Do you know what distinguishes an independent contractor from an employee in Ontario? If you’re an employer looking to hire, it’s vital to understand the factors that separate one from the other. Read on to learn the ins and outs of relevant employment laws in Ontario, including the differences between the two employee statuses, the rights they are entitled to and more.
Federal vs Ontario Provincial Law
If you're an employer in Ontario, it's essential to understand the difference between contractors and employees under Canadian employment laws. The province, like the rest of Canada, navigates a complex regulatory landscape due to its blend of common law and civil code. This diversity results in unique approaches to employment and labor laws across the nation, depending on the locality.
In federally regulated industries within Canada, the Canadian Revenue Agency (CRA) plays a pivotal role in determining employment status, for both the private and public sectors. Regardless of your location within the country, the CRA has the authority to classify individuals as employees or independent contractors in these industries.
However, for sectors not subject to federal jurisdiction, provincial and territorial legislation, governing bodies, and labor courts govern authority. It’s typically based on the location where work contracts are formed unless the contract specifies otherwise. For example, a work contract produced in Ontario may explicitly state that it falls under the jurisdiction of the Quebec civil code.
Navigating the intricacies of employment status in Ontario can be a challenging task. Understanding the differences between contractors and employees in this province requires a comprehensive grasp of the Ontario Employment Standards Act and employment laws in Ontario.
What is the Ontario Employment Standards Act?
The Employment Standards Act (ESA), a set of laws a part of the Legislative Assembly of Ontario, sets the minimum standards for lawful employment in Ontario (please note that the guide linked earlier is not a legal document, as per the Government of Ontario). The Ministry of Labor, Immigration, Training and Skills Development ensures that the ESA is observed. It upholds employees' rights and helps to settle disputes between workers and employers.
Workers may have additional rights depending on the specifics of their employment contract or collective agreement. In addition to the ESA, workers in Ontario also have rights under the following provincial legislation:
- Occupational Health and Safety Act
- Workplace Safety and Insurance Act, 1997
- Labor Relations Act, 1995
- Pay Equity Act
- Human Rights Code
They set the standard for workplace health and safety, human rights and labor relations in Ontario.
How Does Ontario Define an Employee?
Ontario’s definition of an employee can be found in Section 1 of The Employment Standards Act (ESA). It states that an employee is an individual who:
- Carries out work in exchange for wages
- Provides services in exchange for wages
- Receives training from an employer, provided that the skills the individual is being trained on are used by the employer’s employees.
- Does paid work in their home for an employer
What Rights Are Employees in Ontario Entitled To?
The Employment Standards Act (ESA) outlines the minimum rights and obligations employers in Ontario must provide to their employees. Most workers in Ontario are protected by the ESA, except for some industries and federally regulated industries. Here are some of the ESA’s most important employment standards:
Employment Standards in Ontario
Minimum Wage
General Minimum Wage: $16.55 per hour
Student Minimum Wage: $15.60 per hour
Hunting, fishing and wilderness guides minimum wage:
- $82.85 if employees work less than five consecutive hours in a day
- $165.75 if employees work five or more hours in a day
Homeworkers Wage: $18.20 per hour
Hours of work
- Daily: Most workers can be required to work eight hours a day at most. If the typical workday is greater than eight hours, they can be required to work the number of hours in that day. Exceptions to this rule must be included in an electronic or written agreement, as per Ontario.ca
- Weekly: Most workers can be required to work a maximum of 48 hours a week at most. Exceptions to this rule must be included in an electronic or written agreement
- 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.
Public Holidays
Most employees in Ontario can take the following nine days off:
- New Year's Day
- Family Day
- Good Friday
- Victoria Day
- Canada Day
- Labor Day
- Thanksgiving Day
- Christmas Day
- Boxing Day
Employees can choose to work on these days (provided that there is work to do) under the following conditions:
- They receive public holiday pay, and opt-out of receiving another substitute public holiday off, or
- They receive their regular wage and can take another substitute off with public holiday pay (1.5 times their regular rate of pay for each hour worked)
Vacation Time and Pay
Employees who have worked with their employer for:
- Less than five years are entitled to two weeks of paid vacation each year
- Five or more years are entitled to three weeks of paid vacation each year
For most employees, their date of hire is the beginning of their 12-month vacation entitlement year. In other cases where the employer has established an alternative vacation entitlement year, the employee is also entitled to a prorated amount of vacation time for the period (called a "stub period") that precedes the alternative vacation entitlement year.
Leaves of Absence
Most employees in Ontario are entitled to take the following unpaid, job-protected leaves of absence:
- Pregnancy and parental leave
- Sick leave
- Bereavement leave
- Family responsibility leave
- Family caregiver leave
- Family medical leave
- Critical illness leave
- Child death leave &
- Crime-related child disappearance leave
- Domestic or sexual violence leave*
- Infectious disease emergency leave (related to COVID-19)
- Organ donor leave
- Reservist leave
*The first five days of leave are paid
Do Employees Have Access to Any Other Rights or Benefits?
