April 8th - 2005

Are you an independent contractor?

If you ask most salespeople today whether they are an independent contractor or an employed salesperson, most of them will probably say independent contractor.

If you ask most salespeople today whether they are an independent contractor or an employed salesperson, most of them will probably say independent contractor. But, do they really know what it means? An independent contractor (IC) is defined as someone who works according to his/her own methods and judgement.

One of the advantages of independent contractor status is preferential tax treatment provided that a salesperson meets the common law tests of organizations such as Canada Revenue Agency (CRA). The tests will determine whether a salesperson is an independent contractor (contractor for service) or an employee (contract of service). The mere existence of a contract is not always the determining factor.

It pays to know the difference. Along with the tax advantage salespeople should recognize that as an IC you are in business yourself and should treat it that way.

Determining factors
Some things to consider:

Control: Is the employer able to control, or generally regulate through supervision, the activities of the individual? The relevant fact is not whether the control is exercised, but rather that it can be. As well, methods of termination are an important consideration. The more control, the more an individual is perceived as an employee.

Contract for Service: The contracting of an individual for a specific service and a specified result with supporting documentation is a strong indication of independent contractor status.

Integration: This common law test assesses whether the individual forms an integral part of the hiring organization's business or is an accessory to that business. Further, from the contracted person’s perspective, integration refers to the extent that an individual operates his/her own business independent of the hiring organization.

Ownership/Economic Reality: An independent contractor owns his/her own tools or other materials necessary to perform the contracted services. Further, that ownership extends to various things usual to an independent business, e.g., the opportunity to profit, risk associated with a business venture, and investment in the business.

Brokers may elect to contract with salespeople as independent contractors to relieve the brokerage from various bookkeeping activities regarding salespersons relating to source deductions, including income tax. In addition, the brokerage is not required to remit the employer's portion of Employment Insurance (EI) and Canada Pension Plan (CPP) nor fulfill Employer Health Tax (EHT) obligations as would be the case with employed salespeople.

Salespeople, through financial independence, gain flexibility in tax planning including the timing of government remittances, e.g., income tax instalment payments and GST remittances. The onus to pay both the employee and employer portion of CPP falls to the salesperson as well as the responsibility of EHT under self employment status.

There are also other differences relating to employment provisions and business practices. An employment agreement for an employed salesperson remains in force but subject to termination provisions of the Employment Standards Act. Annual resigning of the agreement is not required. An IC contract spells out exact terms and conditions and must be signed annually along with any associated policy manuals.

Unlike employed salespeople, independent contractors are not required to attend office meetings or perform duty time and they usually have more input in determining the amount of commission being charged for the service.

However, real estate salespeople, while under an independent contractor agreement, are still employees of the brokerage for statutory purposes pursuant to the Real Estate and Business Brokers Act.

Under Rule 43 of the RECO Code of Ethics, “A broker shall be responsible for the professional conduct and professional actions of those Members registered with that broker”. This rule applies regardless of the legal relationship between the broker and the salesperson.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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