Are You an Employee or a Subcontractor?

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This is an important question to be aware of, especially for small businesses. Most people may think there are not many differences between the two; however, how things are carried out in the business and the potential outcome of tasks, make all the difference. It is important to know what employment status you hold, as there are different obligations for each.

Below lists the main differences between an employee and a subcontractor:

  • Control. As an employee, you work under the business’ control; you are paid for the amount of time that is worked and that is set under an agreement, as well, you perform the duties of your position under specific working conditions. Subcontractors have more control. They have more freedom in the way work is completed and how long it takes, since they do not have anyone overseeing their activities. They also have the freedom to accept or refuse work. Subcontractors usually work independently within a defined framework.
  • Tools and Equipment. Companies will either provide their employees of the necessary materials and equipment to carry out their tasks, or the employer will reimburse the costs that may have been incurred in regards to the use of these tools and materials. In the case of a subcontractor, they themselves are responsible for supplying their own materials and tools that will be utilized in carrying out their duties. They will also be responsible for the costs of repairs, insurance and maintenance to the tools and equipment.
  •  Opportunity for profit and chance for risk. An employee does not experience the chance of profit and the risk of loss. Since they do not have capital investment in the business and are not in a position to realize a business profit or loss, they do not experience change of investments. Due to more freedom that subcontractors hold and the fact that they hire and pay employees, there is more opportunity for risk and profit for these individuals. They are compensated by a flat fee and may incur a number of expenses while performing services.
  • Benefits & paid leave. A big advantage for employees is the benefits and paid leave that is included in their contract. They are able to participate in employee benefits such as vacation pay, health benefits, pension plans, etc. Subcontracts do not exercise this option; they don’t have any employee benefits and insurance policies such as disability insurance.

If you are an employer looking to hire individuals for work, keep the above in mind. Subcontractors are an incentive to hire if one is looking to reduce costs or mitigate project risks. The employer does not have to contribute to CPP or EI for a subcontractor, like they do for an employee. Subcontractors are essential for business-to-business relationships. However, if you are looking for more of integration within your business, employees are the better choice since they are more involved in the business values and their work is an integral part of the business.

Take time when choosing what type of worker you would like to be, or if you are already currently employed, determine which employment status you hold: an employee or subcontractor. By defining which category you are positioned in, you are then able to analyze the advantages and disadvantages of each and make decisions accordingly.

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Nafees Chaudhry

Nafees Chaudhry

Nafees Chaudhry is the founder of CNC. Providing accounting, tax, and consulting services to small businesses and individuals for 23+ years.

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