The CPA advises all physiotherapists, whether employers, employees or contractors, to seek legal advice concerning employment contracts.
As there are many individual factors to consider when creating or signing a contract it is not possible for the CPA to present all employment situation possibilities. It is the responsibility of the parties concerned to confirm that the contract supports the requirements for self-employed or employee physiotherapists.
Employee or Self-Employed? Be Certain
It is becoming increasingly common for physiotherapists to be hired in clinics as self-employed contractors rather than as employees. There are advantages and disadvantages to both employment statuses for both the employer and physiotherapist. It is entirely up to both parties to agree on which type of working relationship they will have.
The Canadian Physiotherapy Association (CPA) has been made aware of instances where the Canada Revenue Agency (CRA) has overturned the self-employed status of physiotherapists working in private clinics and determined they were employees of the facility. The status was changed due to the actual working relationship between the physiotherapist and the clinic. The existence of a contract stating that the physiotherapist is self-employed is not sufficient toestablish that employment status. According to CRA, it is the actual terms and conditions of employment that will determine the employment status. A change in employment status fromindependent contractor to employee will have huge financial implications including penalties and back taxes.
CRA information on independent contractors refers to parties in the contract as “payers” and “workers”. The following information uses this terminology for ease of reference to CRA publications.
Previously, the CPA had supplied a contract template on its website for clinics to use when hiring self-employed physiotherapists. This template is no longer available as the template wasinsufficient to meet the needs of all payers and workers. There have been instances, for example, in which the template was modified in ways that no longer supported the self-employed status of the physiotherapists. CPA recommends all payers and workers obtain a legal opinion on employment contracts to help ensure that the self-employed status is secured and that all aspectsof the working relationship are covered in the contract.
Information for Employers and Physiotherapists
Points to Consider as a Physiotherapist When Accepting a Job
- Consider having a lawyer review the contract to explain the details and possible scenarios described within the contract (e.g. leaving the job, working for other clinics, remuneration,termination etc.)
- Be clear on the relationship you will have with the payer (e.g. employee vs. contractor).
- If you are accepting a position as an employee, make yourself aware of the employer’s expectations and your rights as an employee. For example: Notice of termination, Vacation and sickness pay, Remuneration, Meal breaks, Overtime, Maternity leaves, Holidays, Emergency leaves, Severance, etc.
- If you are accepting work as a contractor, make sure you understand the difference between that and an employee, and how to ensure you meet the criteria to be considered a contractor. Refer to Table 1 & Table 2 for assistance.
- Determine what type of work restrictions/conditions you are comfortable with in the agreement. Many clauses are negotiable and the clinic owner will be (appropriately) negotiating a contract that is in their best interests.
- If you are a contractor, be certain to maintain an individual business profile. This includes marketing yourself, having a separate office, providing invoices to the payer, and not attending staff functions.
- Contractors must either provide their own tools and workspace or pay the owner for rental and lease of what is provided. This should be a flat, monthly fee separate from your work pay.
- Education allowances can only be offered to employees and not contractors. If one is offered to you as a new employee, ask how it may used, when it must be used by, and how it is applied (i.e. Does the clinic owner pay for the course or will you be reimbursed).
- Employees should be aware of any probationary periods and what benefits they are entitled to during that time or at which point they come into effect.
Points to Consider as an Owner When Hiring
- Determine which working relationship with the physiotherapist(s) is optimal for your clinic needs and develop either a Contract for Services (for a contractor) or Contract of Service (for an employee). This important distinction will guide you in the writing the contract and implementing the working environment. See Table 1 and Table 2 for an outline of the differences.
- Clinic owners will want to consider the level of control over clinicians. If your situation requires control over workload and/or schedules, it may be to your advantage to hire physiotherapists as employees.
- Please note that both types of work relationships can have a disadvantage to employers.
- Employees generally mean the clinic has a higher overhead and that their salary is independent of the work volume. Whereas contractors can ask for market rates which may be higher than expected and the clinic’s workforce stability can be affected because the contractor may also work elsewhere.
- Determine which employee benefits you will offer (e.g. Health and dental, Education allowances, RSPs etc.) and which are required by provincial law (e.g. Holidays, Vacation, Maternity leaves, Sick days etc.).
