A worker’s employment status affects his or her entitlement to EI and CPP benefits. A person that is an employee is entitled to those benefits while a self-employed worker, such as a subcontractor, is not. This can have a large effect on source deductions, taxes and potentially large penalties. Whether you are a worker or an employer, this post will provide you with some general guidelines as to how to determine a worker’s employment status.

To determine one’s employment status, there are a number of factors that you should consider:

Control
Consider the degree of control held by the payer or the degree of autonomy held by the worker. If the worker is an employee, his or her payer will often direct, scrutinize, and effectively control many elements of how and when the work is performed. For example, the payer decides what jobs the worker will be responsible for and provides directions on how to do the work correctly. Overall, the relationship between an employee and his or her employer is a subordinate relationship. While working for an employer, the worker cannot work for others without getting permission. On the other hand, a self-employed individual usually works independently within a defined framework and does not have anyone overseeing his or her activities. The working relationship between a self-employed worker and a payer usually does not present loyalty and subordination. So a self-employed worker is free to work for whomever he or she chooses and may provide his or her services to different payers (clients) at the same time.

Tools and Equipment
This is simple indicator that you should keep in mind. If the worker is an employee, the payer usually supplies him or her with most of the tools and equipment required to do the job. On top of that, the payer is usually responsible for the associated repair and maintenance costs. Quite obviously, the payer also retains ownership over the tools and equipment provided. In contrast, if a worker supplies the tools, equipments or even more, the required workspace, then it is a good sign that the worker is self-employed.

Subcontracting Work
If the worker is an employee, he or she cannot hire helpers or assistants. This is not the case when the individual is self-employed. A self-employed worker does not have to perform the services personally. He or she can choose to pay someone else to complete or help complete the job.

Overall Business Presence
An employee has little or no investment and management responsibilities in the business. He or she does not have a business presence and does not have to make any sort of business decisions that would affect his or her profit or loss. A self-employed worker, on the other hand, may show some degree of business presence. For example, he or she has capital investment (supplies tools and equipment required for the job) or manages his or her own staff (hires helpers or assistants to help complete the job). In addition, a self-employed worker may also have marketing materials or in general some kind of sales and marketing efforts to obtain new clients.

The exact nature of a worker may change based on the circumstances that may not be detailed here. It’s always best of consult a professional if you are unsure or check the links below for some additional criteria. Failure to handle this properly could result in a situation where source deduction payments should have been made, leading to penalties and interest if they were due. Or potentially for a self-employed worker, unnecessarily paying such taxes.

If you have your own questions or concerns, contact a professional.

Additional resources

• CRA – RC4110 Employee or self-employed
• TaxTips.ca – Employee vs. self-employed contractor