Travis Gill, owner of a successful company, thinks that some employee expenses are becoming too costly for

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Question:

Travis Gill, owner of a successful company, thinks that some employee expenses are becoming too costly for his business, especially those that are regulated by the government, like the Employment Insurance Program and the Canada Pension Plan.

He is considering changing the relationship with his sales staff. His thinking is, rather than keeping them on as employees, he will simply negotiate self-employment contracts with them. He intends to continue their current remuneration but will no longer provide any company benefits, like medical. Travis claims he will offer them the same full-time working structure and clientele as in the past. They will continue to report to the regional sales manager and will receive clerical support.

Based on this change, the company will no longer have the same payroll costs or the obligations under the ESA to pay for vacation, holiday time or termination pay. This now leads the way for his company to begin reducing expenses significantly.

In addition, he will no longer offer a private office to each of the salesman. By restructuring the office space, he will provide only cubicles, with desks and computers that can be shared. Only two private offices will be kept and used specifically for meetings, especially those with customers, which occur routinely due to the company’s showroom.

In reducing the square footage required by the salesman, he can merge the space with his administrative staff and downsize the current lease arrangement. It is Travis’s belief, given that the salesman are ‘on the road’ more than in the office, that they do not need a dedicated office and is hopeful that many will choose to work from their home more often. Travis argues that this opens up an opportunity for the sales staff to take advantage of deductions from their income that they would not have previously been entitled to, like work space in the home and other eligible salespeople expenses.

As a result, Travis is anxious to eliminate some of the paperwork that the current employment situation imposes. Salespeople have always been expected to use their own vehicles and pay for various expenses, so the company issues them a T2200 every year. With the new self-employment arrangement, sales staff will not require this form and they can now write-off several new expenses, as per the Income Tax Act.

Travis is a fair business man and is convinced that this is a good plan for both the company and his sales staff. He has decided to run it by you for a second opinion.

Required:

Write a formal ‘memorandum’ (memo) to counsel Travis on why he should not sub-contract the sales staff and be sure to cite your references and resources, backing up your position.

Specifically comment on; the CRA criteria used to determine contracts ‘for’ vs. contacts ‘of’ service and potential compliance issues regarding both Statutory Deductions and adherence to the Employment Standards Act.