Employee Versus Contractor: Part 1
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:
|Factor||An employee…||A contractor…|
|Control||Is beholden to the decisions of the employer, in what work is done and how it is done||Is 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 job||Often provides, pays for, and maintains their own tools and/or equipment|
|Ability to subcontract||Cannot, of their own volition, hire a subcontractor to complete some or all of their work||Can hire staff or contractors to perform some or all the work in the contract|
|Financial risk||Is not responsible for operating expenses or liabilities, and is often paid continuously||Is responsible for advertising, work is sporadic and not consistent, and may be liable if contract terms are broken|
|Investment||Often has not invested anything into the business, and does not have a unique business presence||Invests capital into their business, makes operating investment decisions (such as hiring), and has a separate and unique business|
|Profit||Is often paid the same amount, regardless of the hours they work or the efficiencies that they introduce||Is paid a flat fee for a job to be done, from which they can hire cheaper subcontractors or find efficiencies to increase their profit|
Interestingly, the court tends to look at this list slightly differently, and breaks it down into these 4 categories:
- Ownership of Tools
- Chance of Profit / Risk of Loss
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.
1: Wiebe Door Services Ltd. v. M.N.R.,  3 F.C. 553