Legal or not

[redlaser]

Some companies are hiring pilots on a contract and do not retain monies for income tax or UIC , yet these pilots work a normal 40 hour week and if they are off sick for any reason they don't get paid, nor do they receive vacation pay, Is there a loophole here for companies not to hire ppl full time, Any Lawers out there who could clairify this employment issue,

[cncpc]

Some companies are hiring pilots on a contract and do not retain monies for income tax or UIC , yet these pilots work a normal 40 hour week and if they are off sick for any reason they don't get paid, nor do they receive vacation pay, Is there a loophole here for companies not to hire ppl full time, Any Lawers out there who could clairify this employment issue,

The answer to your question lies in the difference between employment through a master servant relationship and a contractual one. Unless the conditions for a contractual relationship are legally, i.e. not some horseshit story, the law requires an employer-employee relationship and imposes certain responsibilities on the employer that end up being a real bite in the bum down the road.

It is the employer's responsibility to deduct income tax, Canada Pension, and EI premiums. In the case of the last two, there is an employer's contribution required. It saves the employer money to not have to pay these payments, and the bookkeeping is way simpler. Until the Revenue Commissioners come calling. They do not like phony, read "fraudulent", contracts covering what is really an employer employee relationship.

One test of whether something is a contract or a job is this. If the payer tells you what to do, it's a contract. If the payer tells you what to do and how to do it, it's a job.

Aviation companies have been through this with disastrous results. A contractor in an engineer or pilot capacity must work for more than one client. That seems to have become the test, along with telling what to do and how to do it. Clearly an engineer or pilot is told what to do and how to do it. It's hard to have two pilot jobs, or several in a year, given the training costs at each place, and the general inefficiency of it all. Two at the same time creates all sorts of flight duty time issues and conflicts.

I know of a case where a company did this for a pilot or engineer, just gave him or her one check no deductions. The tax people say, not a valid contract. They go to the person and demand CPP and EI premiums due for the entire time, and his income tax. They're told to pound sand. The company has to pay everything, including the income tax, because they are required by law to deduct it. And both sides of the premiums.

I'm speaking of contracts in Canada.

[springlocked]

This was a common practice 40 years ago where pilots would incorporate and then get companies to pay their company and not them. RC tightened up the rules and the above post pretty much explains it. If revenue canada were to find out about it, the resulting audit would stop them in their tracks and likely cost the contractors and the company money and fines.

[awitzke]

I've heard of non aviation companies being busted for this before. I'm not sure how it works in aviation. If it's a seasonal position then I could see it being a grey area but if it's year round employment then likely not legal. I'm sure someone with more knowledge could jump in here.

[mbav8r]

I was trying to find the CARs reference, I'm 90% certain you have to be an "employee" to fly company aircraft. In my brief search I found a reference to allowing a non employee to do company training.
The other thing is, there is a big difference between a term contract and a contractor, the term, the pilot would still be an employee for a set time period and the company would be responsible for the deductions, I don't think a pilot can technically be a contractor, unless they come with their own operating certificate and airplane.
723.88 Flight Crew Member Qualifications
(3) Use of Other than an Air Operator Employee Pilot for Training and Checking

Authority may be given for other than an air operator employee pilot to occupy a flight crew seat when training, or conducting initial operating experience training or flight checks on an air operator’s pilots on a new aeroplane type in accordance with

[radubc]

You have to start from the Income Tax Act, and then apply the CARs.

Here's how it works:

STEP 1: You look at the intent of the parties. Was there intent to enter an employee-employer relationship, or a service relationsip? Is the second option possible under CARs? Possibly for instructors, unlikely for other pilots.

STEP 2: If the intent is not clear after the first step, the CRA is looking at other factors, such as:

- the level of control he payer has over the worker's activity. How much control the CARs offer to the pilot in that situation.
- who provides the tools and equipment? In this case, the airplane. You can go further to CARs, but I doubt it would be necessary.
- can the worker subcontract the work or hire assistants? The CARS may not allow it. It depends on the situation.
- what is the degree of financial risk the worker takes? Does the worker pay for gas in this particular case, does he pay for maintenance of the plane, does he buy the plane etc. The CARs may shed aome light if necessary.
- the degree of responsibility of the worker for investmen and management. Again, the CARs are clear.
- the worker's opportunity for profit. This should be quite clear.
- other factors, like written contracts etc. In a pilot's case, where the CARs are quite specific, it is easyer to determine whether the worker is an employee or contractor.

If these factors show that the worker is an employee, the employer has to deduct and remit all the taxes to CRA. The pilot in case can complain to CRA and the employer would be forced to pay the remittances: income tax, cpp employee and employer, ei employee and employer. If the pilot is still around, the employee can go after him and get the employee portion of the remittances. If the pilot is not arround, then good luck to the employer to find him and get the money.

