Is an independent contractor entitled to vacation pay?
By Jane Southren | February 20, 2011
We have a roofing company and one of the persons is acting as an independent contractor. He charges us $38 plus hst per hour, at times he will hire labourers to help. He had the choice of being an employee but chose to be an independent and pays his own income tax, as he wants the write-offs. Now he wants vacation pay as our other employees do. Is he entitled to it?
Jane Southren answered:
I can only answer in respect of Ontario and there is no indication as to whether or not this business is in Ontario. If it is, then the paid vacation entitlement should only be available to employees.
Whether or not the person is considered an employee by the tax authorities, employment authorities or the courts will depend upon an interpretation of the facts surrounding the relationship. And whether or not he is considered an "employee" by any of those authorities may or may not be consistent with what the parties to the relationship say or want.
There are various elements to the test, such as does the working person work for more than one employer or does he get all of his work from one place (that would infer that he is an employee regardless of what he calls himself), does the working person have a corporation and provide invoices to the company he is working for (that would infer that he is truly independent), does the person working use the tools of the company he is working for, work only in locations instructed by the company and is he basically doing his work under the complete control of the company (that would infer that he is an employee). I give these only as examples, there are many fact specific issues that would be analyzed and a determination made as to whether or not the person was actually and employee regardless of what he and the company called him.
The upshot of the test is "who is taking the risk of finding a full day's work for this person?" If the person really has no risk, and the company is finding him all of his work to fill 80 per cent or more of his time, there is a good chance that the various authorities would determine that he is an employee, not an independent contractor.
That could give rise to more problems than just vacation pay. It could give rise to audits and issues relating to whether or not appropriate remittances have been made etc.
So the question can't be answered easily. And it can't be answered definitely with so few facts.
As a general rule, if he is not an employee, in Ontario he is not entitled to vacation pay.
But whether or not he could be considered an employee if he decided to make a complaint about the fact that he isn't getting vacation pay under ESA, or sued for his vacation pay among other things if the relationship with him was terminated, has to be determined using a whole bunch of facts that I don't have. In order to do that though, he would have to take the position that he is an employee, and he may be disinclined to do that if he has always taken the position that he is independent. As I said, the authorities looking at the situation may not agree with what either of you say about it, but if he has always taken one position he may not want to change that absent some motivation like wanting to sue you for termination pay (and vacation pay) if he gets terminated.