Employer wants me to be a contractor but I can't and won't.
January 18, 2019 2:44 PM Subscribe
I need to extract myself temporarily from a tricky employment situation involving contracting, a not terribly bright employer, and finding a way to not have to form my own company as a short term solution. Canada, but any advice will be helpful.
I am a consultant working for a small employer in Canada for over two years, currently in a full-time in-house position with a single client, a multinational corporation. My employer in her infinite wisdom (read: listening to bad advice) has suddenly decided that she wants to turn all of her employees into contractors. Seeing the writing on the wall, I'm now actively seeking full-time employment elsewhere. The company I'm contracting with is looking at me for a full-time position but I don't know if it will be offered or if I will ultimately accept the offer.
I have read the CRA guidelines about determining whether an individual is considered an employee or a contractor and I definitely do not meet the criteria, at least while working through another company. When we met to discuss and she said everyone on staff will need to be a contractor "because it's costing her too much money", I went the non-confrontational route and just said that it wouldn't be possible and that she and I could get in "big trouble" with CRA. Trying to make it as simple as possible for her to understand and at least kick the can down the road a bit until I sorted out full-time employment.
I have no non-solicitation and no non-compete in my contract with her, and she has no contract with the client. Not great at business, as I mentioned. I could go contract directly to the client (this would be their preference) but I don't want to do that, even though I could legally work as a direct contractor. I don't want to form a corporation as I'm a dual US-Canadian citizen and have been advised by my US accountant that incorporation will cause me tax nightmares. Beyond that, I'm looking for full-time employment and do not want to form a company in the short term, taking on the costs, the risks, and potentially losing the ability to claim Employment Insurance if things fall apart. I'm not interested in forming a sole proprietorship either, and I don't think that the client will accept a non-incorporated contractor.
All that said - I have guaranteed contract work with the client through the end of the year, even if full-time employment doesn't work out. Except things got a bit tricker today.
I am now throwing up CRA roadblocks for my employer to buy time. She emailed me today saying that she decided she's willing to take the risk with CRA - putting the fact that she wants to scam the system to save money in writing! I replied saying that I can't accept a unilateral decision as it's of great risk to me as well and that we'd need to seek a ruling from CRA and that I wouldn't sign anything until a ruling had been made.
I am in the middle of critical projects with the client and do not want to let them down and have it impact me professionally. In my perfect world I stay the course until I find permanent employment (with the client or elsewhere) and I would have a year to put that in place. In the meantime, I need to extract myself from my current employer as I expect things to go downhill fast. At this point I have concerns - not strong, but enough to be troubling - about being paid.
My bright idea tonight is to take the client work and my services to a different body shop to be able to keep working for the client while I sort out the full-time situation. I'd be offering them the opportunity to essentially pimp me out instead of her, and the ones in town are very used to placing people as contractors and having them be hired away by the clients. Is this crazy? And do you have any other ideas, including anything that could be done on the client side? The client is aware of the situation and does not want to lose me due to the critical work I'm doing but I really do not want to form my own company to get through this hurdle.
I am a consultant working for a small employer in Canada for over two years, currently in a full-time in-house position with a single client, a multinational corporation. My employer in her infinite wisdom (read: listening to bad advice) has suddenly decided that she wants to turn all of her employees into contractors. Seeing the writing on the wall, I'm now actively seeking full-time employment elsewhere. The company I'm contracting with is looking at me for a full-time position but I don't know if it will be offered or if I will ultimately accept the offer.
I have read the CRA guidelines about determining whether an individual is considered an employee or a contractor and I definitely do not meet the criteria, at least while working through another company. When we met to discuss and she said everyone on staff will need to be a contractor "because it's costing her too much money", I went the non-confrontational route and just said that it wouldn't be possible and that she and I could get in "big trouble" with CRA. Trying to make it as simple as possible for her to understand and at least kick the can down the road a bit until I sorted out full-time employment.
I have no non-solicitation and no non-compete in my contract with her, and she has no contract with the client. Not great at business, as I mentioned. I could go contract directly to the client (this would be their preference) but I don't want to do that, even though I could legally work as a direct contractor. I don't want to form a corporation as I'm a dual US-Canadian citizen and have been advised by my US accountant that incorporation will cause me tax nightmares. Beyond that, I'm looking for full-time employment and do not want to form a company in the short term, taking on the costs, the risks, and potentially losing the ability to claim Employment Insurance if things fall apart. I'm not interested in forming a sole proprietorship either, and I don't think that the client will accept a non-incorporated contractor.
