Question: Albacore Limited is interested in acquiring the services of a highly qualified engineering professional. This individual has agreed to become an employee at a salary of $250,000 per year. For employees, the cost of providing benefits (a company pension plan and health care) is 8% of the employee's gross wages. In addition to CPP and EI, the province charges a 2% payroll tax to Albacore. The tax applies to all wages and salaries paid by Albacore with no upper limit.
This individual's work is such that a contract could be arranged that would make him (or her) an independent contractor (i.e. self-employed). However, because the professional like the security and benefits associated with being an employee, the contract would have to provide income of $280,000, rather than $250,000 in order for it to be accepted.
Required: Advise the company as to the preferable alternative.