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Subcontracting in Ontario: Important Things to Know

Subcontracting
Subcontracting

Subcontracting in Ontario: Important Things to Know

Renovation tradesSubcontracting in Ontario: Important Things to Know

Entering the world of subcontracting in Ontario? This article will walk you through the essentials - from gaining relevant work experience, understanding the legalities such as employment status and taxes, to navigating the job market.

If you're looking to become a subcontractor, it's crucial to be aware of your rights, obligations, and potential job opportunities. Embark on you journey in the construction industry with confidence, equipped with the right knowledge.

What Is the Difference Between an Independent Contractor and Subcontractor in Canada?

Subcontracting 

In Canada, a contractor is typically hired directly by a company or individual to complete a project. They're mainly self-employed, running their own businesses, and have the responsibility for tasks such as sourcing raw materials, estimating project costs, and setting project deadlines.

On the other hand, a subcontractor is employed by the independent contractor to perform specialized construction work on the project. They depend on the contractor for their work assignments and are often hired on a project-specific basis. Some common examples are electricians and plumbers.

The distinction rests largely on their roles, responsibilities, and relationships with the client and the project. 

Subcontractor vs Employee

Subcontracting 

Not only is there a distinction to be made between contractors and subcontractors, but there are even more important differences to be made between subcontractors and employees. This is crucial in Ontario, as each comes with different rights and obligations under the Employment Standards Act (ESA) and the Canada Labour Code. 

Employees are typically under the control of their employer, who deducts income taxes, expenses, and payroll deductions from their wages.

Subcontractors, on the other hand, are independent entities responsible for their own income taxes and expenses. The degree of control a payer has over a worker's conditions is often a defining factor in determining their status. Misclassifying a worker can result in severe penalties.

Employment status: Employees work for one company or client whereas subcontractors can work for a multitude of companies and clients.

Control: For employees, the employer has direct and effective control over how and when the work is carried out. For subcontractors, however, the client has little to no control over how and when the work is done.

Tools and equipment: An employee is usually provided with the necessary equipment by their employer who is also responsible for the insurance, maintenance, and repairs. A subcontractor will typically use their own equipment.

Assistants and subcontractors: Employees must perform the assigned work themselves and cannot hire assistance without the payer's permission. In contrast, subcontractors can delegate tasks to others and are not personally obligated to perform all the work. The payer does not have control over whom the contractors chooses to hire.

Financial risk: Employees typically receive reimbursement for work-related expenses and are not responsible for operating costs. They also have a continuous relationship with their employer, not limited to specific tasks. In contrast, subcontractors bear financial risk and may face losses, often incurring fixed operating expenses. Their relationship with the payer is usually project-based rather than ongoing.

Responsibility for investment and management: Employees typically do not need to invest in providing services to the payer. Subcontractors, however, may need to make substantial investments to fulfill service requirements.

Profit opportunities: Employees generally do not have the opportunity to profit from their work, as their pay is typically fixed by the terms of their contracts whereas subcontractors have the potential to profit or experience losses, as they can set their own prices and incur expenses related to their work.

Benefits: Employees are entitled to benefit plans, including registered pension plans, group accident coverage, and health and dental insurance. Subcontractors are not entitled to benefit plans.

As a rule of thumb, if the worker is entering a contract of business, they are a contractor or, in this case, subcontractor. If they're entering a contract of service, however, they are an employee.

How Do You Become a Subcontractor?

Subcontracting 

Gain Relevant Work Experience

If you're looking to start a career as a subcontractor, your first step is going to be gaining the right work experience in construction. Going to trade school, completing apprenticeships, or even working for a larger subcontracting firm are all viable options.

With the high demand for skilled manual labourers across Canada, let alone Ontario, you should have little difficulty gaining all necessary skills.

The ability to demonstrate your expertise is crucial for achieving success as a subcontractor.

Get the Right Certifications and Licenses

In Ontario, a crucial aspect of becoming a subcontractor involves acquiring the appropriate trade certifications. Depending on your location and area of expertise, obtaining a license may be necessary to work as a subcontractor. Failing to meet these legal requirements could result in fines or enforcement actions from relevant authorities.

It's strongly advised to seek guidance from government agencies or authorities regarding the process of obtaining a work permit or license in your region. Conduct thorough research beforehand, as the requirements for obtaining licenses can vary significantly.

Set Up Your Business Structure

Like with most ventures, it's best to have some sort of plan or structure in place before diving head first. As a subcontractor, establishing the right business structure is a crucial step, even when self-employed. 

It's essential to consider various factors when determining the optimal business model, such as industry requirements, affordability, and potential for future growth. Since subcontractor regulations may vary by location, choosing a structure that allows for flexibility across provinces is advisable.

Additionally, using a business name distinct from your personal name enhances professionalism and separates your services from your individual identity.

Set Up Your Financial Framework

Getting your taxes in order from the get-go is not only advisable, but crucial in starting a successful subcontracting business. Even as a subcontractor, you must adhere to the rules and regulations set out by the Canadian Revenue Agency (CRA). 

Even though most subcontractors are self-employed, having sole proprietorship of their business, you may want to consider a corporate business structure if you plan on hiring employees. 

Get Insurance

Working as a subcontractor means bearing significant responsibility and risk. Construction sites are inherently dangerous, and accidents can and do occur unexpectedly, potentially leading to property damage, physical injuries, loss of tools, and more. 

Without proper insurance coverage, legal expenses and liability claims could have severe financial repercussions. It is essential to obtain appropriate insurance coverage to protect against potential liabilities.

While subcontractors typically operate under general contractors, their insurance policies may not extend to subcontractors, so it's advisable for them to have their own insurance policies to ensure adequate protection.

Insurance Options Available to Subcontractors

Here are a few examples of applicable insurance policies from Contractors Insurance: 

General liability insurance: This policy provides protection against various third-party legal actions stemming from unexpected incidents, such as injuries or damage to property caused by third parties.

Builder's risk insurance: This insurance is essential for any contractor engaged in constructing new buildings or renovating existing ones. It offers coverage for theft and damage occurring to the construction site, including the buildings under construction, materials, and the tools and equipment utilised on the project site.

Tools and equipment insurance: This type insurance provides coverage for the expenses incurred if their tools or equipment are lost, stolen, or damaged. Additionally, in certain instances, this policy may also offer reimbursement or replacement for equipment damaged by natural disasters.

Read more about subcontracting:


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Last modified 2024-05-22

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