Congratulations! Your business has grown and it’s time to hire some help. When hiring one or more individuals, there are many considerations. Perhaps one of the most important decisions will be whether to hire someone as an employee or an independent contractor. Here’s a quick overview of the differences between the two.
Most employees are hired on an ongoing basis, instead of a fixed time period and are on your payroll. When hiring an employee, you have a greater degree of control over what tasks they work on and when they are available to perform those tasks. You can determine the hours and location of work, and will also be responsible for paying wages, while managing the hold-back of relevant income tax.
If your employee is full-time, you will need to research and implement other human resources requirements, such as workers compensation, vacation pay, and possibly benefits. As an employer you will be responsible for upholding the Employment Standards and other HR Regulations. Employees should be provided with equipment and technology required to do their job safely and effectively, at the employer’s expense.
Independent Contractor Considerations
Independent Contractors (often referred to as subcontractors, freelancers or consultants) operate as an independent business. They become your service provider, and you become their client. They provide specific services to support your business, and are free to have other clients, as well as a flexible schedule and work location.
Independent contractors often register a business name, or they may operate under their legal first and last name. To request payment, they will submit an invoice to you for services rendered, and may charge GST/HST if applicable. They are responsible for setting aside money for their income tax, CPP and GST/HST to be paid directly to the Canada Revenue Agency. As a separate business entity, they will usually purchase their own equipment, supplies, insurance and other operating expenses (unless otherwise arranged with their client).
Which Type of Worker is Right for Your Business?
Here are a few questions to ask yourself when determining whether to hire an independent contractor or an employee:
- Will you need help for a fixed period of time, or ongoing?
- Is there flexibility for the location where the work must be done?
- Do you require the person to follow strict guidelines for policies and procedures?
- Does the worker offer highly specialized skills?
- Are your other employees doing the same work?
- Does the work require a lot of control or supervision?
- Do most businesses in your industry hire independent contractors for similar roles?
Either option, it is important to have a legal contract to protect yourself and the work to be undertaken by the employee or subcontractor.
If you are ready to take the next step, book a meeting with an experienced business advisor at Small Business Centres Ontario – we have 54 offices across Ontario. Working with a business advisor means you are not alone and that you can get help to build your plan. Find a location near you.
Want to learn more about hiring employees or contractors? Check out our free online course, “Hiring Employees vs Self Employed Contractors”.