TaxTips.ca Canadian Tax and Financial Information	Employee vs Contractor	TaxTips.ca does not research or endorse any product or service appearing in ads on this site. Before making a major financial decision you should consult a qualified professional.
Looking for US tax information? See USTaxTips.net

Need an accounting, tax or financial advisor? Look in our Business Directory.

Personal Tax -> Employee vs contractor
Business -> Employee vs contractor

Are you an employee or a self-employed independent contractor?

The question of whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship is not one that is always easy to answer. There have been many court cases on this subject. The courts generally look at the following criteria in making their decisions:

	control - more control is generally exercised by an employer over an employee than by a client over a self-employed person
	chance of profit/risk of loss - self-employed persons usually have some degree of financial risk, and more opportunity for profit than employees
	integration - an employee's job will be an integral part of an employer's business, where the tasks performed by a self-employed person will likely be less integrated with the client's business
	tools and equipment - self-employed persons are more likely to be supplying their own tools and equipment, as well as being responsible for their maintenance

These topics are further explained in the CRA publication RC4110 Employee or self-employed. A comprehensive checklist is also provided in this publication. This checklist is useful for a worker or a payer (employer/client) to help determine whether their relationship is a business relationship or an employer/employee relationship.

CRA also has information on the following categories of workers to help determine whether they are employees or self employed for purposes of CPP and EI, in their web page CPP/EI Explained:

	real estate agents
	workers who own and operate heavy machinery
	workers engaged in construction
	workers engaged in fishing

Court cases:

	Supreme Court of Canada 671122 Ontario Ltd. vs Sagaz Industries Canada Inc., June 2001 - although this is a vicarious liability case, not a tax case, it sets out the above criteria in determining the differences between employee and self-employed person.
	Tax Court of Canada Preddie v. the Queen, March 2004 - appellant was working as a tutor. The Tax Court determined that he was self-employed, not an employee.
	Tax Court of Canada Woodland Insurance vs Minister of National Revenue, February 2005 - this is an Employment Insurance and Canada Pension Plan case, where the Court ruled that Woodland Insurance was liable for EI and CPP premiums, because the worker was an employee, not self-employed.

Employee advantages

qualify for employment insurance

Canada Pension Plan premiums paid 50% by employer

participation in employee benefits, including:

	vacation pay
	provincial medical plan
	extended health benefits - medical, dental, vision care
	disability insurance
	pension plans
	workers' compensation coverage

higher rate of pay for overtime hours

more difficult to be terminated

severance pay if terminated

no record keeping required

eligible for Canada employment amount tax credit

Employee disadvantages

	must pay employment insurance premiums - see EI premium rates
	very few expenses are tax-deductible - see our article on deductible employment expenses
	less control over working conditions and hours

Self-employed advantages

	no employment insurance premiums, unless voluntarily paid
	more expenses are tax-deductible - for example, expense of travelling to and from clients' places of business is tax-deductible
	more freedom to choose own working hours
	can work for more than one client
	in first year of operation, income tax not payable until April 30th following first year end - see choosing a year-end on our Small Business page
	opportunity for increased profits
	can recover GST or HST paid by registering to collect GST/HST, even small suppliers

Self-employed disadvantages

	no severance pay if terminated
	cannot collect employment insurance, except special benefits
	must pay employee and employer portions of Canada Pension Plan contribution - see CPP contribution rates
	more record-keeping required
	often work longer hours with no extra pay
	cost of purchasing and maintaining own equipment
	risk of loss
	liable if contract obligations not fulfilled, thus liability insurance may be needed
	no employee benefits
	after first year-end, usually must make income tax installment payments
	must register to collect GST, except for small suppliers - see who has to collect GST on our GST page
	must register to collect PST in most provinces - see our PST page.
	cash management and planning required to ensure funds available for tax remittances
	may require services of bookkeeper or accountant for the record-keeping and government reporting
	not eligible for Canada employment amount tax credit

For more information for self-employed individuals, see our Business page.

Tax Tip: Determine whether you are an employee or self-employed contractor at the start of your work contract.

Revised: April 10, 2013

The information on this site is not intended to be a substitute for professional advice. Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage.
See our Business Directory for tax, accounting and finance-related firms in your area.
Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site.

Personal Tax -> Employee vs contractor Business -> Employee vs contractor

Are you an employee or a self-employed independent contractor?

Tax Tip: Determine whether you are an employee or self-employed contractor at the start of your work contract.

Personal Tax -> Employee vs contractor
Business -> Employee vs contractor