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This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.
Interpretation Letter 09-0043, June 2009
We refer to your correspondence regarding whether a certain worker is considered an employee or a self-employed contractor of Company A for Employer Health Tax (EHT) purposes.
The information provided by you through our discussion and copy of employment contract, is as follows:
Your answers to the written questionnaire provided the following additional information:
All employers are required to pay EHT on the total Ontario remuneration paid to their employees.
Although the terms "employer" and "employee" are defined in the EHT Act, the Act does not define the circumstances under which an "employer-employee relationship" exists. The nature of the relationship distinguishes an employee from a self-employed contractor.
A contract of service, or employer-employee relationship, likely exists if the employer:
Thus, an employer-employee relationship generally exists when a worker agrees to work for an employer on a full-time or part-time basis for a specified or indeterminate time period in return for wages or a salary. The employer has the right to decide where, when and how the work is to be done.
A contract for service, or business relationship, generally exists when a worker agrees to complete specific work for a payer in return for payment. The self-employed worker is not normally required to perform the services personally.
In addition to the above general guidelines, in order to determine whether the MA is an employee or a self-employed contractor, further reference must be made to common law principles based on precedents set by court decisions. The terms and conditions of the worker's employment are examined and analyzed as they relate to the following four factors: (a) control (b) ownership of tools (c) chance of profit/risk of loss and (d) integration. It is important to note that one factor alone is not conclusive in the determination. Analysis of the common law principles as applied to the MA's relationship with Company A is summarized below.
In an employer-employee relationship the employer controls, directly or indirectly, the way the work is done and the work methods used. The degree of control exercised by the employer may vary depending on the type of work to be done and the employee's experience and skill. Generally, the payer exercises control if he has the right to hire or fire, determines the wage or salary to be paid, and decides on the time, place, and manner in which the work is to be done.
According to the employment contract as well as the answers to the questionnaire, Company A controlled how, where and when the MA's work had to be performed, provided training to the worker, and had the right to discontinue the contract with two weeks notice. The MA was required to devote herself exclusively to Company A's business and not be employed or engaged in any other capacity without the prior permission of Company A. However, the MA was not required to file written reports to Company A.
These test results favour an employer-employee relationship.
Ownership of Tools
In an employer-employee relationship, the employer generally supplies the equipment and tools required by the employee. In addition, the employer covers the following costs related to their use: repairs, insurance, transport, rental, and operation.
According to the employment contract, Company A reimbursed the MA for all authorized travelling and other out-of-pocket expenses incurred in connection with her duties of employment. However, per our discussion, there were no tools and equipment required for this position.
This test is inconclusive.
Chance of Profit/Risk of Loss
In an employer-employee relationship, the employer alone assumes the risk of loss. The employer also generally covers operating costs which may include office expenses, employee wages and benefits, insurance premiums, and delivery and shipping costs. The employee does not assume any financial risk and is entitled to her full salary or wages regardless of the financial health of the business.
While the MA did not receive any fringe benefits and was not paid for vacation, she was not required to make any investment or outlay of capital and was paid a set salary amount over the 55-week period.
This test supports an employer-employee relationship.
The integration test examines whether the tasks performed by an individual form an integral part of the business (employer-employee), as opposed to merely being an accessory to the business (independent contractor). The test is applied from the perspective of the employee and the question which is addressed is "Whose business is it?".
The MA did not appear to be operating a business separate and distinct from that of Company A. She performed the tasks related to the day-to-day and long term operation of Company A previously carried out by the employee who was away on maternity leave. During the 55-week period, she worked for Company A on a regular basis and was remunerated accordingly. The temporary position is essentially not different from that of the permanent employment position she was filling in for.
This test supports an employer-employee relationship.
Overall, the application of the common law tests favours an employer-employee relationship.
Based on the information provided, it is our opinion that the MA was an employee of Company A during the term of her assignment. Therefore, Company A was required to include her remuneration for EHT purposes. As you have indicated that her salary was included in the total Ontario remuneration amounts reported for years XXXX and XXXX, no adjustments are required to be made. Please note, we have not reviewed the amounts reported in preparing this interpretation and as such these are subject to normal verification procedures.
This interpretation is based on the information provided by you and is applicable to Company A only. If it should be determined that the information provided is incorrect or incomplete, this interpretation will not be binding.