Ask an Accountant Employee or self-employed?

Francesca Giroux, CPA

It is important to determine whether an individual working for you is an employee or self-employed (i.e. sub-contractor), as this affects an individual’s entitlement to Employment Insurance (EI). The Canada Revenue Agency (CRA) looks at several factors to determine if an individual is self-employed or an employee. The first factor is control; does the employer determine the manner in which work will be done and what work will be done? Indicators that an individual is self-employed, with regards to control are that: no one is overseeing the worker; the worker chooses when and for whom they work for, and may provide their services to different payers at the same time; and the worker can accept or refuse work from the payer.

Another factor to consider is the ownership of tools and equipment. Indicators that an individual is self-employed vs. an employee are that: the worker owns the tools and equipment required to complete the work and is responsible for the maintenance and repair of the tools and equipment; the worker has a significant investment in the tools and retains the rights over the use of the tools; and the worker supplies his/her own workspace and conducts substantial work from the site.

A third factor to consider is whether or not the worker can hire another individual to complete or help them complete the work and covers the costs of the additional worker’s labour, and the payer has no say in whom the worker hires. Employees generally cannot hire helpers or send replacements in to complete their work.

The CRA also considers the responsibility for investment and management. Self-employed individuals generally have a capital investment in their business, they hire and manage their own staff, and the worker has established a business presence.

A final factor to consider is whether or not the worker has the opportunity for profit. Employees generally do not share in the profits, or suffer the losses incurred by the business. Another indicator that an individual is self-employed is that they are compensated by a flat fee and incur business expenses while performing the work. Other factors that may impact are things such as participating in an employee group plan and getting paid for vacation and overtime. These are typically things that would suggest an employment relationship as opposed to a contractual relationship.

Please e-mail your questions to [email protected]
Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPPA for information specific to your own needs.


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