Employee vs. Contractor – How should a business owner decide what is right for their business?
What better way to confirm that your business is growing than starting to research best practices for hiring! When you begin to explore these exciting next steps, deciding whether to bring on staff as an employee or contractor becomes very important.
If you are reading this blog one of two assumptions can be made:
1. Your company is experiencing large, long-term growth or,
2 You need to fulfill a short-term job project with large-scaled help.
Before we explore more, it is very important that you have previously read our blog article, “Employee vs Contractors.” This article gives you the rules to measure the differences between the two and sets the standards on when you do decide to hire for those positions. For now, let us continue the discussion on whether it is better to hire an employee or a contractor.
Hiring an employee
If your company is looking for long-term growth, hiring an employee is ideal. This is because you will spend a great deal time training the people who will achieve the dreams and visions of the company. Employees are a representation of the business. They are part of the mechanical growth on the inside.
If your company is looking to fill a position for a short-term project, an employee will only be ideal if:
- They will work directly under you and use the company resources to perform the job and,
- There is no risk to them if they falter on the performance of the job.
During the short-term hiring you will need to provide the employee with payroll, and once the job has been terminated, provide them with a ROE.
Hiring a contractor
If your company is looking for long-term growth, hiring a contractor is only ideal if:
- The individual will perform duties for the company only a few hours a week,
- The individual will use their own tools and equipment to help with duties, and,
- Take on any risk if they screw up on the task that they were hired to perform.
A hired contractor must provide a bill for services rendered. You can also sign a long-term contract to perform the work – this is common for IT services, out of house bookkeeping, and accounting.
When your company is looking to fill a position for a short-term project, a contractor is ideal if:
- They will work autonomously on the project and don’t require management.
- They carry their own insurance,
- The job task is specialized to duties that they or an assistant are responsible for.
No payroll is required with contractors, however, you are required to receive a bill from them for the job performed with a tax number located on that bill.
Employee vs. Contractor – Important tips for your hiring process
When hiring an employee, make sure you fill out the Personal Tax Credit Return Form (TD1) and the Provincial Tax credit form (look this up based on your province or territory). You can find a payroll calculator here. Remit the source deductions no later than the 15th of the next month, and file the T4 slips at year end.
If you have decided to hire a contractor, you will be required to get a bill for services performed, make sure a sales tax number is provided, and whatever you do, don’t violate the rules of CRA of employee vs. contractor; there’s way too much at risk there.
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