been entitled under the Workers' Compensation Act and possibly face a fine if the "independent contractor" has had an unreported accident

* pay the whole amount of CPP contributions that you should have deducted, plus interest and penalties