All that said - I have guaranteed contract work with the client through the end of the year, even if full-time employment doesn't work out. Except things got a bit tricker today.
I am now throwing up CRA roadblocks for my employer to buy time. She emailed me today saying that she decided she's willing to take the risk with CRA - putting the fact that she wants to scam the system to save money in writing! I replied saying that I can't accept a unilateral decision as it's of great risk to me as well and that we'd need to seek a ruling from CRA and that I wouldn't sign anything until a ruling had been made.
I am in the middle of critical projects with the client and do not want to let them down and have it impact me professionally. In my perfect world I stay the course until I find permanent employment (with the client or elsewhere) and I would have a year to put that in place. In the meantime, I need to extract myself from my current employer as I expect things to go downhill fast. At this point I have concerns - not strong, but enough to be troubling - about being paid.
My bright idea tonight is to take the client work and my services to a different body shop to be able to keep working for the client while I sort out the full-time situation. I'd be offering them the opportunity to essentially pimp me out instead of her, and the ones in town are very used to placing people as contractors and having them be hired away by the clients. Is this crazy? And do you have any other ideas, including anything that could be done on the client side? The client is aware of the situation and does not want to lose me due to the critical work I'm doing but I really do not want to form my own company to get through this hurdle.
I feel for you. I was recently put through a similar contract ringer, complete with me specifically telling the major corporation (that really should know better) that what they wanted to do violated CRA contractor rules.
Anyway, why do you feel the need to incorporate? Can't you just go work for the client as an independent contractor/freelancer? I'm not incorporated. I do have an HST number, but that's not even necessary if you make below a certain threshold.
I don't know what industry you're in. You may have to purchase insurance, which would be an expense you can write off (or at least partially write off).
posted by sardonyx at 4:13 PM on January 18, 2019 [3 favorites]
Anyway, why do you feel the need to incorporate? Can't you just go work for the client as an independent contractor/freelancer? I'm not incorporated. I do have an HST number, but that's not even necessary if you make below a certain threshold.
I don't know what industry you're in. You may have to purchase insurance, which would be an expense you can write off (or at least partially write off).
posted by sardonyx at 4:13 PM on January 18, 2019 [3 favorites]
(caveat - I believe this likely applies to your jurisdiction, but I am providing general information about BC law that may not be applicable to your situation. I am not your lawyer. Seek qualified legal and tax advice from someone in your jurisdiction.)
Big ups to you for pushing back on your employer's nonsense. 'Converting' employees to contractors is the oldest & worst (aka least legally effective) trick in the book.
There is no need to register as a sole proprietorship unless you are operating under something other than your legal name with no additions. Registration is only related to the name - not to the form of business. If you are self-employed, you have formed a sole proprietorship whether you like it or not! A sole proprietorship (including one with a registered name) has no separate legal personality from you. It is not an incorporated entity and carries none of the benefits and drawbacks of incorporation. However, you will have to pay tax as a business - there are lots of articles online explaining this. Maybe run this by your US accountant and see what they think.
E.g. if the contract is with John Smith, no need for registration. If it is with "John Smith Plumbing", registration of name required (the contract would be with John Smith dba John Smith Plumbing).
Many contractors likely do not incorporate, and likely do not register a name as a sole proprietorship either. Name registration is mostly in order to deal with the public with a business name.
I would be surprised if the client was unwilling to contract with you as an individual under your legal name. I suppose they might do this if they were afraid of having the relationship later judged to be an employer-employee one (google "employers hiring independent contractors [your jurisdiction]" and I'm sure you'll see lots of articles discussing this). They may not be willing to take the risk or get the necessary legal assistance on the contract. It would help if you make it clear in your discussions that you will be to take on other clients as you desire, and to set up a proper system for invoicing them.
On the other hand, if you are not looking to start a business, perhaps this is just not something you are down for, which is entirely legitimate.
Incorporating a corporation would be something to consider, with legal and tax advice, if you were particularly concerned about liability, and/or wanted to structure your income so as to avoid less variance from year to year and minimize tax bills by paying your immediate family members a salary (...yeah. Many, many professionals do this. There was change in the law this year on it. Rich people were pissy about it.)
posted by lookoutbelow at 5:20 PM on January 18, 2019 [1 favorite]
Big ups to you for pushing back on your employer's nonsense. 'Converting' employees to contractors is the oldest & worst (aka least legally effective) trick in the book.
