Information Bulletin 1-02, August 2002

This publication is provided as a guide only. It is not intended as a substitute for the Employer Health Tax Act and Regulations.

This bulletin explains how Ontario's Employer Health Tax (EHT) applies to truck owner-operators to assist in determining whether an employer-employee relationship exists between the owner-operator and the hirer.

Legislation

EHT liability

Employers are required to pay EHT based on remuneration paid to employees who report for work at a permanent establishment of the employer in Ontario, and to employees who do not report for work at the employer's permanent establishment but who are paid from or through the employer's permanent establishment in Ontario.

General Information/background

Trucking industry

For the purpose of transporting its goods, a business may have its own fleet of trucks or require the services of a trucking company. A trucking company that hauls goods is required to obtain an operating licence from the Ministry of Transportation. A trucking company may hire drivers to haul goods in company-owned trucks (in-house fleet) or hire owner-operators, (i.e., individuals who supply [own] their trucks). Owner-operators may either work under the operating licence of the hirer, or have their own operating licence. Whether owner-operators are employees of the hirer or independent contractors will depend on the particular facts of the situation.

Canada Revenue Agency's (CRA) Employment Insurance (EI) and Canada Pension Plan (CPP) Rulings

Rulings

A CRA ruling is an official decision that is issued by an authorized officer of CRA and can be requested by an employer or a worker. A ruling determines whether or not a worker is in pensionable employment (CPP) and/or insurable employment (EI). A ruling also indicates whether a worker is an employee or self employed.

For EHT purposes, the Ministry will accept a CRA CPP/EI ruling regarding the employment status of a worker that has been issued either in the current or the four immediately preceding years. A ruling will be accepted by the Ministry only as it applies to the hirer and the worker(s) named in the ruling.

Self employed Status

General

In general, for EHT purposes, the Ministry will usually consider an owner- operator to be self-employed if the owner-operator is incorporated.

Criteria

If the owner-operator is not incorporated then the Ministry will consider the individual to be self-employed if all of the following criteria are met:

1. The owner-operator is free to choose the type of equipment he/she wishes to acquire, the financing arrangements for the equipment (i.e. vehicle leasing arrangement versus direct purchase), the maintenance to be performed on the equipment, how and who is to perform the maintenance, and where to purchase supplies and services.
2. The trucking company does not have the right to control where the owner-operator purchases or rents a product, equipment, a service, or personal insurance.
3. The owner-operator pays for all truck operating expenses including:
   • fuel, repair and maintenance;
   • truck licences; and
   • truck insurance premium and deductible (if covered under the hirer's fleet insurance, the cost must be charged back to the owner-operator).
4. The owner-operator is not guaranteed a minimum compensation whether or not the work is assigned to him/her.

If the criteria stated above are not met, the Ministry of Revenue will investigate further in order to establish whether a relationship between the owner-operator and a trucking company is, in fact, an "employer-employee relationship". The Ministry of Revenue will apply the four common law tests described in the next section.

Employee Status

General

Although the terms "employer" and "employee" are defined in the EHT Act, the Act does not define the circumstances in which an "employer-employee relationship" exists. It is necessary to establish whether the worker is hired under a contract of service or a contract for service to determine whether there is an employer-employee relationship.

A contract of service, or employer-employee relationship, generally exists when a worker agrees to work on a full-time or part-time basis for an employer for a specified or indeterminate period of time for a payer in return for a salary or wages. The employer has the right to decide where, when and how the work is to be done.

A contract for service, or business relationship, generally exists when a worker agrees to perform specific work for a payer in return for payment. The self-employed worker is not normally required to perform the services personally.

In order to determine whether a worker is an employee under a contract of service or self-employed under a contract for service, reference must be made to the common law principles. The terms and conditions of the worker's employment are examined and analysed as they relate to the following four factors: (a) control, (b) ownership of tools, (c) chance of profit/risk of loss, and (d) integration or organization. It is important to note that one factor alone is not conclusive in the determination.

Employee Status Tests

Control test

The "control test" is used to determine whether a person is in a position to order or require not only what work is done, but also how it is done. Generally, in an employer-employee relationship, the employer controls, directly or indirectly, the way the work is done and the work methods used. The employer assigns specific tasks that define the real framework within which the work is to be done. The hirer exercises control if he has the right to hire or fire, and decide where, when and how the work will be done. If such is the case, then the hirer clearly exercises "control" over the worker, who may then be considered to be an "employee" for EHT purposes.

