Employee Versus Contractor: Part 1

Christopher Burns Wiu3w 99tng Unsplash

Part 1: Determining the Difference

This is an oft asked and fought over question. Deciding if an individual providing services is doing so as an employee or as a contractor is not dependent on what the payer or the worker *wants*, but on the *facts* of the situation.

This is critical to realize! It means that even if you are being paid as an employee, you may not qualify for Employment Insurance because you were a contractor in reality. Conversely, if you were paying someone as a contractor because you had a signed contract, you may still need to remit EI and/or CPP because they are actually your employee.

So, what are the factors that determine an individual’s status? Following are the CRA’s published factors that they look at:

FactorAn employee…A contractor…
ControlIs beholden to the decisions of the employer, in what work is done and how it is doneIs more empowered to make their own decisions as to how the work is completed
Ownership of tools and/or equipment (including workspace)Is provided with tools and/or equipment needed to do their jobOften provides, pays for, and maintains their own tools and/or equipment
Ability to subcontractCannot, of their own volition, hire a subcontractor to complete some or all of their workCan hire staff or contractors to perform some or all the work in the contract
Financial riskIs not responsible for operating expenses or liabilities, and is often paid continuouslyIs responsible for advertising, work is sporadic and not consistent, and may be liable if contract terms are broken
InvestmentOften has not invested anything into the business, and does not have a unique business presenceInvests capital into their business, makes operating investment decisions (such as hiring), and has a separate and unique business
ProfitIs often paid the same amount, regardless of the hours they work or the efficiencies that they introduceIs paid a flat fee for a job to be done, from which they can hire cheaper subcontractors or find efficiencies to increase their profit
This list is a simplified version of a much more detailed CRA document labelled RC4110. It can be accessed here.

Interestingly, the court tends to look at this list slightly differently, and breaks it down into these 4 categories:

  1. Control
  2. Ownership of Tools
  3. Chance of Profit / Risk of Loss
  4. Integration

Which is simply a different way of categorizing the CRA’s factors. Be aware that you may see various lists of factors, and this is why.

As you can see, this is not a black and white determination. It is not uncommon for a payer to feel that a worker is a contractor, only for the CRA to assess otherwise, and vice versa. The 4 tests often used by the court were first established in Wiebe Door Services Ltd v. MNR1, and the court has continued to refer to those 4 tests even though the CRA has begun expanding on them. But even with the many tests and court cases, these issues continue to be taken to court.

Since this is being fought over in court, there must clearly be some advantage one way or the other. We’ll look at the worker’s considerations in Part 2 and the payer’s considerations in Part 3.

1: Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553

Jaden Evanson