Employees, contractors, and the law: plumbing hiring done right (US and Canada)

The fastest way for a growing plumbing shop to build a giant, retroactive bill is to get the employee-vs-contractor line wrong, or to fire someone the way you’re “allowed to” in the wrong country. This is the boring paperwork that becomes an expensive lawsuit. The rules differ sharply between the US and Canada, and even between states and provinces, so treat everything below as a map of which authority to ask, not a substitute for asking. (A payroll service plus an employment lawyer for your jurisdiction are cheap next to the penalties.) Pair this with the hiring and retention guide for recruiting and the wage benchmarks guide for what to pay.

Employee vs. contractor, the classification trap (both countries, different labels)

Calling a full-time plumber a “1099 sub” to skip payroll taxes and benefits is the single most common, and most expensive, mistake trade shops make. The label on the paperwork doesn’t decide it; the working relationship does. If you control their hours, provide the van and tools, and they work only for you, they’re an employee no matter what the invoice says.

🇺🇸 US: an employee gets a W-2; a genuine independent contractor gets a 1099-NEC. Two separate authorities can reclassify a worker on you. The IRS uses a common-law control test (behavioral control, financial control, and the relationship of the parties). The US Department of Labor applies its own economic-reality test under the Fair Labor Standards Act (FLSA) for minimum-wage and overtime purposes, and DOL’s classification rule has been revised repeatedly across administrations, so verify the current test with the US DOL Wage and Hour Division before you lean on it. Many states (California’s ABC test is the strictest example) apply a tougher standard than the federal one. Misclassify and you’re on the hook for back payroll taxes, unpaid overtime and minimum wage, penalties, and interest.

🇨🇦 Canada: an employee gets a T4; a self-employed contractor gets a T4A (there is no “1099” in Canada). The CRA applies its own control / ownership-of-tools / chance-of-profit-and-risk-of-loss test (see CRA Guide RC4110, Employee or self-employed?). Misclassification is brutal: you can owe both the employer and employee shares of CPP and EI, unremitted income-tax withholding plus penalties and interest, unpaid WCB/WSIB premiums, plus provincial Employment Standards back-pay, unpaid wages, overtime, vacation pay, statutory-holiday pay, and termination/severance. In Quebec the equivalent programs run through Revenu Québec, the QPP, and the CNESST.

Red flags that they’re really an employee (any of these and you’re likely misclassified): you set their hours; they drive your van and use your tools and stock; they work only for you with no other clients; you direct how the work is done, not just the result; they wear your uniform and represent your brand. Rule of thumb: if they look, act, and are managed like an employee, classify them as one. A true contractor runs their own business, carries their own license and insurance, sets their own hours, uses their own tools, and takes on other clients. If it’s genuinely borderline, get a ruling (IRS Form SS-8 in the US, CRA Form CPT1 in Canada) instead of guessing.

Apprentices, real employees, on a registered program

Plumbing runs on apprentices, and they are employees, not free labor and not contractors. The same classification and payroll rules apply, with extra structure on top.

🇺🇸 US: apprenticeship is typically governed by a state apprenticeship agency or the US DOL Office of Apprenticeship (registered apprenticeship). A registered program sets a documented wage progression, required on-the-job hours, and related classroom instruction. A subminimum “training wage” is narrow and rule-bound, do not invent a low apprentice rate; confirm what’s allowed with your state labor department and DOL. Ratios of apprentices to licensed journeymen on a job are usually set by your state plumbing board, not by you.

🇨🇦 Canada: apprenticeship is provincial, run through the province’s apprenticeship authority (e.g., Skilled Trades Ontario, SAIT/AIT in Alberta, ITA/SkilledTradesBC), leading toward provincial certification and the interprovincial Red Seal. Plumbing is a compulsory (must-be-certified) trade in most provinces, with legislated journeyperson-to-apprentice ratios on the job. The apprentice is your employee on a registered training agreement; wages step up by level as a percentage of the journeyperson rate. Confirm the ratio and wage schedule with your provincial apprenticeship authority, see the licensing and certification guide for the certification path.

At-will is a US thing, Canada does NOT have it

This one blindsides Canadian owners (and US-based owners hiring in Canada).

🇺🇸 US: almost every state is at-will: you can end employment at any time, for any legal reason, with no notice (barring a contract, discrimination, or retaliation). The one real exception is Montana, which requires good cause to fire after a probationary period. Mass layoffs may also trigger federal/state WARN Act notice.

