Employee vs. Independent Contractor : NS Labour and Advanced Education, Employment Rights

Employee vs Independent Contractor


Labour Standards legislation applies to employees. It does not apply to independent contractors. The term independent contractor refers to businesses or contractors who provide a service to individuals or other businesses. For example, a restaurant may enter into a contract with a carpenter to build an access ramp to the front entrance of the restaurant. In this case, the restaurant would not be the carpenter's employer and the rules set out in Labour Standards legislation would not apply to their relationship.

In many situations, the person doing the work is clearly an independent contractor. In other situations it is not so clear. There are a number of factors we consider to decide if a worker is an employee or independent contractor. We consider, for example, the following:

  • How the worker is compensated for the work.
  • The amount of control the payer (the person or company paying for the work) has over how the work is done.
  • Who owns the tools and equipment used to do the work.
  • Whether the worker can hire another individual or subcontract with another company to perform the services they were contracted to perform.
  • Whether the worker works only for the payer or also works for other clients.
  • Whether the worker has a financial investment in the business over and above providing the labour.

Usually, when a worker and payer enter into a relationship in which the worker is treated as an independent contractor, the payer does not make statutory deductions (e.g. income tax, EI, CPP) from the compensation paid to the worker and does not provide the worker with benefits required under Labour Standards legislation (e.g. vacation pay, holiday pay, overtime pay, termination notice, pregnancy leave). The Labour Standards Code prohibits employers and employees from contracting outside of the Code. This means that even if a payer and worker enter into a contract (verbal or written) stating the worker is an independent contractor, if the nature of the relationship supports a finding that the worker is an employee, the Labour Standards Code will apply to the employment relationship.

Treating a worker as an independent contractor when the worker should be treated as an employee under Labour Standards legislation could be quite costly for a payer. If the worker was found to be an employee under Labour Standards legislation, the payer could be required to pay the employee pay (e.g. vacation pay, holiday pay, overtime pay, minimum wage) going back a number of months. Also, if the worker was denied other benefits such as job protection for pregnancy leave, or if the worker was an employee with10 or more years of service and fired without just cause, the payer could be required to reinstate the worker with back pay. Furthermore, both the worker and the payer could have obligations to the Canada Revenue Agency.

Determining if a worker is an independent contractor or employee often requires a thorough investigation. If you have questions about this, please contact Labour Standards.