Guide to Global Payroll Management EMPLOYEE-EMPLOYER RELATIONSHIP Prior to hiring, it is important to establish the existence of the employee-employer relationship. Payroll has a compliance responsibility related to statutory withholdings requiring that all deemed employees within the organization have the appropriate statutory deductions withheld and remitted. Payroll should communicate to all areas of the organization the importance of establishing the employee-employer relationship. EMPLOYEES OUTSIDE THE PROVINCE OF QUEBEC One of the key questions the CRA asks is whether or not the person is engaged to perform services, as a person in business on their own account or as an employee. Then the CRA examines the total relationship between the worker and the payer using a two-step process. The CRA looks at the following in applying a "six-point test" to determine if the individual is an employee or a self-employed worker: 1. Control 2. Ownership of Tools 3. Subcontracting work 4. Financial risk 5. Responsibility for investment and management 6. Opportunity for profit Using these six points, the CRA examines the total relationship between the worker and the payer by using the following two-step approach. Step 1 - The worker and payer are asked what their intent was when they entered into the working arrangement: * did they enter into a contract of service (employee-employer relationship), or * did they enter into a contract for service (business relationship)? Workers and payers can set up their affairs as they see fit; however, they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. Having a carefully written agreement setting out the intentions of the parties may offer some protection if either party subsequently changes its opinion and argues that the relationship is not what it is supposed to be. A clearly written agreement of intent could also help prevent the contractor from being reclassified as an employee, as long as the facts of the working relationship support the stated agreement. Step 2 - The worker and payer are asked questions that will help the CRA understand the working arrangement and validate whether the intent of both parties is reflected in the facts. The questions asked relate to: * the payer's control and influence over the worker's daily activities * who provides the tools and equipment, and who pays for the cost of replacement, repair and insurance * the worker's ability to subcontract the work or hire assistants * the degree of financial risk taken by the worker * capital investment and management of staff and resources * the worker's opportunity for profit * any other relevant factors, such as written contracts 11-8 © The Canadian Payroll Association/L'Association canadienne de la paie 2020