Do You Hire or Contract Out?

So I was talking to someone recently that I just met at a business seminar about starting a catering business. Actually, she had started it already but not officially if you know what I mean. If you don’t know well, I mean she was probably getting paid for her services, but have not reported it to C.R.A. Her clients are probably friends and friends of friends. I think this a way of starting with minimal financial risk and start-up cost and overhead, but let me be clear – I’m not endorsing cheating on your taxes. As a sidebar you can always report your taxes later (check a tax expert for you specific situation before engaging in any actions described in this article).

We got to talking about her market and the kind of customers she would be going after. Her choice was businesses that rent spaces to people and businesses to be used for their events, such as banquet halls. So in an attempt not to have my story drag on, I will fast-forward.

We started talking about her staffing needs. She found it overwhelming; as I would too if I had not had a background in accounting and went through the hiring process as an employer before. The main issues were should she hire her permanent staff or contract out for help on an as-needed-basis?

There are two things as entrepreneurs that we consider first (but are not the only things) the time and the cost. Essentially, time is money, so we consider the monetary cost. Hiring a full-time employee involves a lot of things and then there is the maintenance of records for the employee, which can be time-consuming and costly. If you hire an independent contractor then you can just pay him or her and they take care of themselves.

You must be careful with hiring independent contractors, because you must make sure they are “independent”. What I mean is that according to C.R.A. an independent contractor should do at least two of the following: have control over their schedule, own their own equipment and be at economic risk if the relationship falls apart.

The other option is a temp agency – they send you temporary help and then invoice you for their services. According to the Ministry of Labor website, a “Temporary help agencies employ people to assign them to perform work on a temporary basis for clients of the agency.” Although the Ministry of Labor considers the temp agency to be the employer and therefore any remuneration or benefits are the temp agency’s responsibility, you the contracting business can be on the hook for unpaid wages. As for the health and safety of the temp employee, both the agency and the client (you) are jointly responsible however the Workplace Safety and Insurance Act recognizes temp agencies as the sole employer, and therefore W.S.I.B. premiums is applied only to temp agencies (Workplace Safety and Insurance Act, Part VII, Section 72). This means that client employers (you) who hire temp agency staff can maintain a clean W.S.I.B. accident record, even when accidents happen on their premise.

So in conclusion, contracting out to a temp agency maybe simpler and more cost-effective that hiring an independent contractor as well as less to think about.

Please check with a paralegal/ lawyer and an accountant about information contained in this article because everyone’s circumstance is different. This article is intended for informational use only and should not be taken as advice from the author.