Ontario Labour Law is Changing – and If Your Company Uses Contract Staff, You Could Be on the Hook for Huge Expenses

March 6, 2017

 

Work looks a lot different in the 21st century than it did a generation ago. Millennials are privileging flexibility and work/life balance more than their forebears, and companies are adopting more flexible hiring models like contingent (contract) staffing more than ever before. The consequences for some workers, especially at the low end of the skill spectrum, have been negative – fewer benefits, less job stability. But many high-skilled workers in business functions like Procurement and IT are enjoying contract work because it offers high hourly pay rates, tax advantages, work/life balance and other lifestyle benefits. And companies are enjoying the ability to “rent” talent for peak workloads and use contractors for business transformation and other strategic initiatives.

Things are changing, and the Ontario Government is taking notice. A CBC report this week describes how the Ontario Government is conducting a comprehensive review into Ontario’s labour laws, examining everything from boosting paid vacation, to changing overtime rules, and all kinds of other employment issues.

One that strikes home for companies that are using a contingent staffing model? It’s something that could cost companies millions in penalties and fines:

The government is going to more closely investigate the contractor / company relationship, and this includes a closer look at whether companies are misclassifying contractors.

The basic idea is that companies who have a contingent (contract) workforce have to show that these workers aren’t full-time employees. The contractor / client relationship needs to be substantively more independent than an employee / employer relationship. In other words, a company can’t have full-time employees that it designates as working “on contract.” They need to actually be on contract.

It’s an issue that’s come up more often in the U.S. than in Canada, with lawsuits and high-profile penalties for companies under the Labour Standards Act. In Canada, there’s less precedent for how a company shows that a contractor isn’t a full-time employee, but there are some standard criteria:

  • Does the contractor have some flexibility to create their own hours?
  • Is the work reasonably self-directed?
  • Does the worker invest some of their own equipment and materials in the work?
  • How permanent is the working relationship?
  • Is the contractor on the company’s payroll, or are they payrolled by a third party?

Contrary to popular belief, companies need to show these substantive factors. Simply asking a contractor to sign an “independent contractor agreement” isn’t enough to prove that they are a contractor and not, in fact, a full-time permanent employee. In short, there needs to be an arm’s-length relationship between the contractor and employer. One of the best ways to establish this is to payroll contractors through a third party.

The Ontario Government Changing Workplaces Review is putting all aspects of contingent staffing on the table. Make no mistake, this isn’t the end of contingent staffing (it’s still a rapid growth area) – but it is putting pressure on companies to make sure their contractors have that arms-length relationship. We’ve heard confidentially from several companies who have large bases of contractors (100+) in high-skilled jobs like Procurement and Supply Chain. These companies have received communications from government agencies auditing their contractors for employee misclassification, and one of the biggest things they’re looking for is whether the contractors are on the company’s payroll.

Working with a third party payrolling service, you can rest more easily in this changing landscape and get ahead of changes coming down the pike. Because employee misclassification can be an extremely expensive thing. But it doesn’t have to be. Get in touch with Argentus today and see what we can do to help you establish that arms-length employer relationship with your contract staff. 

 

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