With independent contractors becoming more of a fixture in the Albertian workforce, it’s important to understand how they differ from employees. 

A contractor is someone who is hired for a specific job, based on their expertise, or skill sets. In most cases, they bring their own equipment and work under their own terms. According to Canadian employment laws, contractors operate under a contract for service. 

An employee, on the other hand, is hired to fulfill a responsibility, earn a salary and work under the terms set in an employee-employer contract. 

In this blog, we’ll explore the difference between a contractor and an employee, their rights, the benefits they each receive and how you can determine if you need to hire employees or contractors.

Federal vs Alberta Provincial Law 

To start, it’s key to shed light on how Canada regulates employment status. Canada is home to an overarching federal government in addition to provincial and territorial governments that rely on both common law and civil code. As a result, different methods of governance apply to employment laws and labour legislation across Canada.

The Canada Revenue Agency (CRA) governs employment in federally regulated industries in both the private and public sectors, regardless of where they are in Canada. Within these industries, the CRA has the authority to determine who is an employee and who is an independent contractor.

Industries that are not subject to federal regulation are governed by provincial and territorial legislation, governing bodies, and labour courts. Unless otherwise specified, the authoritative province or territory is determined by where work contracts are formed. So, if there is a US company hiring a Canadian citizen to work in Canada, they must adhere to the rules and regulations of the province or territory the contract was written in.  

‍Who and What Regulates Employment in Alberta?

The Employment Standards Code and the Employment Standards Regulation establish Alberta’s minimum employment standards. These organizations outline laws for minimum wage, overtime, holidays, job-protected leaves, vacations, hours of work, earnings, youth workers, and termination. 

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Whether you are a remote employee, full-time employee, part-time employee or a contractor, these entities ensure employers uphold employment standards by aiding in the resolution of workplace disputes. 

Depending on the specifics of their employment contract or collective agreement, Canadian workers may have rights designed to protect them and ensure they are working fairly and safely. 

Companies hiring employees in Alberta also have to adhere to the following provincial legislation rights: 

  • Alberta Human Rights Act
  • Occupational Health and Safety (OHS) 
  • Labour Relations Code
  • The Apprenticeship and Industry Training Act
  • The Employment Pension Plans Act
  • The Human Rights Act
  • The Workers Compensation Act
  • Personal Information Protection Act 

The Difference Between Canadian Employees and Canadian Contractors

The definitions of a contractor and employee are rather vague and open to interpretation. The Employment Standards Code relies on the following distinctions to determine if an individual is an employee or an independent contractor. 

Method of Payment

Employee:

  • Is paid hourly, weekly or monthly 
  • Receives a pay stub or another form of document outlining earnings

Independent Contractor:

  • Receives pay in a lump sum or installment payments
  • Required to submit invoices

Hours of Work

Employee:

  • Generally, work specified hours set by the employer 

Independent Contractor:

  • Generally entitled to choose when they work‍

Benefits

Employee:

  • Entitled to receive benefits (e.g. vacation pay, leaves of absence, EI, CPP etc.)

Independent Contractor:

  • Can pay premiums for private insurance plans
  • Generally does not participate in EI

Time & Subcontracting

Employee:

  • Generally works full-time for one employer or part-time for several employers
  • Prohibited from subcontracting work

Independent Contractor:

  • Generally has multiple clients and income streams
  • Free to subcontract their work

Training

Employee:

  • Receives training from their employer

Independent Contractor:

  • Is expected to have the necessary training before starting the job

Direction

Employee:

  • Works under the control and direction of their employer

Independent Contractor:

  • Has the freedom to determine their method of work

Termination

Employee:

  • Can be discharged and terminated
  • Employers must adhere to Alberta’s Employment Standards Code

Independent Contractor:

  • Generally cannot be discharged or terminated without compensation

Supervision

Employee:

  • Supervised by their employer 
  • Typically required to follow employers’ instructions

Independent Contractor:

  • Generally works independently, without supervision
  • Decides how, when and where work will be conducted, within stipulated deadlines

Results

Employee:

  • Performs ongoing tasks

Independent Contractor:

  • Provides a service or product, according to contractual obligations

Workspace & Equipment

Employee:

  • Often rely on a workspace, computer and equipment provided by their employer

Independent Contractor:

  • Generally provide their own workspace, computer and equipment

Profit

Employee:

  • Does not necessarily earn more money if work is completed quickly
  • Eligible to earn more via bonuses and incentives
  • Can earn more with longevity and experience

Independent Contractor:

  • Can earn more money if work is completed quickly and other projects are picked up

Risk of Loss

Employee:

  • Receives pay at a set rate regardless of employer profits
  • Carries no risk of employers’ debts

Independent Contractor:

  • Can make less money if projects take longer to complete 
  • Can go periods without work
  • May incur bad debts

Independence

Employee:

  • Not self-employed
  • Depends on income from an employer
  • Long-term working relationships with employers

Independent Contractor:

  • Is in business for themself
  • Relies on several income sources

What Rights Are Employees in Alberta Entitled To?

Employers in Alberta are required to provide their employees with certain basic rights and obligations, which are outlined in the Employment Standards Code and the Employment Standards Regulation. 

With the exception of a few sectors that are regarded as exemptions and those that are subject to federal regulation, the majority of workers in Alberta are protected. 

