Employees vs. contractors
By Sukanya Ray Ghosh
Weighing the pros and cons of two ways to hire.
By Sukanya Ray Ghosh
Business seems to be going on well in the world of windows and doors, despite the different challenges coming in from all sides. The success and failure stories are driven by several important factors.
One of the most important factors is people. Having the right people aligned with the company can make a big difference. Whether to hire more people as employees or to subcontract the jobs to experienced contractors is definitely a matter of consideration when finding people. And every window and door company has to find out what works best for them.
Catherine Willson from Goldman Sloan Nash and Haber LLP explains the primary difference between employees and contractors.
“An employee is a person that is an integral part of your business. Employers usually pay employees a salary and possibly offer benefits or a pension. Employers withhold taxes from the employee and pay them to the government together with remittances for CPP and EI. When terminating a long-term employee, an employer could be required to provide up to two years of written notice of termination or pay in lieu thereof. A contractor is a person or company providing services to your business. The contractor will invoice your business and you will pay the invoice including hst. There are no salaries, benefits, or other entitlements. There is no requirement to provide notice of termination or pay in lieu thereof ,” she explains.
Why choose one versus the other?
At Beingessner Home Exteriors, the tradition has always been to bring in both employees and contractors, depending on the need and what the status of the new hire is, says owner Jennifer Beingessner-Dietrich.
The reason, says Jennifer, is that most times it depends on the people who come to look for the job.
“Someone comes to you looking for work and they’re a subcontractor and you want to hire them, but they want to keep their subcontractor status. They have already set up their business. They have all the required government licenses. They’ve done all their training, they bought all their tools. They’ve already invested in themselves and in their company, so they don’t want to lose that,” she explains.
Conversely, she adds, there are people who come in looking to be hired. They don’t have the truck and tools. They want the hourly payment and a more stable position. So, it comes down to the actual person and the situation at that moment.
George Warren, president of Centennial Windows and Doors, has been in the industry for over 40 years and has worked in an international window and door company before Centennial. So, he is familiar with both sides of the equation. However, Centennial chooses to control all aspects of its business, including marketing, sales, manufacturing, customer service and installation. Therefore, the company hires employees only.
“We offer our customers lifetime warranty on everything – the product and the installation. Employees help make this program successful for us. I know that there are many who have been successful by working with contractors,” explains Warren.
He adds that not everyone is a good fit for Centennial and conversely Centennial is not a good fit for everyone.
Benefits and challenges
Hiring an employee or a contractor comes with its own set of benefits and challenges. Careful consideration of these factors can set the window and door company up for long-term success.
A major benefit of hiring an employee is more control, notes Jennifer. “You have better control of the hours you want them to work and when they get time off. You provide them the vehicle they drive to the jobsite and the tools they need. You are able to offer better incentives and motivation to them than to contractors,” she explains. She adds that it is also possible to provide training and knowledge regularly as well.
The challenges that Jennifer has come across when trying to choose is that a person who comes in looking for employment typically does not have a lot of experience. They might have worked in some capacity earlier but have a learning curve ahead. The reason, she says is that the window and door business is still an unrecognized trade. There is no official training program that they can attend, with the exception of the Window Wise program.
Jennifer says that it is very important to keep in mind that the company is responsible for the health and safety of its employees. Therefore, they should ensure that they are following all rules and regulations as an employer. She notes that in her company, employees choose to stay long-term because they develop a passion for the work and they appreciate it when the company takes care of them.
Hiring contractors has its upside as well. Contractors who work for Beingessner Home Exteriors are more skilled from the get go, says Jennifer.
She explains, “As contractors, they have taken the time to set themselves up. They have the experience and the background knowledge. ” She adds that they take care of their own worker’s compensation and government regulation certifications.
On the flip side, Jennifer notes that they set their own work schedules and vacation times. Although they work efficiently, the company has to ensure that they are not cutting corners. Beingessner Home Exteriors provides the materials used for installation to its contractors. The onus on them is to provide labour and bring in their own tools.
Another important fact to think about, says Jennifer, is that contractors never represent the company as well as an employee does at jobsites. Typically, the window and door company will send employees in company vehicles that are lettered with its name and logo. So, the neighbourhood gets to see the name of the company doing the job. A contractor does not have the same presence. They would go to jobsites in unmarked vehicles or advertise their own company. These are little nuances that impact the company’s image.
The bigger picture
There is a deeper issue associated with this debate. Warren recalls an incident from over a decade ago where fenestration industry members shared that the primary reason behind hiring contractors is that they are able to save money. However, he argues that when properly trained, window and door installers are highly skilled people who deserve to earn between $85,000 and $ 125,000 a year. Installers at his company are able to earn their due because they are employees. In the process, he says, his employees became his greatest sales people to the customers. And they have stayed long-term, majority of them having spent 15 to 20 years in Centennial.
“They start out in the factory self-learning the product and then they become installers. They’re trained on the Centennial system. The ones who have left have remained successful installers in the industry and that warms my heart,” he adds.
What bothers Warren is that many installers who try to establish themselves as contractors are taken advantage of. They venture out of employment to become subcontractors, receive a signing bonus and work out a payment schedule but that’s not what they get. Warren vocally opposes this behaviour and fights to ensure that installers receive their dues. He says that several times his own employees have left to become contractors, faced such situations and come back to work for him again.
However, he says, the whole industry cannot be painted with the same brush. There are many companies that invest in the development, welfare and training of their employees.
Willson explains how to determine whether a worker is an independent contractor or an employee: “Does that person work for you exclusively or for other companies as well? Does that person use their own tools in providing services or do they use yours? Does that person carry their own risk of profit and loss or are they dependant on you for their income which is chiefly fixed? How much of an integral part of your business is the person? These are a few tests that Revenue Canada and the Ministry of Labour will use to determine whether an individual is an employee or contractor,” explains Willson.
She adds that if the person is treated as a contractor but is really an employee, the company could end up being liable for three years of employer’s remittances. Also, if that person is terminated and a Court determines that the person was not a contractor but an employee, the person can sue the employer for wrongful dismissal.
Willson advises that if the company is uncertain that the individual they want to hire is an employee or a contractor, they should consult a lawyer and execute a written contract with the individual setting out the relationship. This way, everyone is protected.