Last updated on December 1, 2020
In the fluid nature of the animation industry, most workers can encounter a number of different relationships with a prospective employer. Small jobs, relief work, contract, sub contract, volunteer, employee, literally every combination you can imagine can apply to a job. I’ve worked in a number of different circumstances, and the main lesson I’ve learned in all the confusion is that it’s most important to have a solid idea of where you personally stand in the arrangement. There is nothing inherently wrong with any legal working arrangement, it’s just not always well defined, and this confusion can lead to heavy misunderstandings and great financial risk at tax time for the unprepared.
I think it’s important for the animation artist to be aware of the two main distinctions, and to ask themselves if they are either an Employee or Self-Employed? Don’t just ask the studio you work for to confirm your status, you need to look into the definitions of the two and be on a solid footing with them. The government can review your income tax and “recategorize” you, and this could lead to a large tax bill and/or ineligible write-offs.
Basically if you are an employee, the studio you work for is responsible for deducting Canada Pension Plan (CPP) contributions, Employment Insurance premiums, and income taxes from their employee’s paycheques.
Basically if you are self-employed, you are considered to be operating your own business. You would invoice for the work that you’ve completed, you would be eligible for business write-offs, but fully responsible for your taxes owed to the government and your own CPP contributions, and you are likely not eligible for EI.
The CRA (Canadian Revenue Agency) has provided an outline to help define employment status. It’s a series of circumstances that help push the status of the worker in a specific situation towards an answer. The CRA reserves the right to “categorize” an artist based upon their interpretation of this 7 point outline. Here is a sampling:
1) The level of Control the Payer has over the Worker
-Does the payer direct, scrutinize, or control how the work is performed?
-Does the payer control the method used to do the work?
-Does the payer determine the amount of pay?
-Is the worker able to work for other Payers while working for this payer?
2) Whether or not the payer provides the equipment
-Does the payer provide the equipment, programs, tools and supplies?
-Does the worker work from their own workspace, or does the payer provide the workspace?
3) Subcontracting Work
-Can the worker hire assistants, or does the worker have to provide the services personally?
-Can the worker hire a qualified replacement?
-Does the payer have any say in who the worker hires to assist or replace?
4) Financial Risk
-Is the payer responsible for all operating expenses?
-Is the working relationship continuous?
-Is the worker financially liable if they fail to complete the obligations of their contract?
5) Responsibility for Investment or Management
-Does the worker have any capital invested in the business?
-Does the worker have an established business presence?
6) Opportunity for Profit
-Is the worker in a position to realize a profit or loss?
-Is the worker entitled to benefit plans?
7) General Relevant Factors and Contracts
-Does a clear contract exist stating the assumed employment status?
That is just a small sampling of the type of questions CRA use to determine your employment status. I have worked for studios in the past who have treated their artists as freelance independent contractors that would, by this outline, clearly be defined as employees. I’m glad the statute has run out on those income tax years or I could have been in trouble if I was audited. I know a number of people who are still working as ‘self-employed’ that would not qualify if the CRA caught up to them. These individuals would be hit with extra tax debt, interest fees, and penalties, but don’t feel they can risk their jobs at their current studio to demand their proper status.
Studios have advantages and disadvantages to choosing which system works best for them, but for the most part the cheapest preference is to hire independent contractors as they don’t get benefit packages and the studio will not have to remit their share of the CPP contributions. With an independent contractor a studio does not need to hold their share of income tax or pay their share of Employment Insurance.
I have run companies with employees and with independent contractors. The best option for the average animation artist in my opinion is to be an employee. The benefit of collecting EI alone is worth it, as we work in a fluctuating and tenuous industry where most contracts only last for 6-8 months. On the studio side, employees are very expensive to a company, not to mention the extra time and effort to manage a health plan, CRA remittances, and complex accounting. In this era of thin margins and low budgets I can certainly sympathize with a studio’s choice to run a leaner ship, and employee status is often the first thing to go.
There is no ‘right’ option between Employee and Self Employed, but it is critical for the artist to know exactly which one of these they are and why. Don’t take my word for it, download the rc4110 PDF from Revenue Canada here:
The best advice I can give is to suggest you get a personal accountant to assist with your taxes (not H&R Block!), even if you are currently an employee, chances are your status could change with any new opportunity in animation.~M