What are the parameters for determining whether the CRA will deem me to have an Employer-Employee relationship, when I have my own business, and invoice as a self-employed contractor?
Answer:
The purpose of this article is to highlight the factors that the CRA considers when deciding whether a worker is acting as an employee or as a self-employed individual. The article does not discuss every consideration in detail but provides what Strata-G deems as the crucial elements that need to be addressed, to ensure there are no undesirable surprises at tax time for the Individual, or the Employer. In addition, it should be noted that this article focuses on employment in Ontario, as there are some factors that may change the assessment in different Provinces, such as Quebec. That said, these considerations should be weighed when taking on work assignments in any jurisdiction.
Recommendation:
Intention is the first element that the CRA assesses before issuing their determination. It is a best practice to ensure a signed agreement, contract, proposal, or engagement letter exists that determines whether the two parties who have entered into a working arrangement have intended to enter into a contract of service (Employer-Employee relationship) or as a contract for services (business relationship).
The second element the CRA assesses are the terms and conditions of employment. It is the recommendation of Strata-G that careful consideration be given to the terms and conditions of a contract, to provide clarity for each of the working arrangement factors addressed in this article. The Table below walks through the main factors that may indicate the worker is an employee, or self-employed 1.
The Payer’s control over the daily activities and influence over the worker
Indicators for Employment
- Subordination – Payer directs how and when work carried out
- Payer controls the results of the work and method used
- Payer chooses & controls the method and amount of pay
- Payer assigns tasks and what jobs the worker will perform
- Worker requires permission to work for other Payers
Indicators for Self-Employment
- Worker has autonomy to work independently, with no oversight
- Worker is free to work when and for whom they choose
- Worker can accept or refuse work from the Payer
- Working arrangement lacks continuity, security, subordination that is typical with Employer-Employee relationship
Whether the Worker owns and provides tools and equipment to accomplish the work
Indicators for Employment
- Payer supplies most of the tools and equipment, and is responsible for repair
- Payer retains right of use
- Payer reimburses worker for tools and equipment purchased by the Worker
Indicators for Self-Employment
- Worker provides own tools and equipment without reimbursements, and is responsible for repair
- Worker retains right of use
- Worker supplies their own workspace and is responsible for the cost of maintenance
Worker can subcontract work and hire assistants
Indicators for Employment
- Worker cannot hire support
Indicators for Self-Employment
- Worker does not have to carry out services personally. Support can be hired at a cost to the Worker
- Payer has not discretion on whom the Worker hires
The degree of financial risk assumed by the Worker
Indicators for Employment
- Worker is not responsible for operating expenses.
- Relationship between Payer and
- Worker is usually continuous
Worker is not financially liable.
Indicators for Self-Employment
- Worker is responsible for operating costs, such as the hiring of support and advertising.
- Worker conducts substantial work from their own workspace and is responsible for the cost.
- Worker is employed for a specific job.
Worker is financially liable.
Worker is free to make business decisions to affect their profitability
Indicators for Employment
- Worker has no capital investment in Payer’s business
- Worker does not have a business presence
Indicators for Self-Employment
- Worker has a capital investment
- Worker manages their staff
- Worker hires and pays individuals
- Worker has a business presence
The Worker can realize a profit or incur a loss
Indicators for Employment
- Worker is not able to realize business profit or loss.
- Worker is entitled to benefit plans of the Payer, such as pension, health and dental plans.
Indicators for Self-Employment
- Worker is compensated by a flat fee and incurs non-reimbursable expenses in carrying out the service provided.
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