Embarking on the path of self-employment in Alberta offers the allure of independence and control over one’s professional destiny. However, it also presents a complex legal landscape that requires careful navigation to ensure business success and compliance. This blog reviews key legal implications that self-employed individuals in Alberta must consider.

Employee or Independent Contractor: A Critical Distinction

The classification of an individual as an employee or independent contractor is paramount. This distinction carries significant implications for tax obligations, benefits, and legal protections.

Key Factors Determining Worker Classification

There are several factors that courts and the Canada Revenue Agency (CRA) consider when determining a worker’s classification as an employee or independent contractor, including:

• The degree of control over work;
• Ownership of tools and equipment;
• The opportunity for profit or loss; and
• Integration into the business.

Consequences of Worker Misclassification

Incorrect classification can lead to substantial penalties, including back taxes, interest, and potential legal action. It’s essential to accurately assess your relationship with clients to avoid these risks.

Independent Contractors – Benefits vs. Risks

While independent contractors enjoy greater autonomy, they are responsible for their own taxes, benefits, and workplace safety. They also lack the employment protections afforded to employees.

Tax Obligations: A Complex Landscape

Self-employed individuals in Alberta face unique tax responsibilities compared to traditional employees.

• Income Tax: Self-employed individuals must report business income on their personal income tax return. Unlike employees, they are responsible for making estimated tax payments throughout the year.
• Self-Employment Contributions: Self-employed individuals are required to make contributions to the Canada Pension Plan (CPP) and, in some circumstances, Employment Insurance (EI) at both the employee and employer rates.
• GST/HST: If your business revenue exceeds specific thresholds, you must register for and collect GST/HST. Accurate record-keeping is essential for compliance.
• Record-Keeping: Maintaining detailed financial records is crucial for tax preparation and audits. The CRA recommends keeping records for at least six years.

Business Structure: A Cornerstone Decision

Choosing the right business structure is a critical decision that impacts legal liability, taxes, and administrative burdens.

• Sole Proprietorship: The simplest structure, with no legal separation between the business and the owner.
• Partnership: Suitable for businesses with multiple owners, sharing profits and losses.
• Corporation: Offers liability protection but involves more complex setup and ongoing administrative requirements.

When selecting a business structure, consider factors such as liability concerns, tax implications, financing options, and the number of owners.

Contracts: The Foundation of Business Relationships

Well-crafted contracts are essential for protecting your interests and mitigating risks. Transparent terms and conditions, payment terms, dispute resolution mechanisms, and intellectual property rights are crucial components of a strong contract.

Consider having contracts reviewed by a lawyer to ensure they comply with Alberta law and adequately protect your business.

Licences and Permits: Operational Compliance

Depending on the nature of your business, you may require specific licenses or permits to operate legally in Alberta. Ensure you research the licensing requirements for your industry through Alberta’s government resources. Operating without necessary licenses can result in fines, business operation disruptions, closures, or legal liability.

Workplace Health and Safety: A Shared Responsibility

Even as a sole proprietor, workplace health and safety is a crucial concern. You must adhere to Alberta’s Occupational Health and Safety Act, Code, and Regulation to protect yourself and any employees.

Further, you should consider purchasing comprehensive third-party liability insurance to protect your business from potential claims.

Professional Liability Insurance: Protecting Your Business

Professional liability insurance, also known as errors and omissions (E&O) insurance, safeguards your business from claims arising from professional negligence. It can also protect you from significant financial losses caused by mistakes, omissions, or errors in your work.

Consumer Protection Laws: Fair Business Practices

Alberta has consumer protection laws that regulate business practices, including the Consumer Protection Act. Understanding these laws is essential to avoid legal issues. Key areas to focus on include misleading advertising, unfair business practices, and product liability.

Intellectual Property Protection: Safeguarding Your Creations

If your business involves creative work, protecting your intellectual property (IP) is crucial. Consider copyrights, trademarks, and patents as potential methods to safeguard your rights to your work product. Registering your intellectual property with the appropriate authorities provides stronger legal protection and facilitates enforcement options.

IP law is highly complex and ever-changing. As such, it is critical to consult with a skilled business lawyer to discuss your options.

Debt Recovery: Collecting Outstanding Payments

Effectively collecting outstanding payments is vital for business sustainability. Familiarizing yourself with Alberta’s debt collection laws and court system (particularly the Smalls Claims Court, which is referred to as the Civil Division of the Alberta Court of Justice) can help streamline your options for cost-effective enforcement in the future.

Seeking Professional Advice

The legal complexities of self-employment can be overwhelming. Consulting with professionals is highly recommended, including:

• Accountants: For expertise in tax planning, financial management, and record-keeping.
• Lawyers: For legal advice on contracts, business structure, intellectual property, debt collection, and other legal matters.
• Business Advisors: For general business guidance and support.

By understanding these legal implications and seeking professional advice when needed, self-employed individuals in Alberta can build a solid foundation for their businesses and mitigate potential risks.

Getz Collins and Associates: Providing Multi-Faceted Business and Employment Law Advice in Calgary and Strathmore

Through their decades of experience, the business and employment lawyers at Getz Collins and Associates have developed lasting relationships with small businesses, start-ups, and other entrepreneurs throughout Alberta. Our firm philosophy combines a community-minded approach with modern technological innovations to provide cutting-edge, trusted legal solutions. We advise on all aspects of self-employment, including start-up advice, incorporation and business structures, worker classification, workplace policies, and workplace health and safety.

Based in Calgary and Strathmore, Getz Collins and Associates proudly represents clients in all surrounding communities, including Airdrie, Cochrane, Okotoks, Drumheller, Chestermere, and Hussar. To schedule a consultation, please contact us online or call 587-391-5600.