Independent Contractor v Dependent Contractorachkarlaw-admin
While many people are familiar with the distinction between employees and independent contractors. There is also a third category of workers, “dependent contractors”, which has been increasingly recognised in the last few decades.
Dependent contractors straddle the space between employees and independent contractors. It can partially be identified by how dependent they are on a particular client for their income.
As this new category emerges. It’s important for individuals performing contract work to know their rights. Also for companies to know their responsibilities to contract workers. This article will outline the differences between the three categories. What contract workers and companies can expect to see when interacting with dependent contractors.
Employees v Independent Contractors
Employees are an example of the most common working relationships in companies. They enjoy the most benefits and are governed by the Employment Standards Act. Employees are typically employed by a single company and have more rights when facing termination.
Meanwhile, independent contractors typically run their own businesses and provide services for multiple clients. They receive their income from all of their clients and do not rely on one in particular for the majority of their income. If courts are still unsure of what category someone might fall into. They will also examine the wording and intention behind the contracts that the worker and the employer have.
If you have questions or concerns about your status as an employee or an independent contractor, be sure to reach out to a qualified professional at Achkar Law.
What is a Dependent Contractor?
Dependent contractors are different from both employees and independent contractors, but they straddle the line between the two definitions. Dependent contractors are workers who are economically dependent on a company, but who will not hire as employees. Like independent contractors, they provide a service for multiple clients. But like employees, most of their income comes from a single source.
This might look like a graphic designer who works as an independent contractor full time for various companies, but on average, 60-70% of their income comes from one particular client, who uses them for all their graphic design needs. The graphic designer is not necessarily an employee of the company, but they are financially dependent on them. If the company were to end their contract, the graphic designer would be in financial trouble.
This is because, unlike an independent contractor, who might suffer slightly if they lose a client who constitutes ~7% of their income, a dependent contractor who relies on a client for most of their income will suffer considerably more if they lose them.
How do Courts Figure Out the Difference?
Dependent contractors have many of the characteristics of independent contractors and do not need to work exclusively for the other party, but they must rely on the business of the other party nearly exclusively.
In recent case law, the courts determine that, in order to say that a contractor relies on the business of a client nearly exclusively. They must be responsible for more than 50% of the contractor’s income.
If you are a contractor whose billings and total business come from one client. It may be prudent to enter into an employment agreement with that client to ensure that your rights are protected.
If you are a company working with an independent contractor, make sure that you do your research on how much of their business you provide when considering whether to terminate their services. Otherwise, you could face legal action.
If you have any questions about what it means to be an independent contractor versus a dependent contractor, or if you would like to begin drafting an employment agreement, make sure that you reach out to the qualified team at Achkar Law for assistance.
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