Understanding the difference between self-employment and employee status is extremely important when setting up your relationship with a dentist/dentists and in the creation of your contract. The wording of your contract will determine whether Revenue Canada decides you are an employee or an independent contractor. To see Revenue Canada's document on self-employment and employee status, go to RC4110 - Employee or Self-Employed?
Basically, the difference between an employer-employee relationship and self-employment lies in one small wording change:
- A contract OF service sets up an employer-employee relationship
- A contract FOR services sets up self-employment
Common Provisions in Self-Employment Contracts
These tests might seem very vague and abstract and to a large extent, they are. This is why it is very important to seek professional legal advice before setting up a contract for self-employment. In general, however, the following are provisions common to self-employment contracts:
- You should have full discretion as to the manner of providing dental hygiene services and the nature of treatment.
- You should have the right to provide dental hygiene services to more than one dentist and to set your own hours of work and days off work. The dentist should not be able to impose restrictions on your hours of work and vacation time.
- You should be paid based on productivity. Your payment should be a percentage of your billings, that is, the fees charged to patients for the dental hygiene services. Remuneration should not be by reference to time, for example, payment of "x" amount per hour or per day. Also, there should be no payment if no services are performed.
- You should submit an invoice to the dentist for payment of services rendered. Remuneration should not be payable at certain definite dates and times.
- You should establish the fees charged to patients for dental hygiene services.
- You should be responsible for remitting your own income taxes, Canada Pension Plan payments, and Employer Health Tax payments.
- You should not be entitled to any paid vacation time, statutory holidays, sick leave, bonuses, or employee benefits.
- You should reimburse the dentist for the working space, supplies, and support staff services available to you. This reimbursement can be by direct payment to the dentist, or it can be deducted from the amount the dentist pays you.
- You should be responsible for all expenses relating to the performance of dental hygiene services, including annual licence fees and association dues, and continuing education fees.
- You should, at your own expense, supply your own uniform, and any equipment you need that is not made available by the dentist.
- Maintain your own financial records of the dental hygiene services you provide. Do not rely on the dentist's books and records.
- You should obtain a malpractice insurance policy and pay the premiums on the policy yourself.
* It is very important to remember that in the case of self-employment, the dentist is not your "employer" and should not be referred to as such in practice, and especially on the T-1 personal tax return form.
The Four Tests
The specific provisions in your contract will make it a contract of service or a contract for services. There is not a set guideline for what makes either type of contract. The distinction lies in a series of four interrelated tests:
Who has the ultimate authority to determine the work (hours, vacation time, schedule, etc) - the dentist or the dental hygienist? If the dentist has the control, an employer-employee relationship may exist. If the dental hygienist has the control, there is a greater inclination to view the arrangement as a contract for service.
Does the risk of loss and the benefit of profit belong to the dentist or the dental hygienist? If the risks and benefits are the dentist's, an employer-employee relationship is more likely to exist. If the risks and benefits are the dental hygienist's, he or she will be viewed as self-employed.
Who is responsible for and owns the tools and equipment used by the dental hygienist? If the dentist is the owner, the relationship will likely be considered to be employer-employee. If the dental hygienist is the owner, he or she will be treated as self-employed.
To what extent is the work of the dental hygienist integrated into the dentist's practice? If the dental hygienist's work is indistinguishable from the general practice, more likely than not an employer-employee relationship exists. If the dental hygienist's work is more of an accessory to the practice, he or she will be viewed as self-employed.
Common Provisions in Employee Canada
These provisions are generally common to employee contracts:
- You work exclusively for a particular dentist(s).
- Payment is based on a salary or hourly wage rather than on a percentage of the fees collected.
- You are compensated even if the patient fails to pay for the service received.
- You have set working hours.
- The dentist provides a pension or retirement savings plan.
- The dentist provides group benefits, i.e., extended health, life insurance, disability insurance, etc.
- You are paid a bonus.
- You receive vacation pay.
Part-time and Placement Agency Workers
Even if you are a part-time or casual worker, the above rules apply. For placement agency workers, in most cases they are an employee of the agency, not the dentist. The situation could qualify as self-employment, but it is not common. Placement agencies can write to Revenue Canada for an interpretation of the situation.
Advantages and Disadvantages of Self-Employed Status
The main advantages of being self-employed are the freedom and flexibility of scheduling, hours, workplace, etc., as well as the ability to make many more deductions from income taxes. Some disadvantages include the loss of employee benefits (payment for statutory holidays, vacation pay, protection against wrongful dismissal etc.). The financial risk is also shifted to you when you are self-employed. You can make more profit if all goes well, but if there are problems from cancelled appointments and clients failing to pay you, there is always the risk of
* See an overview of the advantages and disadvantages of the various practice settings and non-traditional jobs for dental hygienists.
Be Sure of Your Status
If you do make the choice to become a self-employed dental hygienist with a contract for services, the most important thing is to be sure of your status. The fines and penalties may be quite substantial when Revenue Canada decides that an arrangement said to be a contract for service is actually a traditional employment relationship.