- Payment of salaried employees requires making deductions to earned income (e.g. income tax). If you are not working with a bookkeeper, familiarize yourself with the appropriate software programs to ensure accuracy and adherence to the remittance deadlines.
- If your decision is to hire a physiotherapist as a contractor, clarify how the contractor relationship will differ from other employees. Ensure you have made a firm distinction between them in what you provide, how they are paid, and their relationship to the company. It must be clear that they are not integrated with employees.
- Determine the value of your space and equipment and set the rate and frequency for the fee the contractor will pay for the rental/lease of the clinic equipment.
- Consult a lawyer when preparing your contracts for both employees and contractors. Employment law can be specific to each province and lawyers are the content experts. A lawyer can develop a technically sound contract that will be beneficial in the event that there is a dispute and it is contested.
Points to Consider when Drafting a Contract for Contractors
The most common work relationship is employer/employee as it is well understood and straightforward. The self-employed/independent contractor work is more complicated and the following information is offered as guidance in the formation of a contract for this type of work relationship.
- Contact a lawyer to review your contract. This should be done by both the payer and the worker. Lawyers are the experts in employment law and can make valuable suggestions about what should be included/excluded in the contract.
- The contract defines the working relationship between the payer and the worker. Many components of a contract are negotiable and will be specific to the particular working circumstances. There is no one method of writing a correct contract. The contract in itself does NOT determine the working relationship. It is vital to have a discussion with a lawyer when drafting a contract.
- In Canada, all employment status determinations other then those contracts formed in Quebec are based on the total working relationship between the payer and the worker as compared to the common law principals established by the courts. For employment contracts formed in Quebec, the employment status is based on the total working relationship between the payer and the worker as compared to the Civil Code of Quebec (C.c.Q.). The provincial physiotherapy regulators may also have rules and regulations which will apply to the contract.
- Canada Revenue Agency (CRA) has advised that the actual working relationship should be reflective of the written contract. Should the terms of the contract not be adhered to in fact, CRA will base their determination of the employment status on the actual terms and conditions of employment. This could result in a reversal from self-employed to employee status. Any change of status could result in significant financial repercussions for the payer. The payer would be reassessed, usually for a 4-year period for CPP and a 3-year period for EI premiums, as well as possible provincial health taxes.
- There are consequences for the worker as well, if their self-employed status is changed to employee status by CRA. There are differences in the expenses an employee may claim compared to those that may be claimed by a self-employed physiotherapists, especially regarding (but not limited to) claims on mortgage interest and capital cost allowance.
- The determination of whether a worker is an employee or self-employed is not always a simple matter. The parties’ own categorization of the relationship and the form of the contract are not sufficient determinants of the status. It is the total working relationshipthat defines the status. In the event of an audit or an employment dispute, CRA or a Court will consider a number of factors to determine employment status. These factors include the level of control over the worker’s activities, the ownership of equipment, the authority to hire helpers, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit and loss.
- If a physiotherapist is considered a contractor, but only works for one person (clinic), their status may actually be considered a dependent contractor. In determining whether theyare a dependent contractor, the courts would review
- the duration and the permanencyof the relationship; 2) the degree of economic reliance the contractor has towards the employer; and 3) the degree of exclusivity of the services. A high degree of exclusivity would demonstrate economic dependency. This intermediate category will influence aspects of the work relationship with the employer. Primarily, for example, the contractor would be entitled to reasonable notice of termination or compensation in lieu of notice incompliance with employment standards in the province.
- Independent contractors by definition are to be considered non-exclusive. To include an exclusivity clause would be indicative of an employee-employer relationship. However a non-exclusivity clause may not restrict where or for whom a contractor works after the contract is terminated.
- A non-solicitation agreement is sufficient to protect the employer’s business if a contractorleaves to work elsewhere. This prevents the contractor from trying to solicit any of their previous payer’s clients or staff to join them at a new location.
- A non-compete clause may be included in a contract if both the worker and the payer agree on the terms. However, in a dispute, the courts may not enforce the noncompetition clause. In some cases they have been viewed as an extraordinary restraintand against public policy.
