HR 101: Employee or Subcontractor in BC - Know the Difference
Let’s talk about the classic small business headache: who do you hire, and how do you pay them without accidentally inviting the CRA or Employment Standards Branch over for tea?
In BC, it’s not just about what the worker calls themselves. Whether someone is an employee or a subcontractor determines taxes, benefits, and who’s responsible for what. Get it wrong, and it can get expensive —> and fast.
Employees
Employees are covered by the Employment Standards Act (ESA). This means they have a right to things like minimum wage, overtime, vacation pay, and breaks. As the business owner, you're responsible for withholding taxes, paying into things like EI and CPP, and providing a safe and healthy workplace. It's more work on your end, but it's the law.
Pros:
You're in the driver's seat. You have more control over how, when, and where the work gets done. If you need someone to be in the office from 9 to 5, you can set that expectation.
Loyalty and commitment. An employee is a part of your team. They're more likely to be invested in the long-term success of your business and are often a source of great ideas and feedback.
Consistency. Employees provide a stable, reliable workforce. This makes it easier to manage your business operations and ensure consistency in the quality of your work.
You can train them your way. You can shape them to fit your business, train them on your specific processes, and develop their skills over time.
Cons:
It's a lot of responsibility. You have to handle payroll deductions (CPP, EI, income tax), provide benefits, and follow all the rules of the Employment Standards Act (ESA) for things like minimum wage, vacation pay, and breaks.
It can be expensive. Beyond the salary, you have to account for the cost of benefits, payroll taxes, training, and equipment.
It's a big commitment. You're on the hook for a regular paycheck, regardless of how much money you're making. And if you need to let someone go, you have to follow the proper procedures, which can be a real headache.
Subcontractors (Independent Contractors)
Subcontractors, on the other hand, are business owners themselves. They're working for you on their own terms. They manage their own taxes, they pay for their own benefits, and they're not subject to the same control rules as employees. When you treat them with the respect they deserve as fellow professionals, they can be just as dedicated as an employee, and sometimes they can deliver even better results because their reputation is on the line.
The key thing to remember is that if you treat a subcontractor like an employee - telling them when to work, how to do the work, and providing them with all the tools and resources they need —> you're creating a legal risk for your business. The government can look at that and say, "Hey, this person is an employee, not a subcontractor," and you could be on the hook for back taxes, penalties, and more.
Pros:
Less paperwork and less hassle. You don't have to deal with payroll deductions or the ESA's rules for things like vacation pay and overtime.
Access to specialized skills. Subcontractors are often experts in their field. They're typically hired for a specific job or project, and they come in with all the knowledge and tools they need to get it done.
Cost-effective for short-term projects. You only pay for the work that's completed. You don't have to worry about a long-term salary, benefits, or training costs.
More flexibility. You can scale your workforce up or down as needed, without the long-term commitment of an employee.
Cons:
You have less control. A subcontractor is their own boss. They set their own hours and decide how they're going to get the job done. You can't dictate their schedule or how they work.
Less loyalty and commitment. They're not on your team in the same way an employee is. They might be working with multiple clients at once, and they're not necessarily as invested in the long-term success of your business.
Inconsistent availability. They might be busy with other projects and not available when you need them.
The risk of misclassification. This is the big one. If you treat a subcontractor like an employee, you can face significant legal and financial consequences. You have to be careful to maintain the proper relationship.
How to Decide
There's no single "right" answer for everyone, but here are some questions you can ask yourself to help make the call, using the same factors the government looks at:
Control. Who decides how, when, and where the work gets done? An employee is typically told what to do, given a set schedule, and has their work supervised. A subcontractor has a lot more freedom. They decide their own hours, use their own methods to complete the job, and are simply responsible for delivering the final product.
Tools and Equipment. Do they use their own tools and equipment, or do you provide them? If you're giving the worker a company laptop, a desk in your office, and all the supplies they need, it's a strong sign they're an employee. A subcontractor usually provides their own tools, pays for their own insurance, and covers their own operating costs.
Financial Risk. Who carries the business risk? An employee gets paid a regular wage or salary, regardless of whether your business is having a good week or a bad week. A subcontractor takes on financial risk. They might have a chance to make a profit if they're efficient, but they also risk a loss if they have unexpected expenses or if the project takes longer than they anticipated.
Integration. Are they an essential part of your business, or are they providing a specific service for a limited time? If the work they're doing is a core part of your day-to-day operations, like managing your social media accounts or serving customers - they're probably an employee. If they're doing a one-off project that's not integral to your business, like building you a new website - they're likely a subcontractor.
Hint: If you answered "you" to most of these questions, they're probably an employee.
My 2Cents
Ultimately, the goal is to make a decision that works for both you and the person you're bringing on. Employees have the protection of the ESA, while subcontractors operate independently. A clear, honest conversation about the nature of the work and the expectations of the relationship can prevent a lot of headaches down the road.
