Scenario 1 - I have just been hired by a company who wants to pay me as a consultant. They say it's OK because I'll only be working part-time.

Scenario 2 - I've just been hired by someone full-time for a contract that will last 6 months, am I an employee or a consultant?

Scenario 3 - I've just started coaching and have a few clients. I've heard I can expense part of my house and car, how does that work?

So many scenarios, which is why there are also so many factors in determining a worker's employment status. Let's review each one.

Scenario 1 Be careful, just because it is part-time does not automatically make you a consultant. Especially if you are hired for a permanent part-time job.

In this case, the employer should have you set-up as an employee with deductions, etc.

This does not mean you can't work somewhere else and have consultant status (if the situation applies).

Scenario 2 Again, be careful, just because it is a temporary assignment does not mean you are a consultant. In fact, one of the CRA criteria in determining if you are, in fact, a "consultant" is "Can you work somewhere else?"

If the employer is providing 35+ hours a week, chances are, you can't work somewhere else.

Scenario 3 Working for several clients, this is truely self- employment. The criteria discussed in Scenario 2 passes, as you can, and are, working at more than one place.

As for expensing your house and car, PLEASE refer to the April and May 2008 issues of e-ccounting.

If I have not provided a complete answer, this was my objective as I don't want you to be 100% sure. My intention is that you realize there are so many factors that you should get a professional opinion from either the government, a Chartered Accountant or both ( two opinions are never a waste).

As an employer hiring consultants be sure your idea of what a consultant is, is accepted by the government. However, and this is a huge however, if you have not done your homework, and "thought / assumed" some of your staff are consultants and you are therefore not submitting the deductions, this can cost you a lot more in the end.

Why?

Because, you may have to pay the CPP, etc. If the "consultant" is gone, you will have to pay their portion too. (not to mention, as a consultant, you were probably paying them a higher rate as well).

The best way to protect yourself is to ensure you meet the criteria.

Once this is done, further protect yourself by having a letter prepared, and signed by the consultant stating he realizes that you are not taking deductions off each cheque and that he is therefore responsible for submitting his own CPP and taxes.

The employer is responsible for deducting CPP, EI and taxes from each pay and submit these "source deductions" with their portion to the Federal government (CRA) the following month.

This also becomes an expense to the employer as he must match the CPP dollar for dollar and pay 1.4x the EI

TD1, ROE and T4

TD1

This is the form each employee must fill out when they start as an employee with a company.

It contains information including: SIN, address, birthdate, but more importantly it provides the employer with the correct coding for deducting taxes.

Note - This form must be filled out every year, not just when the employee starts.

ROE - Record of Employment

This is the form an employer must fill out when an employee is leaving, no matter if it's by choice, they are fired, etc.

If you have a payroll service, they will provide this for you, however you may need to request it.

Please note the ROE must be given to the employee within 5 business days after their last day.

T4

Prepared annually and due by February 28th, each employee, whether they are still employed with you or not, must be supplied with a T4 which is a summary of the following for the prior year: Gross Income, CPP, EI and Tax contributions. If applicable, it will also include taxable benefits, etc.

Understand the difference between hiring an employee versus a consultant.

Fact:

Whether or not an employer hires a consultant to save money or because he didn't know better, he may still be responsible for source deductions.

This is a typical case that has occurred on a regular basis: A consultant finishes their contract, they can't find another job, so they go to the EI office to collect Unemployment.

Remember, as a consultant, the employer is not deducting EI, etc. from your pay, nor submitting his portion.

As a consultant, you are responsible to submit your CPP and taxes BUT aren't allowed to contribute to EI.

So, the result is the Unemployment office turns you down, you do not qualify to collect.

The employee may or may not have understood and sues the employer.

If it's not in writing, it becomes a consultant said / employer said.

The courts usually favour on the side of the employee.

Sandy will address the readers