There is no need to register as a sole proprietorship unless you are operating under something other than your legal name with no additions. Registration is only related to the name - not to the form of business. If you are self-employed, you have formed a sole proprietorship whether you like it or not! A sole proprietorship (including one with a registered name) has no separate legal personality from you. It is not an incorporated entity and carries none of the benefits and drawbacks of incorporation. However, you will have to pay tax as a business - there are lots of articles online explaining this. Maybe run this by your US accountant and see what they think.
E.g. if the contract is with John Smith, no need for registration. If it is with "John Smith Plumbing", registration of name required (the contract would be with John Smith dba John Smith Plumbing).
Many contractors likely do not incorporate, and likely do not register a name as a sole proprietorship either. Name registration is mostly in order to deal with the public with a business name.
I would be surprised if the client was unwilling to contract with you as an individual under your legal name. I suppose they might do this if they were afraid of having the relationship later judged to be an employer-employee one (google "employers hiring independent contractors [your jurisdiction]" and I'm sure you'll see lots of articles discussing this). They may not be willing to take the risk or get the necessary legal assistance on the contract. It would help if you make it clear in your discussions that you will be to take on other clients as you desire, and to set up a proper system for invoicing them.
On the other hand, if you are not looking to start a business, perhaps this is just not something you are down for, which is entirely legitimate.
Incorporating a corporation would be something to consider, with legal and tax advice, if you were particularly concerned about liability, and/or wanted to structure your income so as to avoid less variance from year to year and minimize tax bills by paying your immediate family members a salary (...yeah. Many, many professionals do this. There was change in the law this year on it. Rich people were pissy about it.)
posted by lookoutbelow at 5:20 PM on January 18, 2019 [1 favorite]
Sole proprietor in Canada here (just had a loooong chat with the GST people, FML).
Your employer cannot unilaterally turn you into a contractor. Period. Your employer can end your current salaried position (i.e., they can lay you off), and you would likely be eligible for either EI or severance.
Your employer could theoretically rehire you as a contractor to do the same work.
You are correct that this would contravene explicit CRA guidelines about what is and what is not a contractor in Canada. It would be very, very easy for the CRA to sanction both your employer... and you.
That said, one possible out is for you to negotiate a a part-time contract with your employer and reducing your consulting hours with the current client, thus technically turning you into a true contractor. It would also mean that you would have to have complete freedom to manage your own schedule, work from wherever you like, and turn down work if you're too busy. You could then do contracting for other clients. It's a good situation. It's what I do.
However, it sounds like your employer is not a reasonable or trustable person, so this tactic will likely not work out.
In contrast to what someone else said upthread, you will need to register as a sole proprietor.
This is because you must collect GST/HST (but not PST unless you sell physical products) if your annual income (you can declare your fiscal year to start and end whenever you want, btw) is about $30,000 (presumably you will earn more than $30K this year).
To collect GST, you need a GST number.
To get a GST number you need a business number.
To get a business number you either register yourself as a sole proprietor, or incorporate.
Incorporation I think works well above about $100K of gross revenue a year.
However, it is more expensive to manage an incorporated entity, so if you're below, say, $100K, it's much, much easier to form a sole proprietorship.
Do a sole proprietorship for a year to learn how all the tax and reporting stuff works. It's still a learning curve. After that, explore incorporation
Make sure you work with a chartered accountant, not a bookkeeper (it's about $400-$500 a year to hire an accountant to do basic taxes).
Also: do not register and collect GST until you reach the $30K threshold.
Once you get a GST number you are required to alway collect the tax on professional services income generated in Canada, even if one year you make below $30K.
Good luck!
posted by JamesBay at 5:42 PM on January 18, 2019 [9 favorites]
Your employer cannot unilaterally turn you into a contractor. Period. Your employer can end your current salaried position (i.e., they can lay you off), and you would likely be eligible for either EI or severance.
Your employer could theoretically rehire you as a contractor to do the same work.
You are correct that this would contravene explicit CRA guidelines about what is and what is not a contractor in Canada. It would be very, very easy for the CRA to sanction both your employer... and you.