[Flypilot]

How does this work when a pilot is hired to do a one or two day ferry flight for a private company and a privately registered airplane? Is it legal for the pilot to write out a bill and then just claim that amount as income at year end?

[radubc]

It is legal by the ITA. However, you should also look whether CARs are followed (cpl, ratings, operator certificte etc.).

[cncpc]

I thought I replied to this earlier, but must have failed to push the button.

It is very unwise for companyies to do this. Revenue Canada is likely to be very dubious about any contract pilot story. If they rule the payments should have been made on an employer-employee basis, with income tax deducted and EI and CPP premiums, they will go after the company rather than the employee/contractor. For lots.

I know we hear of contract pilots quite a bit, but that is overseas, where RC has no say. We have them here, in air tanker work for instance, but those are simply term employee contracts with all the deductions being made at source.

If you are a contractor, you have to work for more than one entity in a given period. Whoever contracts with you can tell you what to do, but not how to do it. Pretty hard in CARS governed work to make up your own work practices.

I know of one instance involving an engineer. He didn't work for any body else. They mutually agreed to try the "contract" BS. Cost the company something like 30 grand.

If you work under contract, you have no Workers Comp unless you arrange it yourself, and you aren't insured under the policy.You are independently liable.

[springlocked]

To put it simply -- No issue with TC but RC might would have them. Now there is a difference between a contract and a casual. Casual would cover such things as a ferry pilot, maybe some recurrent training for one man operations, being a TC check airman and charging for rides. Having said this it you are doing it for "cash" better confirm how the company/person is accounting (if they are) for it or advise them as well if you are going to declare it. Keeps everyone out of trouble.

[redlaser]

Thanks for your responses, but here is something that is happening in flight schools, Chief flight instructors being hired on contract, several flight school's are doing this in Canada, yet the CAR's do specify that CFI must be hired on a full time basis, is TC looking the other way and letting flight schools hire CFI's on a part time bases or in other words Self employed Contract, What's your take on this issue?

[cncpc]

Thanks for your responses, but here is something that is happening in flight schools, Chief flight instructors being hired on contract, several flight school's are doing this in Canada, yet the CAR's do specify that CFI must be hired on a full time basis, is TC looking the other way and letting flight schools hire CFI's on a part time bases or in other words Self employed Contract, What's your take on this issue?

It says the same thing about Chief Pilots. Full time means that you are available for adequate time to carry out the duties of the role. I remember when some Chief Pilots were CPs for more than one company.

That is a genuine example of where you can work on a contract. More than one client.

[radubc]

The hours worked have nothing to do with the form of employment. You can be a full time employee or full time contractor. The form of employment also has nothing to do with the number of employers you have. You can be an employee to more that one employer, or you can be a contractor to one or more clients.

[cncpc]

The hours worked have nothing to do with the form of employment. You can be a full time employee or full time contractor. The form of employment also has nothing to do with the number of employers you have. You can be an employee to more that one employer, or you can be a contractor to one or more clients.

You cannot be a contractor to one client for a significant length of time. Certainly not more than a year, and likely considerably less. If in fact, in a tax year, you only have one client, you are an employee if the hirer tells you how to do the work.

Here's a pretty good summary from the employer side, as they're the ones to get their peepees whacked when it all goes sideways.

http://www.cfib-fcei.ca/english/article ... actor.html

[radubc]

That article is pretty much what I posted above. Both I and the article left out the rules for Personal Service Business (PSB). However, I'm sure they don't generally apply to pilots. I'm pretty sure you can be a contractor to one client for more than a year, if the 7 points in my post (and your article) are on your side. However, you can't apply the seven points without the CARs, and the CARs are the ones who can prevent the application of some of the points.

I agree with you when you say that it is risky for the employer to subcontract, and they are better off with employees rather than subcontractors.

[cncpc]

That article is pretty much what I posted above. Both I and the article left out the rules for Personal Service Business (PSB). However, I'm sure they don't generally apply to pilots. I'm pretty sure you can be a contractor to one client for more than a year, if the 7 points in my post (and your article) are on your side. However, you can't apply the seven points without the CARs, and the CARs are the ones who can prevent the application of some of the points.

I agree with you when you say that it is risky for the employer to subcontract, and they are better off with employees rather than subcontractors.

I think both sides have their own rationale why contracting works, but I think that for the most part it is a worker initiated idea because it allows for writeoffs for things like home office, car, etc. It's a really tough thing to fit the work of a pilot into a legal contracting overcoat.