- The method of compensation can be entirely negotiated between the contractor and the owner. However, compensation by salary or by hour are more indicative of an employeeemployer relationship. The number of hours of work is not a factor in determining the worker’s status. Whichever method of compensation selected, rental of tools and lease fee must NOT be included.
Point of View from Canada Revenue Agency
Canada Revenue Agency (CRA) addresses employment status based on the location in Canada where the employment contract was formed. For all provinces other than Quebec, CRA determines the employment status based on common law principles as established by the courts. For employment contracts formed in Quebec, CRA refers to the “Civil Code of Quebec” to establish the employment status. When using the common law principals to determines a worker’s employment status, CRA will consider whether or not the person is engaged to perform services as a person in business on his or her own account, or as an employee.
Common Law Approach
The following is a brief overview of a status review using the common law approach:
CRA ascertains how the payer and the worker define their working relationship and why they define it as such (Intent of the parties). Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)?
CRA questions the payer and the worker to get an accurate understanding of the working relationship between the parties and to verify whether the intent of the parties is reflected by the factual working relationship between the two parties. These questions relate to:
- Control: The level of control the payer has over the worker
- Tools and equipment: Whether or not the worker provides the tools and equipment
- Subcontracting Work or Hiring Assistants: Whether the worker can subcontract the work or hire assistants
- Financial Risk: The degree of financial risk taken by the worker
- Responsibility for Investment and Management: The degree of responsibility for investment and management held by the worker
- Opportunity for Profit: The worker’s opportunity for profit
- Other Relevant Factors: e.g. Written contracts
The CRA evaluates the answers to each of the above factors individually and determines whether or not the individual factors reflect the stated intention of the parties. When there is no common intent, the CRA determines whether the individual factors are more consistent with a contract of service (COS) or more indicative of a contract for services (CFS). Then the CRA reviews the factors as a whole and determines if the working relationship as a whole is reflective of the stated intention and, when there is no common intent, whether the relationship as a whole is consistent with a COS or whether the relationship as a whole is more consistent with a CFS.
Quebec Civil Code Approach
The CRA determines a worker’s employment status in the province of Quebec by examining the working relationship between the payer and the worker, using a three-step approach.
CRA asks the parties to the employment contract what was their intention when they entered into the working arrangement. The CRA wants to know how they define their working relationship and why they define it as such. Sometimes the intention is clear and both parties are in agreement (common intent). Sometimes the parties have different understandings as to the status of their employment relationship, in which case there is no common intent.
CRA looks to see if the employment meets the Civil Code of Québec’s definition in the of a contract of employment or a business contract (contract for services) by considering the following factors:
- Performance of work
- Relationship of subordination
It is important to gather the facts and analyze each of them in light of the specific context of the employment and the intent of parties.
CRA compares each party’s intentions with their actual working relationship. They confirm that the conditions of the working relationship meet the status that the parties have chosen and that they are consistent with the definitions of the Civil Code of Quebéc.
Determine the intent of the relationship. They obtain a copy of the contract or testimony by the parties and examine the parties’ action.
Compare the situation to the Civil Code of Quebec to verify that it meets the definition of contract of employment or contract for services. This is determination is based on the following factors: Performance of work, Remuneration, and Relationship of subordination.
Compare each party’s intentions with their actual working relationship:
- Subordination in the performance of work
- The financial and economic criterion
- Ownership of tools
- Integration of the tasks carried out by the worker
- The specific-result criterion
- The attitude of the parties with respect to the relationship.
While all aspects of the step processes are important, the CRA has emphasized that one factor is often done incorrectly in physiotherapy contracts. It is absolutely necessary that there be a FLAT RATE fee paid by the worker to the employer. This fee is for rental or lease of equipment, administrative services, workspace, etc. It is unacceptable to use a percentage formula or to have the fee considered part of pay. If percentage formulas are used, the self-employed status will be overturned because it removes the element of profit and loss for the worker which is a fundamental aspect of being self-employed.
Once the Contract is Signed
If you are uncertain about the employment status, you may request a ruling on the status through the CRA or Revenu Quebec.
Form CPT1 Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act.
www.cra.gc.ca/forms or 1-800-959-2221