That said, one possible out is for you to negotiate a a part-time contract with your employer and reducing your consulting hours with the current client, thus technically turning you into a true contractor. It would also mean that you would have to have complete freedom to manage your own schedule, work from wherever you like, and turn down work if you're too busy. You could then do contracting for other clients. It's a good situation. It's what I do.
However, it sounds like your employer is not a reasonable or trustable person, so this tactic will likely not work out.
In contrast to what someone else said upthread, you will need to register as a sole proprietor.
This is because you must collect GST/HST (but not PST unless you sell physical products) if your annual income (you can declare your fiscal year to start and end whenever you want, btw) is about $30,000 (presumably you will earn more than $30K this year).
To collect GST, you need a GST number.
To get a GST number you need a business number.
To get a business number you either register yourself as a sole proprietor, or incorporate.
Incorporation I think works well above about $100K of gross revenue a year.
However, it is more expensive to manage an incorporated entity, so if you're below, say, $100K, it's much, much easier to form a sole proprietorship.
Do a sole proprietorship for a year to learn how all the tax and reporting stuff works. It's still a learning curve. After that, explore incorporation
Make sure you work with a chartered accountant, not a bookkeeper (it's about $400-$500 a year to hire an accountant to do basic taxes).
Also: do not register and collect GST until you reach the $30K threshold.
Once you get a GST number you are required to alway collect the tax on professional services income generated in Canada, even if one year you make below $30K.
Good luck!
posted by JamesBay at 5:42 PM on January 18, 2019 [9 favorites]
You are absolutely right not to incorporate. My US tax return was 82 pages long after I incorporated in Canada, and there are maybe 20 accountants that know how to fill that schedule in correctly.
Your employer is dismissing you from your position. You can just stop working and collect EI. Once you have stopped working, your client may fee more motivated to move on that full-time offer. I’d be tempted to take this road.
posted by crazycanuck at 5:46 PM on January 18, 2019 [3 favorites]
Your employer is dismissing you from your position. You can just stop working and collect EI. Once you have stopped working, your client may fee more motivated to move on that full-time offer. I’d be tempted to take this road.
posted by crazycanuck at 5:46 PM on January 18, 2019 [3 favorites]
You're absolutely right to push back on this, and I think forcing the employer to give you severance and pay in lieu of notice is entirely reasonable (note: I'm not a lawyer, but I would think you'd be entitled to these even if you WERE then immediately contracted when the employment relationship ends).
That said, I wanted to point out that even if you did end up as a contractor for one company or another, you're still eligible for some employment insurance benefits, even if you incorporate.
posted by If only I had a penguin... at 6:10 PM on January 18, 2019
That said, I wanted to point out that even if you did end up as a contractor for one company or another, you're still eligible for some employment insurance benefits, even if you incorporate.
posted by If only I had a penguin... at 6:10 PM on January 18, 2019
I would be surprised if the client was unwilling to contract with you as an individual under your legal name
My experience is the opposite. The large corporations I have worked for would not, under any circumstances, hire a consultant on a contract basis as an individual. They would generally not hire a consultant on a contract basis through that individual's own corporation, but would only deal directly with a contracting company that represented more than one consultant, usually one that was already on an approved list of vendors. If they had a consultant they wanted to work with, the approved vendor would hire the consultant and bill for their time, and take a cut, even though the large corporation found the contractor in the first place and knew exactly who they wanted.
posted by jacquilynne at 6:13 PM on January 18, 2019 [4 favorites]
My experience is the opposite. The large corporations I have worked for would not, under any circumstances, hire a consultant on a contract basis as an individual. They would generally not hire a consultant on a contract basis through that individual's own corporation, but would only deal directly with a contracting company that represented more than one consultant, usually one that was already on an approved list of vendors. If they had a consultant they wanted to work with, the approved vendor would hire the consultant and bill for their time, and take a cut, even though the large corporation found the contractor in the first place and knew exactly who they wanted.
posted by jacquilynne at 6:13 PM on January 18, 2019 [4 favorites]
You might want to contact the labour board in whichever province you work in.
posted by jeather at 4:21 AM on January 19, 2019 [2 favorites]
posted by jeather at 4:21 AM on January 19, 2019 [2 favorites]
This thread is closed to new comments.
posted by vignettist at 2:55 PM on January 18, 2019