This is a common question that a lot of small business owners struggle to definitively categorize whether their worker is an employee or an independent contractor.

Briefly put, an employee has more restrictions but is reliably compensated and he/she is given numerous protections under labour standards and health and safety legislation. A contractor, on the other hand, does not enjoy the protection of these statutes, however, he/she is free to work how they see fit but they bear a higher financial risk.

A worker CANNOT be an employee and an independent contractor at the same time to the same employee.

Let’s explore the differences between the two in-depth.

Employees

• Works exclusively for you

• You provide the tools needed for your worker to do their job

• You control their duties

• You set their working hours

• Your worker must perform services

• Typically, you provide group benefits

• Your worker is paid for vacation

• You pay for payroll expenses (EI & CPP)

• You pay your worker a salary or hourly wage

• Your worker reports to your workplace on a regular basis

• Receive a T4 at tax time

Contractors

• May work for other business owners

• Provide their own tools needed to do the job

• Decide how the work will be completed

• Set their own working hours

• May hire someone else to complete the job

• Cannot participate in benefit plans

• Do not receive vacation pay and are not restricted on work hours or time off

• Responsible for paying their own taxes

• Not required to pay Employment Insurance unless they opt in to the program

• Are paid by the job and on a predetermined basis

• Invoice your for services performed

• Have the choice to accept or reject work

Proper classification of your workers is important in order to fulfil legal requirements in the case of employee/employer relationship. Failing to withhold the necessary source deductions (CPP, EI and income tax) could result in fines and penalties.

More information can be found here to help put your mind at ease.