Good news. Your company is growing and needs additional support. Before you hire, it is important to determine whether the new worker will be an employee of the company or a self-employed individual contracted to complete certain jobs.
The working relationship helps to determine employment status. Do you have an employer-employee relationship, where employers (payers) are responsible for deducting CPP, EI and Income Tax, or do you have a business relationship, where the worker owns their own business and is hired as a self-employed individual (contractor).
Factors to consider when determining employment status include control, tools and equipment, subcontracting and financial risk. Here is a brief overview:
Control over a worker is determined by the level of authority or right the payer has, as well as the degree of independence held by a worker. Consider the following questions to determine whether the worker is an employee or self-employed individual.
- Are work related situations being controlled or scrutinized by a payer, or is the worker able to work under their own direction without anyone overseeing his/ her activities?
- Does the payer have full control over the work being completed as well as the method, or is the worker able to work independently within their own time frame?
- Is the worker trained and directed solely by the payer or is the worker able to design their own schedules and able to refuse or accept work by the payer at any time?
Tools and Equipment
Tools and equipment often required for the day-to-day fulfillment of work. Tools and equipment can vary widely in terms of value and can include everything from wrenches and hammers, to specialized clothing, appliances, stethoscopes, musical instrument, computers, and vehicles such as trucks and tractors. Will the tools will be provided by the payer or the worker?
Indicators showing that the worker is an employee:
- The payer provides most of the tools/equipment and assumes responsibility for insurance and maintenance.
- 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 insurance, repairs and maintenance of 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 performs substantial work from that site.
What About Subcontracting Work?
- An employee cannot hire any assistants to aid in work related situations, whereas a self-employed individual can hire another party to help complete work and pays the cost themselves.
- As an employee, a worker must complete services personally, were as when you are self-employed the payer has no say who is hired to complete the work.
What are the financial risks? Are there any ongoing costs incurred by the worker or any expenses that will be reimbursed?
- The payer will usually cover all operating expenses, where as a self-employed individuals hire and pay any assistants used for completing a job.
- An employee has a continuous working relationship with a payer, and someone who is self-employed is only hired for a specific job with no ongoing relationship.
There are many factors to consider when hiring workers. If you are unsure of employment status, login to CRA’s “My Business Account” or go to http://www.cra-arc.gc.ca/tx/hm/menu-eng.html, scroll down to the Topics sections and click on the “Employed or self-employed” link.