is a placement agency required to pay employer health tax on the wages of workers who are assigned to the clients?
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Interpretation Letter 07-0164, August 2008
I refer to your correspondence regarding Company A and the application of the Employer Health Tax (EHT) Act. We have received your client's authorization letter to deal with you regarding EHT matters.
Specifically you were asking whether Company A, a placement agency, should be paying EHT on the wages of truck drivers who are assigned to clients.
Employers are required to pay EHT on the remuneration paid to employees who report for work at a permanent establishment (PE) of the employer in Ontario, and to employees who do not report for work at a PE of the employer, but who are paid from or through a PE of the employer in Ontario.
A professional specialist engaged under a contract for service by a placement agency for the sole purpose of performing services for a client of the agency is not considered to be an employee of the agency. If the agency pays the worker and the client directs and controls the worker, the agency is required to deduct CPP contributions and EI premiums for the worker but not income tax.
For EHT purposes, the term "professional specialist" refers to an individual who does not require strict instructions from the agency or the contracting client as to how to perform the task assigned, such as an engineer, draftsman, surveyor, doctor, technician, or computer consultant.
Based on your letters, I understand that:
- The workers in question are truckers, holding a master business license
- One or more of the workers is incorporated
- Company A hires a worker as a driver, and sends him to a client
- The client tells him what job to do, but does not instruct him how to do it
- Jobs may be one-time, or weekly
- Company A invoices the client for the services of the worker's business
- Company A can hire or fire the worker, monitors the performance of the worker, and is responsible for disciplining the worker
- Training for the worker is provided by Company A
- The worker is required to follow Company A's instructions and policies
- Company A provides the worker with some services
- Company A pays the worker regardless of whether they are paid by the client
- Company A pays vacation, sick pay, or bonuses, and pays liability insurance for the worker
- If the client subsequently wishes to hire the worker, it would need Company A's approval.
The workers in question are truck drivers, who are skilled workers, but in our opinion are not professional specialists.
In order to determine whether the workers are engaged under a contract for services, the facts of this case are analyzed using the common law principles (control, chance of profit/risk of loss, ownership of tools, and organization tests).
Control is demonstrated by Company A being able to hire or fire the worker, train the worker, and have the worker follow policies. The worker does not have any risk of loss, as demonstrated by Company A paying liability insurance, vacation, sick pay, or bonus. These two tests indicate that the workers are employees. Ownership of tools is not relevant in this case, as the client owns the trucks. The organization test is also inconclusive.
From the facts of the situation you have provided, we consider the workers who are not incorporated to be Company A's employees. As a result, the remuneration paid to these workers is subject to EHT.
Incorporated workers may be employees of their own corporations, but are not employees of Company A. The corporations cannot be considered to be an employee of Company A.
This interpretation is based on the information provided by you and is applicable to Company A only.