Here are some of the key employment standards listed in the Employment Standards Code and the Employment Standards Regulation:

Minimum Wage 

In Canada, minimum wage is an important part of Canadian employment laws. Minimum wage ensures that all workers are protected from exploitation and receive fair compensation for the work they conduct. 

In Alberta, if you are: 

  • 18 years or older, you are entitled to $15.00 per hour‍.
  • under 18 years of age and a student: $13.00 per hour (some exceptions apply)‍.
  • under 18 years of age and not a student: $15.00.

Hours of Work 

Generally, employees cannot be required to work more than 12 hours a day. Some exceptions can apply if urgent work is required or if there is an accident. During these hours of work, an employee is entitled to one 30-minute paid or unpaid break after the first 5 hours.  

Employees working split shifts must be scheduled within a 12-hour window. For example, if an employee begins work at 8 am, they can’t be required to work past 9 pm.

Overtime

Employers are required to pay employees 1.5 times their regular hourly wage, commonly referred to as “time and a half”, for every hour worked over 44 hours. Another wage rate can apply if you have a banked overtime agreement. 

Public Holidays

Each province or territory in Canada has certain public holidays they celebrate. In Alberta, the following public holidays are observed, with many businesses even offering public holiday pay: 

  • New Year’s Day 
  • Alberta Family Day 
  • Good Friday 
  • Victoria Day 
  • Canada Day 
  •  Labour Day
  • Thanksgiving Day 
  • Remembrance Day 
  • Christmas Day 

Employees can choose to work on these days (provided that there is work to do) on the following conditions:

1) They receive public holiday pay, and opt out of receiving another substitute public holiday off 

OR

2) They receive their regular wage and can take another substitute off with public holiday pay 

Employers may recognize additional days as holidays. If this is the case, they’re required to pay their employees public holiday pay. The rate of pay for each hour worked is one and a half times their regular hourly wage. 

Vacation Time and Pay 

Hiring Canadian employees and remote workers means providing them with the required vacation time and pay. Depending on how long an employee has worked with the company, their vacation time is determined. Paid time off and vacations can get confusing, thus making it crucial to implement a system that assists in managing and tracking the various leave periods of your employees.

Employees who have worked with their employer for:

  • 1 year is entitled to two weeks of paid vacation. Vacation pay is 4% of your annual wages
  • 5 years or more are entitled to three weeks of paid vacation. Vacation pay is 6% of your annual wages

Leaves of Absence 

When you hire Canadian employees, you are legally bound to provide them with a leave of absence for any of the following reasons: 

  • Bereavement leave
  • COVID-19 leave 
  • Death or disappearance of child leave
  • Maternity and parental leave
  • Citizenship ceremony leave
  • COVID-19 vaccination leave
  • Domestic violence leave
  • Personal and family responsibility leave
  • Compassionate care leave
  • Critical illness leave
  • Long-term illness and injury leave
  • Reservist leave

‍Do Employees in Alberta Have Access to Any Other Rights or Benefits?

As the notion of work-life balance and employee well-being becomes more widely addressed, employers are learning to take better care of their employees. As a result, employers in Alberta are increasingly providing employees with benefits that promote greater well-being and work-life balance. 

Employees can also petition for special benefits under the Canadian Pension Plans (CPP) and Employment Insurance (EI) if their employers don't offer them the benefits they are entitled to. 

What Rights and Benefits Are Independent Contractors Entitled to in Alberta? 

Hiring independent contractors is an attractive option for many employers because contractors don’t receive protections under the Alberta Employment Standards Code and the Employment Standards Regulation. As a result, independent contractors are not entitled to any of the benefits mentioned above. 

However, independent contractors are able to apply in order to receive special self-employment EI benefits. 

Apart from EI benefits, an independent contractor conducting business in Alberta can also claim allowable business expenses, and apply for private workplace accident insurance coverage. 

How Do Taxes Differ Between an Independent Contractor and an Employee? 

Employers are required to make the following deductions from employees' insurable earnings:

  • Canada Pension Plan (CPP) Contributions
  • Employment Insurance (EI) Premiums
  • Federal Income Tax
  • Alberta Provincial Income Tax

As a result, the paychecks that employees take home are less than the total gross income they earn. However, once they fill out the necessary tax forms and file their taxes, employees are eligible to receive a tax refund, along with their portion of federal and provincial benefits and credits. 

While independent contractors receive payment in full, they are also responsible for paying all applicable federal, provincial, and local taxes on their gross income. 

‍Risk of Misclassification 

Misclassification is when an employer treats their employees as a contractor. If an employer is found guilty of misclassification in Alberta, they can be financially penalized and prosecuted. 

Every misclassification complaint is dealt with on a case-by-case basis and can result in litigation, paying back interest, taxes, legal fees and outstanding payroll deductions. 

When the employer is not meeting minimum employment standards, a misclassification complaint can be made using the online complaint system.

Borderless is the Way to go

From managing remote employees to hiring employees in Canada, Borderless is the Employer of Record (EOR) that can help you stay compliant while operating in Canada, or as a foreign entity in over 170 countries around the world. 

Our easy-to-use platform ensures faster payments, IP & invention rights, swift onboarding and even the tools to manage your income and time. Without an upfront cost, we can guarantee compliance, move money in minutes, offer localized benefits, access payments and much more with an easy-to-use mobile app.

Whether you're hiring independent contractors in Canada, or looking to manage and onboard a whole new team of employees, we can assist at every step of the way. 

Speak with our experts today! 

Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.