Entrepreneurship & Small Business

Hiring a company as an employee?

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  • Jun 19th, 2013 10:38 am
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Jr. Member
May 31, 2013
147 posts
4 upvotes
Burnaby

Hiring a company as an employee?

I have a room in my condo which I use for my home-office. The room is use exclusively for my consulting business and doing contract work for clients which I have been doing for the past 5-6 years.

Right now I have been in talks with another client who wants to hire me not as a contractor but as an employee. This is the first time this has come up so I'm not sure how this is handled. He wouldn't be providing any of my equipment, nor an office, nor setting my hours, I would have a great deal of control over my work, and a lot of the risk would still be in my hands to make their project profitable. It would basically be like a contract job but on paper it would be an employment contract. (I think he's doing this for some tax benefits on his end...)

Looking at an Independent Contractor vs Employee checklist it seems to me that this SHOULD be classified as a contracting position. It doesn't add up to me so it seems to me this would be a good way for me and the company to get an audit.

Questions:
1) Is it the employers/clients responsible to use the correct contract type (work for hire/contract vs employee) or is the onus on me? Should I insist on a contracting contract if I believe that is what it should be?
2) Would it be wise to take on such a nebulous job as an employment contract, one that the CRA could deem one way or another depending on if they use the checklist or go by the original contract? I.e. employer thinks I'm an employee, but CRA might go by contractor if they use their checklist.
3) Since this job requires the use of assets which are a part of my consulting company what is the proper way to utilize these assets outside of the realm of the company, or would I need to work to be under my consulting business if I want to have access to these assets.


Thanks for any insight!
16 replies
Sr. Member
Nov 10, 2003
678 posts
87 upvotes
Concord
Don't have the answer to all your questions but.

For tax reduction, as an employee, you can still get travel/home office/supplies reduction. Your employer must completes a T2200 and T777 for your tax return.
Deal Addict
Aug 28, 2007
1787 posts
213 upvotes
Calgary
Your questions are irrelevant. If the client wants to hire you as an "employee", there is no possible way you will ever be considered a consultant/contractor to them. The client wants to pay your benefits, CPP, EI and income tax remittances. This is not tax-friendly in any way to the client or you. CRA can not /will not ever deem someone who is declared as an employee into a contractor. In fact, they are more interested with deeming the reverse situation. CRA is not in the business of reducing government revenues!

1/ If the client wants you to be an employee there is no contract - it is unlikely you will even have an employment agreement. It is likely you will simply get a job offer outlining the relevant details (pay rate, benefits, vacation etc.)
2/ As I stated employees can never be deemed as contractors. For starters, your employer has submitted CPP & EI payments on your behalf - CRA can't reverse those on a whim.
3/ Employees don't provide resources to do their jobs (unless they are naïve) - that is the responsibility of the employer to provide those things.
Deal Addict
Oct 29, 2010
3832 posts
482 upvotes
Just Confused wrote:
Jun 3rd, 2013 8:03 pm
Your questions are irrelevant. If the client wants to hire you as an "employee", there is no possible way you will ever be considered a consultant/contractor to them. The client wants to pay your benefits, CPP, EI and income tax remittances. This is not tax-friendly in any way to the client or you. CRA can not /will not ever deem someone who is declared as an employee into a contractor. In fact, they are more interested with deeming the reverse situation. CRA is not in the business of reducing government revenues!

1/ If the client wants you to be an employee there is no contract - it is unlikely you will even have an employment agreement. It is likely you will simply get a job offer outlining the relevant details (pay rate, benefits, vacation etc.)
2/ As I stated employees can never be deemed as contractors. For starters, your employer has submitted CPP & EI payments on your behalf - CRA can't reverse those on a whim.
3/ Employees don't provide resources to do their jobs (unless they are naïve) - that is the responsibility of the employer to provide those things.
So what would be the advantage for the employer in this case?
I think it would make more sense for the employer to call it a contractor and not an employment.
The only advantages i can see on the surface is free usage of resources by the employee (even though he shouldn't be doing that) and maybe getting him to think that because the hours are "flexible" then he can pay very little.
[OP]
Jr. Member
May 31, 2013
147 posts
4 upvotes
Burnaby
xg3 wrote:
Jun 3rd, 2013 6:25 pm
Don't have the answer to all your questions but.

