Employee or Contractor?

When you bring someone on, the employee-versus-contractor question determines who remits tax, who pays CPP and EI, who bears expenses, and who carries risk. It is also one of the most commonly re-characterized relationships in CRA reviews.

The parties' intention matters, but it is only the starting point. CRA and the courts look past the paperwork at how the relationship actually operates.

The central tests ask: who controls how, when, and where the work is done? Who owns the tools and equipment? Can the worker subcontract or hire helpers? Does the worker carry financial risk and the opportunity for profit, or simply earn a wage? A worker who serves one payer, on that payer's schedule, with that payer's tools, is likely an employee no matter what the invoice says.

Misclassification lands hardest on the payer: assessed for unremitted income tax, both shares of CPP, both shares of EI, plus penalties and interest — often for multiple years. When a relationship sits in the grey zone, the conservative treatment, or a CRA ruling, is worth far more than the payroll savings.