It is not necessary that the control be exercised, only that it can be exercised.

Control test questions

Some of the questions the Client Accounts and Services Branch may ask in order to evaluate control include:

1. Is the owner-operator required to work scheduled hours?
2. Does the owner-operator provide his/her services exclusively to the hirer?
3. Are there any other duties expected from the owner-operator other than that of hauling goods? If yes, further details would be required.
4. Is the owner-operator eligible for membership in a union?
5. If the owner-operator is unable to complete a delivery or unable to report for work for one or several days, who is responsible for the back-up arrangement?
6. Is the owner-operator's truck available for use by a back-up driver?
7. Does the owner-operator work a probationary period?
8. Is the owner-operator required to drive his truck personally or can the owner-operator subcontract the assignment to someone else?

Ownership of tools

In an employer-employee relationship, the employer generally supplies the equipment and tools required by the employee. In addition, the employer covers the following costs related to their use: repairs, insurance, transport, rental, and operation.

Ownership of tools questions

To evaluate this test, the ITRP Branch may ask:

1. How is the truck financed?
2. Is the owner-operator required to finance the truck through the hirer's sources?
3. Is the owner-operator leasing the truck from an independent truck-leasing company?
4. Is the owner-operator required to lease-to-own a truck from the hirer and to sell/return the truck back to the hirer upon termination of the contract?
5. Does the lease agreement, in any way, affect the right of control arising from ownership?

Chance of profit/risk of loss

Generally, if an employer-employee relationship exists, the employer alone assumes the risk of loss. The employer also generally covers operating costs, which may include employee wages and benefits, insurance premiums, and delivery and shipping costs. The employee assumes little or no financial risk and is entitled to his full salary or wages regardless of the financial health of the business.

Chance of profit/risk of loss questions

To evaluate this test, the ITRP Branch may ask:

1. How is the owner-operator compensated?
2. Is there a guaranteed compensation minimum?
3. Is there any additional remuneration (e.g. vacation pay, sick pay, bonus for high performance)?
4. Does the owner-operator pay all truck related expenses such as maintenance and repair, insurance and deductible, licence, gas, etc.?
5. Does the owner-operator invest any capital in his/her business other than the truck?

Integration or organization Test

The "integration or organization test" examines whether the tasks performed by an owner-operator form an integral part of the business (i.e. an "employer-employee relationship" exists). Integration has to be considered from the point of view of the owner-operator not the hirer. Where the owner-operator integrates his activities with the commercial activities of the payer, an employer-employee relationship probably exists. The worker is acting on behalf of the employer, he/she is connected with the employer's business and is dependent on it.

Integration or organization test questions

Some of the questions the ITRP Branch may ask in order to evaluate integration include:

1. Does the owner-operator advertise and promote his/her own business?
2. Is the owner-operator's business listed in the telephone or any other business directory?
3. Is the truck painted in the hirer's logo and colours (other than the requirement to show the operating licence holder's name)?
4. How economically dependent is the owner-operator on the organization (expressed as a percentage of gross income)?
5. Is the owner-operator covered under the hirer's employee benefits plan? If so, which ones? Are the plans specifically for employees? Who bears the cost?
6. Is the hirer paying for out-of-province medical coverage?
7. Is the owner-operator required to wear a uniform?

Official interpretations

Official interpretations as to whether an employer-employee relationship exists between the owner-operator and the hirer can only be obtained by having all of the facts of the situation examined in order to determine the substance of the relationship between the parties. Written interpretations can be obtained by writing to:

Ministry of Revenue
Tax Advisory Services Branch
Income Tax Related Programs Section
33 King Street West
Oshawa, Ontario, L1H 8H5

Further information

To obtain the most current version of this publication, or additional information, visit our website at ontario.ca/revenue or contact the Ministry of Revenue at:

• 1 866 ONT-TAXS (1 866 668-8297)
• 1 800 263-7776 teletypewriter (TTY)

© Queen's Printer for Ontario, 2002

ISBN 0-7794-2991-5