For tax reduction, as an employee, you can still get travel/home office/supplies reduction. Your employer must completes a T2200 and T777 for your tax return.
Thanks for your feedback!

Just Confused wrote:
Jun 3rd, 2013 8:03 pm
Your questions are irrelevant. If the client wants to hire you as an "employee", there is no possible way you will ever be considered a consultant/contractor to them. The client wants to pay your benefits, CPP, EI and income tax remittances. This is not tax-friendly in any way to the client or you. CRA can not /will not ever deem someone who is declared as an employee into a contractor. In fact, they are more interested with deeming the reverse situation. CRA is not in the business of reducing government revenues!

1/ If the client wants you to be an employee there is no contract - it is unlikely you will even have an employment agreement. It is likely you will simply get a job offer outlining the relevant details (pay rate, benefits, vacation etc.)
2/ As I stated employees can never be deemed as contractors. For starters, your employer has submitted CPP & EI payments on your behalf - CRA can't reverse those on a whim.
3/ Employees don't provide resources to do their jobs (unless they are naïve) - that is the responsibility of the employer to provide those things.
The employer/client is providing me a contract to sign (quite a lengthy one at that), but they are not providing me the resources to do the job. They are asking me to use the resources from my consulting company but attempting to pay me as an employee for their benefit (see below).

flafson wrote:
Jun 3rd, 2013 11:22 pm
So what would be the advantage for the employer in this case?
I think it would make more sense for the employer to call it a contractor and not an employment.
The only advantages i can see on the surface is free usage of resources by the employee (even though he shouldn't be doing that) and maybe getting him to think that because the hours are "flexible" then he can pay very little.
I agree with you for the most part but from what I understand from my employer/client is that he wants to hire employees over contractors because there are tax credits such as SRED and OMDC and other research and development tax credits that they are going after. This allows them to get some of their expenses back. They don't get these for hiring contractors which is why they are favor hiring me as an employee.


Thanks for the thoughts so far - any one else have any ideas?
Deal Addict
Oct 29, 2010
3832 posts
482 upvotes
I would go over that contract very carefully, take a close look to what happens when your personal equipment breaks down, does he expect you to pay for it yourself? That can be tons of money out of your own pocket.
Deal Addict
Dec 13, 2007
1488 posts
37 upvotes
Toronto
ITConsultant wrote:
Jun 4th, 2013 4:50 am
I agree with you for the most part but from what I understand from my employer/client is that he wants to hire employees over contractors because there are tax credits such as SRED and OMDC and other research and development tax credits that they are going after. This allows them to get some of their expenses back. They don't get these for hiring contractors which is why they are favor hiring me as an employee.


Thanks for the thoughts so far - any one else have any ideas?
Nah... Canadian contractors is a qualifying expense for the purpose of SRED.
[OP]
Jr. Member
May 31, 2013
147 posts
4 upvotes
Burnaby
Thanks for the input everyone.
flafson wrote:
Jun 4th, 2013 9:15 am
I would go over that contract very carefully, take a close look to what happens when your personal equipment breaks down, does he expect you to pay for it yourself? That can be tons of money out of your own pocket.
They know I already have equipment so they expect me just to use it. It just says that I must provide my own equipment nothing about repairs though. Problem is my equipment is in my corporation which I do contract work under. Is there anyway to legally utilize corporate assets under my name personally for this job or would I need to purchase additional equipment for this "job" and what about utilizing my home office (owned by the company as well), would I need to have a separate space set aside for this "job" since it doesn't fall under my other contract work?
slavka012 wrote:
Jun 4th, 2013 11:03 am
Nah... Canadian contractors is a qualifying expense for the purpose of SRED.
Yeah I'm not sure. That's just what they told me... they definitely favor hiring me as employee because of some credit they are getting. They said they could pay me significantly more if I go employee vs contract because of some employment credits they get. And it's not just SRED they are going after.


