BVA Blog

Employee or Self-Employed Worker

Wednesday, May 18, 2016

Employee or self-employed worker?

It is important to decide whether a worker is an employee or a self-employed individual. Employment status affects a person’s entitlement to employment insurance (EI) benefits while also having an impact on how a worker is treated under other legislation such as the Canada Pension Plan (CPP) and the Income Tax Act (ITA).

The facts of the working relationship as a whole decide the employment status. If the worker is an employee, the payer is considered an employer. Employers are responsible for deducting CPP contributions, EI premiums and income tax from remunerations or other amounts they pay to their employees. Employers must remit these deductions along with their share of CPP contributions and EI premiums to the Canada Revenue Agency (CRA).

An employer who fails to deduct the CPP contributions or EI premiums has to pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus penalties and interest.

When CRA examines whether a person is an employee or a self-employed individual, the key question that they ask is whether the person is engaged to carry out services as a person in business on his or her own accounts, or as an employee. To do this, CRA examines the total relationship between the worker and payer based on the following key elements:

Control
Control is the ability, authority, or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done.

Indicators showing that the worker is an employee

  • The relationship is one of subordination. The payer will often direct, scrutinize, and effectively control many elements of how and when the work is carried out.
  • The payer controls the worker with respect to both the results of the work and the method used to do the work.
  • The payer chooses and controls the method and amount of pay. Salary negotiations may still take place in an employer-employee relationship.
  • The worker requires permission to work for other payers while working for this payer.
  • Where the schedule is irregular, priority on the worker's time is an indication of control over the worker.
  • The payer decides what jobs the worker will do.
  • The worker receives training or direction from the payer on how to do the work. The overall work environment between the worker and the payer is one of subordination.
  • The payer chooses to listen to the worker's suggestions but has the final word.


Indicators showing that the worker is a self-employed individual

  • A self-employed individual usually works independently.
  • The worker does not have anyone overseeing his or her activities.
  • The worker is usually free to work when and for whom he or she chooses and may provide his or her services to different payers at the same time.
  • The worker can accept or refuse work from the payer.
  • The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration, all of which are generally associated with an employer-employee relationship.


Tools
Consider if the worker owns and provides tools and equipment to accomplish the work.

Indicators showing that the worker is an employee

  • The payer supplies most of the tools and equipment the worker needs. In addition, the payer is responsible for repair, maintenance, and insurance costs.
  • The worker supplies the tools and equipment and the payer reimburses the worker for their use.
  • The payer retains the right of use over the tools and equipment provided to the worker.


Indicators showing that the worker is a self-employed individual

  • The worker provides the tools and equipment needed for the work. In addition, the worker is responsible for the costs of repairs, insurance, and maintenance to the tools and equipment.
  • The worker has made a significant investment in the tools and equipment and the worker retains the right over the use of these assets.
  • The worker supplies his or her own workspace, is responsible for the costs to maintain it, and does substantial work from that site.


Subcontracting work or hiring assistants

Consider if the worker can subcontract work or hire assistants. This factor can help decide a worker's business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss.


Indicators showing that the worker is an employee

  • The worker cannot hire helpers or assistants.
  • The worker does not have the ability to hire and send replacements. The worker has to do the work personally.


Indicators showing that the worker is a self-employed individual

  • The worker does not have to carry out the services personally. He or she can hire another party to either do the work or help do the work, and pays the costs for doing so.
  • The payer has no say in whom the worker hires.


Financial risk
Consider the degree of financial risk taken by the worker. Consider if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed.

Indicators showing that the worker is an employee

  • The worker is not usually responsible for any operating expenses.
  • Generally, the working relationship between the worker and the payer is continuous.
  • The worker is not financially liable if he or she does not fulfil the obligations of the contract.
  • The payer chooses and controls the method and amount of pay.


Indicators showing that the worker is a self-employed individual

  • The worker hires helpers to assist in the work. The worker pays the hired helpers.
  • The worker does a substantial amount of work from his or her own workspace and incurs expenses relating to the operation of that workspace.
  • The worker is hired for a specific job rather than an ongoing relationship.
  • The worker is financially liable if he or she does not fulfil the obligations of the contract.
  • The worker does not receive any protection or benefits from the payer.
  • The worker advertises and actively markets his or her services.


Responsibility for investment and management

Consider the degree of responsibility for investment and management held by the worker.

Indicators showing that the worker is an employee

  • The worker has no capital investment in the payer's business.
  • The worker does not have a business presence.


Indicators showing that the worker is a self-employed individual

  • The worker has capital investment.
  • The worker manages his or her staff.
  • The worker hires and pays individuals to help do the work.
  • The worker has established a business presence.


Opportunity for profit
Consider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. To have a chance of a profit and a risk of a loss, a worker has to have potential proceeds and expenses, and one could exceed the other.

Indicators showing that the worker is an employee

  • The worker is not normally in a position to realize a business profit or loss.
  • The worker is entitled to benefit plans that are normally offered only to employees. These include registered pension plans, and group accident, health, and dental insurance plans.


Indicators showing that the worker is a self-employed individual

  • The worker can hire a substitute and the worker pays the substitute.
  • The worker is compensated by a flat fee and incurs expenses in carrying out the services.


Having a carefully crafted written agreement setting out the intentions of the parties may offer some protection if one of the parties subsequently changes his or her mind and argues that the relationship is not what is was purported to be. It will also help stave off being recategorized by the CRA.

The issue with employee vs. self-employed individuals is not clear cut, and the final determination of whether a person is an independent contractor or an employee will always depend on the individual facts and circumstances of the case.



If you have any questions as to whether you are an employee or self-employed individual, or if you are an employer trying to determine if your workers are employees or self-employed individuals, please give us a call at 403-527-8114.

Back to Blog

Latest Updates at BVA

Get an ever-expanding collection of inspiring, informational, and instructional news & updates from Burns Valkenburg & Associates.

Contact Burns Valkenburg

Head Office

101-2248 13th Ave SE
Medicine Hat, AB T1A 8G6

Phone: 403‑527‑8114

Intuit

QuickBooks Pro Advisor Experts

Receive discounted pricing off the regular price on QuickBooks products through Burns Valkenburg & Associates.

MEDICINE HAT HEAD OFFICE

Burns Valkenburg & Associates LLP

#101‑2248 13th Avenue SE

Medicine Hat, AB Canada

T1A 8G6

Phone: 403‑527‑8114

Fax: 403‑526‑0908

SERVICE AREA

Medicine Hat
Brooks
Bow Island
Maple Creek
Oyen
Foremost

Send to a friend

Send the url of this page to a friend of yours

Created by

Legal notice