Compensation for independent contractors looks very different than compensation for employees. It is important that workplaces ensure that this distinction is made clear and is maintained. For example, for independent contractors:
- There is more flexibility for contractors to negotiate or set their own rates
- They can be paid by project, by hour, or by retainer
- The fees are articulated in a contractor agreement (versus an employee agreement)
- Their fees may be higher because they are responsible for covering their own insurance, equipment, time off, etc.
- They are NOT eligible for benefits, paid time off, employee insurance, etc.
TThe following section provides guidelines on what to consider when developing your organization’s compensation strategy as it related to independent contractors.
If you have additional questions or concerns, please consult your Engagement Partner.
- Have a written agreement that outlines the fees for the independent contractor’s services. The fee structure could be by:
- Per hour for services rendered
- By retainer (e.g. monthly fee for potential services rendered)
- The fee structure can be proposed by the organization in a request for proposals (RFP), or it can be negotiated with the potential independent contractor.
- See the Sample Contractor Agreement.
- Generally, the fees for independent contractors are higher than what you would pay an employee. The reason for the difference is because independent contractors are required to pay for their own equipment, insurance, sick time and vacation time, etc.
- Independent contractors are also not eligible for employee benefits like:
- Employment Insurance
- Canadian Pension Plan
- Paid Time Off
Independent contractors can re-negotiate their payment. This must be done in accordance with the terms of the contractor agreement. The employer can choose to accept any changes to payment or not.
Contractors are not eligible for benefits. Group health and welfare benefits are applicable for regular employees.
Contractors are not eligible for pension benefits. A group pension plan for RRSP contributions is applicable for regular employees.
PAID TIME OFF
Contractors are not eligible for paid time off. Instead, contractor agreements may state that the contractor can refrain from providing services for a specific period of time, however unpaid, during the contract term (or as otherwise approved by the contracted).