Anyone else have any ideas? Thanks again!
Deal Addict
Oct 29, 2010
3832 posts
482 upvotes
"It just says that I must provide my own equipment nothing about repairs though"

In legal terms that means it falls under you including repairs, replacements etc...
I would modify that statement and get them to sign it, say something like "as long as it's possible by you without spending any money on it", something in a more legal term.
Member
User avatar
Nov 10, 2009
427 posts
29 upvotes
Hamilton
another con to this idea is employment Insurance. As an employee you can't Not pay into it, and as a self-employed person why would you want too. You wont be able to file a claim after this job is done.
Deal Fanatic
User avatar
Nov 18, 2002
6518 posts
435 upvotes
Toronto
Some of this has been said already but here's my take:
ITConsultant wrote:
Jun 3rd, 2013 2:42 pm
Questions:
1) Is it the employers/clients responsible to use the correct contract type (work for hire/contract vs employee) or is the onus on me? Should I insist on a contracting contract if I believe that is what it should be?
That's entirely your choice. You'd have to figure out the benefits vs deductions of contract vs permanent.
2) Would it be wise to take on such a nebulous job as an employment contract, one that the CRA could deem one way or another depending on if they use the checklist or go by the original contract? I.e. employer thinks I'm an employee, but CRA might go by contractor if they use their checklist.
CRA will categorize you as a full time employee in this case. It's kind of irrelevant. If you still have a corporation you still have to maintain it separately.
3) Since this job requires the use of assets which are a part of my consulting company what is the proper way to utilize these assets outside of the realm of the company, or would I need to work to be under my consulting business if I want to have access to these assets.
An employer is not obligated to provide you with assets or even an office. It's all down to the contract you strike with them. They are obligated to provide you with various payroll and tax forms you'd need (as well as deductions etc) but that's about it.
[OP]
Jr. Member
May 31, 2013
147 posts
4 upvotes
Burnaby
ichpen wrote:
Jun 5th, 2013 4:14 pm
Some of this has been said already but here's my take:


That's entirely your choice. You'd have to figure out the benefits vs deductions of contract vs permanent.

CRA will categorize you as a full time employee in this case. It's kind of irrelevant. If you still have a corporation you still have to maintain it separately.


An employer is not obligated to provide you with assets or even an office. It's all down to the contract you strike with them. They are obligated to provide you with various payroll and tax forms you'd need (as well as deductions etc) but that's about it.

How is this irrelevant? From my research in this matter CRA can and will change your status on a whim if they decide. This has been the subject of many court cases. Regardless it doesn't matter to me which one I pick, I have the flexibility of either. But as I've said I would prefer to be an employee as I would get paid more (even with the inefficient taxing/etc.) How do I protect myself from CRA determining me a contractor vs employee or employee vs contractor when the contract says one thing and the CRA checklist says another. Again, there have been many court cases about this which is why I decided to ask here for advice.

I gather that an employer may not have to provide me with resources. But I'd like to know if there are any ways that I can use my corporations equipment for an employment contract. It's all basically the same work, just most are contractor agreements others (like this one) will be employment agreements. Let me put it this way. Is there any way that my corporation can "lend" the assets to myself when I'm doing these jobs? Or will I need twice as many assets. Assets for jobs that are under my corporation and assets for jobs that are under employment. If so that seems very wasteful.
Deal Addict
Feb 5, 2009
2056 posts
268 upvotes
Newmarket
In practice CRA will change your status from contractor to employee, very rarely if ever the other way round.
Regarding your equipment which belongs to the corporation indeed use for employment purposes would be deemed personal use, and you may need to prorate it, however in practice I am not sure in your case I would even worry about it and simply amortize it in the corporation, especially since it is exactly the same equipment, and the only difference in this case is the requirement of your client.
Deal Fanatic
User avatar
Apr 4, 2009
7664 posts
761 upvotes
North York
What assets does OP have? Does OP have a IBM mainframe, worth $250K+?

I mean, it is no issue expensing $5K of computing equipment a year. So any equipment owned by OP should already be written off.

So just use the existing hardware - which btw gets more worthless as each year rolls by.

I don't understand why it is so complicated as far as using what OP already owns (even OP didn't expense them).

It doesn't make sense that OP is planning to buy new equipment because OP can no longer depreciate existing equipment?

The real question is what is the salary (fixed bi-weekly/monthly) vs. what OP normally earns as a contractor. This equipment depreciation amount should be pretty irrelevant, unless we are talking about a mainframe system. If OP feels strongly about it have the employer add $100 per month to salary to cover the equipment.
Deal Addict
Oct 29, 2010
3832 posts
482 upvotes
Only thing i'm afraid of is if he needs to have somewhat expensive equipment to do his job and then if he has a problem the employer can say that by the contract, it's his responsibility to get it to work.
But i agree with your point Busybuyer888, it could be something cheap which then doesn't really matter that much.
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