Why is it that virtually all of the associate agreements that I’ve ever been asked to review/revise/negotiate contemplate that the associate will be an INDEPENDENT CONTRACTOR and not an employee? Well, simply put, there are a lot of financial incentives for the dentists who are paying the associate to do it that way. Let me explain.
Income Taxes
If a dentist engages an independent contractor associate and pays them $50,000 in 2011, the dentist only needs to pay them that amount. The associate is responsible for withholding, filing, and remitting their own income taxes. The dentist doesn’t have to worry about income taxes in respect of the associate. So it’s less hassle and paperwork for the dentist!
Employment Insurance
Independent contractor associates don’t pay employment insurance premiums. Neither do the dentist on behalf of an independent contractor associate. So there’s money to be saved here. You see, in 2011, if the associate is an employee and made $50,000, then the associate would have to be paid $786 in employment insurance premiums. For their part, the dentist employer would have to pay $1101 in employment insurance premiums. So both the dentist employer and the associate employee would be out of pocket.
Canada Pension Plan
If the associate is an independent contractor, the dentist paying them would not make any Canada Pension Plan contributions on their behalf. But, in 2011, if the associate is an employee and made $50,000, then both the associate employee and the dentist employer would have to EACH pay $2,217 in Canada Pension Plan contributions. So both the dentist employer and the associate employee would be out of pocket.
Termination
If the associate was an independent contractor, they could be terminated by the dentist pursuant to the terms of the agreement (assuming the agreement is valid and the termination provisions are properly followed). This way of terminating an independent contractor is fairly straightforward.
If the associate is an employee, they benefit from the minimal standards found in the Employment Standards Act, 2000 when it comes to things like minimal notice or payment in lieu thereof (which depends on the length of time they’ve been working for the dentist). Alternatively, the employee could claim that they were dismissed without reasonable notice at common law (i.e. based on judge-made law). Again, only employees are entitled to these statutory or common law benefits/protections; independent contractors are not.
Bottom Line
As you can see, dentists can have fewer headaches and save more money by hiring associates and dental hygienists as independent contractors instead of as employees. Notwithstanding that intention, it doesn’t matter what the dentist wants when it comes to characterizing that relationship. What matters is the law. And, as I’ve blogged about quite extensively on this website, there are a number of factors that courts will look at to determine if the relationship is truly that of an independent contractor or an employee.
If you need a lawyer to review/revise/negotiate your associate agreement to make it truly reflect an independent contractor or employee relationship, give me a shout.
