It’s possible, and sometimes even desirable, for a company to offer health benefits to contractors via a PreTax Health Spending Account.

Usually when people and companies think about contractors, they’re thought of as “self-employed” individuals. In other words, contractors are thought of as being responsible for their own taxes, their own health benefits etc.

And often times, this really is the best way to think about things: for example, say a computer programmer does contract work for different companies, it makes absolute sense for that programmer to incorporate and have his/her own PreTax Health Spending Account.

However, sometimes the word “contractor” carries a slightly different meaning, for example:

  • A new company is getting off the ground, but has few or no employees yet; people may work for the company and appear on the surface to be employees, but may actually be on contract. The business owner might do this because it helps him/her to get everything going (for example, thinking that it delays having to get a payroll system up and running).
  • At a non-for-profit music school, only the core admin staff might be full-time employees, while individual music teachers are all on contract.

In these cases, the people performing the work on contract may have little or no other work. They might be working only limited hours, and might be on contract purely because their “employment” requires it to be that way. Either way, it does not necessarily make sense for this type of contractor to incorporate and get an own Health Spending Account; nor would they necessarily be able to get access to health benefits in any other way.

In such cases, it may make absolute sense for a company or registered non-profit, also to extend coverage to these contractors via its Health Spending Account. It provides additional ways to incentivize, attract and retain talented individuals.

With PreTax Health, a company can create separate benefit categories for different classes of employees or contractors. Different limits can be assigned, and each person can be awarded in accordance with his/her role in the organization.

Note, though, that it is important to obtain appropriate advice from your accountant. When contractors primarily work for only one company, or appear on the surface as if they are actually employees of that company, then CRA may deem that they are, effectively, employees. The company may then be required to withhold and remit taxes on their behalf, as with normal employees. Extending benefits to a contractor is one more thing one would usually find a company doing for its employees, so make sure to confirm the ramifications with your accountant or tax adviser before you proceed.

Nonetheless, small companies, start-ups and non-profits who make use of contractors as a matter of course should be aware that it is possible to extend a Health Spending Account to contractors too.