As a follow-up to my last blog (where I discussed the relevance of associate agreements in the context of different legal structures), in this blog I’ll be talking about some of the terms and conditions that may be included in these agreements.
Employee vs. Independent Contractor
Dentists can work for a practice as either an employee or an independent contractor. There are many differences between the two.
Employees are basically given salaries, provided work, told to come in during set hours (e.g. 9 a.m.-5 p.m.), supervised, use the tools of their employer, and do not stand to gain or lose money by doing their jobs. Employees benefit from minimum standards legislation (the Employment Standards Act, 2000) that prescribes maximum working hours and minimum wages. When it comes to being terminated, employees also receive minimum statutory notice periods (or payment in lieu thereof) or reasonable notice under the common law. For tax purposes, they have to pay full taxes on their employment income with only very few deductions allowed. The employer is responsible for deducting, withholding, and remitting payments for taxes, CPP, and EI.
Independent Contractors are independent businesses. They make a profit but also stand to make losses. They have their own clients. They have their own tools. They make their own hours. They are not really supervised by anyone. They may conduct business through their own sole proprietorship or dentistry professional corporation. They get to write off business expenses for the purpose of calculating their income taxes. They can be terminated pursuant to the terms of the agreement they have with their client. They do not enjoy minimum standards legislation protection. They generally pay their own taxes.
So the first question that a dentist may ask is: what is more advantageous? Well, in order to avoid dealing with tax remittances, minimum standards legislation, and to allow the associate to write off business expenses, it’s better for the employer to hire the associate as an independent contractor instead of an employee. Now, there’s a catch: regardless of how you structure the relationship, it’s the REALITY of the relationship that counts! If the associate looks like an employee, smells like an employee, and walks like an employee, then they’re an employee – regardless of whether you WANT them to be an independent contractor! Just keep that in mind. Also, it’s worth mentioning that whether they’re an employee or independent contractor will depend on the context (e.g. minimum standards legislation, vicarious liability under the common law, income tax, etc.). And each context has its own set of rules to determine whether the associate is IN FACT an employee or independent contractor.
In the next blog, I’ll discuss restrictive covenants in Associate Agreements.