Many employers in Ontario choose to provide their employees with more than the minimum standards the ESA outlines as a way to gain a competitive edge and attract top talent. This approach strengthens company culture, and employee loyalty, and reduces employee turnover.
When an employment contract states that an employee is entitled to greater rights or benefits than the minimum standard set by the ESA, then the employer is legally required to follow it. The greater rights or benefits supersede the minimum standards.
If employees work for employers that don’t provide the benefits they need to make ends meet, they can apply for Employment Insurance (EI) and the Canadian Pension Plans (CPP) special benefits. If you’re interested in learning more, this guide outlines the range of benefits provided to employees by the Canadian Revenue Agency.
How Does Ontario Define an Independent Contractor?
According to the ESA, an individual is considered an Independent Contractor in Ontario, if some of the following conditions apply:
- Can make or lose money from their work
- Has the freedom to decide how, when or where their work is conducted
- Has the freedom to decide to subcontract their work
- The employer they work for can terminate their contract but cannot discipline them
How Does Ontario Determine Who’s an Independent Contractor and Who's an Employee?
To identify employment status in Ontario, a claim must be filed with the Ministry of Labor, Immigration, Training and Skills Development's Employment Standards. An employment standards officer will investigate the claim to determine if the worker(s) in question are independent contractors or employees.
In addition to ensuring workers are properly classified in Ontario, the Ministry works hard to protect employees' rights throughout Ontario. It spearheads workplace compliance initiatives to educate employers on both the Occupational Health and Safety Act and the Employment Standards Act. The Ministry also conducts audits on employers' payroll records and workplace procedures and investigates complaints.
What Rights and Benefits Are Independent Contractors Entitled to in Ontario?
If The Ministry of Labor, Immigration, Training and Skills Development determines that an individual is an independent contractor, they are not eligible for any benefits or rights outlined in the ESA. They have no employment law protections, meaning they’re not eligible to receive minimum wage, reasonable notice of termination, the right to refuse unsafe work, maternity leave, and more rights and benefits to employees. However, independent contractors can choose to opt in to receive special self-employment EI benefits. Check out this guide to learn more about the application process, criteria and available benefits.
How Do Taxes Differ Between Independent Contractors and Employees?
Employers are required to make the following deductions from employees' insurable earnings.
- Canada Pension Plan (CPP) Contributions
- Employment Insurance (EI) Premiums
- Federal Income Tax
- Ontario Provincial Income Tax
As a result, employees' take-home pay is less than their entire gross income. Employees are eligible to receive their share of federal and provincial perks and credits as well as a tax refund once they pay their taxes.
On the other hand, Independent contractors receive payment in full and are responsible for paying all applicable federal and provincial taxes on their gross income. This guide offers further details about how independent contractors and employees handle income taxes in Canada.
Preventing Misclassification and Understanding the ESA
Misclassification of workers as either employees or independent contractors can lead to significant legal and financial consequences for the employer. You must correctly determine the employment status of your workers to ensure compliance with the ESA. Employers should note that they are prohibited from misclassifying employees as independent contractors, interns, volunteers or any other type of worker not covered by the ESA.
The legislation provides guidelines for this determination, but it can be complex. To mitigate the risk of misclassification, it's advisable for employers to seek legal advice or consult organizations like Borderless, Toronto Global and the Employment Standards Information Centre. These resources can help employers navigate the intricacies of the ESA, reducing the likelihood of misclassification and its associated penalties, including rehabilitation programs for businesses that need assistance in compliance.
How Can Temporary Help Agencies Assist Contractors?
Temporary help agencies, also called staffing agencies, play a significant role in the Ontario labor market, particularly in the Toronto region. These agencies connect job seekers with employers, including international businesses, who require temporary or contract-based employees. It's important for both employers and temporary workers to be aware of their rights and responsibilities under the ESA, including legal documents and other guidelines. Understanding the implications of the ESA is essential for anyone involved in the temporary employment sector in Ontario.
Promoting Skills Development in Ontario's Labor Market
In addition to safeguarding the rights and well-being of employees, the Ontario Employment Standards Act (ESA) places a strong emphasis on skills development in the Toronto region. It recognizes the importance of continuous learning and career advancement for workers, including international employees, in the province.
By establishing minimum employment standards, the ESA provides a stable foundation that allows employees to focus on skill development, knowing that their fundamental rights are protected. This focus on skills development also extends to rehabilitation programs for workers who may require additional support.
Employers are encouraged to support skills development among their workforce in the Toronto region. This can be achieved through training programs, mentorship, and opportunities for employees to acquire new skills or enhance existing ones. By doing so, employers not only comply with the ESA but also foster a more productive and engaged workforce, which is particularly valuable for international businesses looking to thrive in the diverse and dynamic Toronto job market.
In this regard, the Ministry of Labor, Immigration, Training, and Skills Development not only enforces the ESA but also actively promotes skills development among Ontario workers, including international workers. The Ministry collaborates with employers and employees to create an environment where training and skills enhancement, including rehabilitation programs, are integral to career growth.
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.
