To Hire or to Subcontract?

As a solopreneur or business partner, you may reach a point where you can no longer handle the growing demands of your clients. Maybe there was a time when you could manage everything on your own, but now it’s clear you need to lighten the load. At this stage, the last thing you want to do is overcomplicate an already busy situation. So, what’s the best move—hiring or subcontracting?

When Hiring a Service Makes Sense

Outsourcing tasks to a service provider is a good option when you need help with jobs that can be handled by external companies. This is especially true if hiring a full-time employee doesn’t make sense financially, or if you find that doing the task yourself is costing you more time and money.

For example, LEVELUP Payroll Solutions is a service that can assist with payroll, taxes, and other HR tasks. If you work from home, are hiring for the first time, or only have a few employees, it might make more sense to outsource these tasks to a service provider rather than hire someone full-time or subcontract.

When Contracting or Subcontracting Makes Sense

Hiring someone on a contract basis can work well if you need help with a specialized job or only require temporary assistance. Some small business owners prefer subcontracting because it allows them to avoid payroll taxes and other liabilities associated with employees. With a subcontractor, your responsibility ends when they fulfill the terms of the contract and invoice you for their services.

However, there are several important factors to consider when choosing to subcontract:

Cost & Flexibility: Subcontractors tend to be more expensive and less flexible than employees. They often set their own hours and have more control over their work and materials. They can also hire other people to help with the job without your consent.

CRA Requirements: The Canada Revenue Agency (CRA) has strict guidelines for distinguishing between employees and contractors. If you mistakenly treat someone as a contractor when they should be an employee, you could face fines, penalties, and interest on overdue payroll taxes.

Here are some key CRA criteria to determine if a worker is a contractor:

• Relationship: The worker must have a business-to-business relationship with you, not an employer-to-employee relationship. This means you have less control over how, when, and what work gets done.

• Tools & Equipment: If the worker supplies their own tools and equipment, it indicates a contractual relationship. If you supply them, the worker is likely an employee.

• Hiring: If the worker can hire others (assistants or subcontractors) to complete the job, they are likely a self-employed contractor.

• Risk: If the contractor incurs their own losses or profits based on their work, they are more likely a contractor. If the worker doesn’t honor the contract, will they bear any losses? If so, they’re likely not an employee.

• Business Presence: If the worker offers services to other clients and generates income from multiple sources, they are likely a contractor, not an employee. However, if you are their only client and they provide continuous, regular service, they may be an employee.

For more detailed information, you can refer to the CRA's guidelines on employee vs. contractor relationships here. You can also find out how to get a ruling from the CRA here.

When Hiring Someone Makes Sense

While it might seem more complicated, hiring someone—whether on a temporary or permanent basis—can save you time and hassle in the long run. You may want someone who can handle a specific, ongoing task, someone who requires specialized skills or training, or someone who will consistently work with you.

If you’re in a position to choose between hiring and subcontracting, keep in mind that subcontractors typically factor their tax obligations and other costs into their rates. So, even though you might be paying a higher hourly rate, you’re often covering these costs anyway. In most cases, employees are a more cost-effective option, and you have direct control over their pay, work hours, and responsibilities.

If you need help deciding whether to hire, subcontract, or use a service like LEVELUP Payroll Solutions, don’t hesitate to reach out. We offer free consultations to guide you through the process.

You can contact us at:

LEVELUP Payroll Solutions

Email: leveluppayrollsolutions@gmail.com

We’re here to help!