Can contractors receive employer benefits? While a misconception persists that only employees can receive employer sponsored benefits, all workers can receive benefits that their employers deem appropriate.
Employers can provide health, dental, or any other benefits to anyone who works for them, including employees and contractors. Typically, only full-time employees expect benefits from employers but highly sought-after contractors or those on long engagements may receive a variety of employer benefits including per diems, allowances, insurance, and health benefits.
However, while both employees and contractors can receive benefits, they may not be eligible for the same benefits packages, due to their differing worker classification.
What Are Benefits?
In Canada, many employers provide benefits to workers, including supplemental health coverage, insurance, dental, drug coverage, paramedical, and more. Not all benefits are related to health and wellness, but all benefits have a monetary value that increases workers’ total compensation.
The Canadian Revenue Agency defines benefits as “a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own. A benefit includes an allowance or a reimbursement of an employee’s personal expense.” Many employer-provided benefits are taxable including allowances and premiums.
Contractors vs Employees
Every country defines contractors and employees differently, but there are some common threads to those definitions.
- Contract Term: Contractors generally have a work term with a defined end, based on time or project objectives. Employees tend to have an open-ended work term. It’s assumed they will stay with the company so long as it’s beneficial for both parties.
- Subcontracting: Unless specified otherwise, contractors can engage subcontractors to help complete their projects for you. Employees can’t. They’re responsible for their whole workload and can’t outsource it to anyone else.
- Direction and Control: Contractors enjoy a lot more independence than employees. They can often define their working hours, their approach, and can choose their own tools. Employees, on the other hand, are more closely directed by their managers and tend to be provided with tools, training, and even in house opportunities for career growth.
- Taxes: While employees pay income tax through payroll source deductions and receive tax forms from their employer (called a T4 in Canada), contractors have a business-to-business relationship with their clients and manage their business taxes accordingly, paying themselves out of their corporation.
The essential difference between contractors and employees is independence. Contractors and employees can work side by side for the same employer, with some overlap in duties and even benefits. Because they have fundamentally different relationships with the employer, though, they can’t have the same job or the same benefits.
Contractor vs Employee Benefits
While both employees and contractors can receive benefits, they receive different benefit packages. Contractors are by definition a different class of worker than employees and can’t be grouped with employees. They also have different needs. Employee benefit packages may be more extensive, including retirement savings and educational stipends, whereas contractor benefits are more streamlined, focusing on high value core benefits like health, insurance and dental.
The biggest difference between employee and contractor benefits, though, is that only employees can receive tax-free health and dental benefits. While contractors can receive health and dental benefits, they must pay tax on them when they file their taxes for the year.
How We Can Help
Understanding and negotiating benefit packages isn’t easy, but we can help! Canadian Payroll Services’ contractor payroll solution helps international companies compliantly engage Canadian contractors. We handle contracts, payroll, expenses and provide optional benefit packages designed with contractors in mind.
Want to learn more about how we can help? Get in touch!