🇨🇦 Canada: there is no at-will employment. To lawfully terminate without cause you must give written notice or pay in lieu: statutory minimums under provincial Employment Standards plus often much longer common-law notice (which can run to many months of pay for a long-tenured employee). An “at-will” clause copied from a US template is generally void where it conflicts with those minimums, and a poorly drafted termination clause can collapse the whole thing back to common-law notice. Firing a Canadian plumber “on the spot” without cause or proper notice is how you end up owing months of severance. Get the clause drafted for your province.

Workers’ comp / WSIB, required, and different

🇺🇸 US: workers’ comp is state-run; employers carry coverage (private carrier or state fund). Benefit levels, premium rates, and whether owners/officers must cover themselves vary by state, check your state workers’ compensation board. Going uninsured where it’s mandatory typically means fines plus personal exposure for the full cost of an injury.

🇨🇦 Canada: provincial boards, WSIB (Ontario), WorkSafeBC, WCB (Alberta and others), CNESST (Quebec): funded by employer premiums. It’s no-fault and generally the exclusive remedy (an injured worker who accepts benefits gives up the right to sue you). Registration rules and who must be covered vary by province, but for a trade like plumbing, coverage is generally mandatory once you have workers. Register promptly, back-premiums and penalties for an unregistered employer add up fast.

Overtime, wage/hour, vacation, stat holidays

• 🇺🇸 Overtime is federal under the FLSA (generally 1.5× the regular rate over 40 hours/week) plus state rules that can be stricter (some states have daily overtime). The catch for plumbing shops: on flat-rate/piece pay, overtime is still owed, it’s calculated on a regular rate that blends all earnings, not waived because someone is “on commission.” That miscalculation is a classic wage-and-hour class action. Confirm the current salary thresholds and exemptions with the DOL Wage and Hour Division; most field plumbers are non-exempt (overtime-eligible) regardless of how they’re paid. Federal law does not mandate paid vacation.
• 🇨🇦 Overtime thresholds (often weekly, sometimes daily), vacation pay (a percentage of wages), and statutory-holiday pay are all set provincially and are mandatory. Build them into your labor cost from day one. Thresholds differ by province, so check your provincial Employment Standards office.

The overtime trap deserves its own mention because it’s where flat-rate pay quietly turns into a lawsuit. The wage benchmarks guide covers the pay-structure side.

Checklist

• Classify correctly. If they’re managed like an employee, they’re an employee, W-2 (US) / T4 (Canada), not 1099 / T4A. When unsure, get a ruling (IRS SS-8 / CRA CPT1) or ask your accountant.
• Apprentices are employees on a registered program. Register with your state/provincial apprenticeship authority; follow the wage progression and the journeyman-to-apprentice ratio your board sets.
• Run real payroll (Gusto, ADP, Wagepoint, QuickBooks Payroll, etc.), withhold correctly, remit on time.
• US: track hours and pay overtime: including on flat-rate/commission pay; carry workers’ comp; check your state’s owner-coverage rule and any state test tougher than the IRS/DOL one.
• Canada: register for WSIB/WCB/CNESST; budget vacation + stat-holiday pay + overtime per your province; never use an at-will termination clause.
• Every hire gets a written offer/contract: role, pay, and (Canada) a lawful termination clause drafted for your province.
• Terminations: US, document the legal reason; Canada, give proper notice or pay in lieu, issue the Record of Employment (ROE) promptly, and get advice before firing without cause.
• Keep a relationship with an employment lawyer and a payroll provider for your jurisdiction.

The bottom line

In the US you get at-will flexibility but strict overtime and misclassification enforcement, and flat-rate pay does not exempt you from overtime. In Canada there’s no at-will (termination requires notice/pay), and misclassification exposes you to CPP/EI/WSIB/ESA back-bills that dwarf the taxes you were trying to skip. In both countries the safe play is the same: classify honestly, put apprentices on a registered program, run real payroll, carry the coverage, and put every hire and every firing in writing with advice for your jurisdiction. It’s not the exciting part of running a shop, it’s the part that keeps the shop yours.

General information for plumbing business owners, not legal or tax advice. Employment law varies by state and province and changes often, verify current rules with the IRS, US DOL, and your state labor and workers’ comp boards (US), or the CRA and your provincial Employment Standards, apprenticeship, and workers’ compensation authorities (Canada), and consult an employment lawyer and payroll professional for your jurisdiction.