Chance of profit / Risk of loss

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Proceed with the analysis of the terms and conditions of employment in terms of the chance of profit and risk of loss.

You have to examine the worker's financial involvement. Determine if the worker:

Generally, in an employer-employee relationship, the employer alone assumes the risk of loss. The employer also generally covers operating costs, which may include office expenses, employee wages and benefits, insurance premiums, and delivery and shipping costs. The employee does not assume any financial risk, and is entitled to his full salary or wages regardless of the financial health of the business.

The income of an employee paid by the piece or on commission does not depend on the losses or profits of the employer's business. The employee is paid the same per-unit amount no matter how many pieces the employer requires him to produce or sell.

In a business relationship, the self-employed individual may make a profit or incur a loss. He also covers operating costs. There is no guarantee of a steady income because the self-employed individual's income depends on the results achieved by the end of the contract.


The following questions will help you determine if the worker has the chance of making a profit or risks incurring losses.
Analysis of facts related to chance of profit/risk of loss
Payer
Worker
N/A
Who covers the costs of damage to equipment or materials?
Who covers the costs of liability insurance?
Who covers office expenses?
Who covers rental costs?
Who covers delivery and shipping costs?
Who covers costs related to bad debts?
Who assumes responsibility for ensuring that guarantees relating to materials are honoured?
Who assumes responsibility for the performance of the work?
Who guarantees the quality of the work?
Who covers the costs incurred by the worker in carrying out the work?
Who covers the costs of the worker's benefits (paid vacation, sick leave, life insurance premiums, etc.)?
Total
Payer:
Total
Worker:
Total
N/A:

If you answer "Payer" to most of these questions, it means that there is little involvement on the part of the worker, and that his income does not depend on the results achieved at the end of the contract. An employer-employee relationship probably exists. Otherwise, it indicates that a business relationship may exist.

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