Employee or Self-employed

RC4110(E) Rev.23

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La version française de ce guide est intitulée Employé ou travailleur indépendant.

Is this guide for you

Use this guide if you are:

It will help you understand how to decide a worker's employment status.

Before you start

Employee or self-employed worker

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

The facts of the working relationship as a whole decide the employment status.

In an employer-employee relationship, the payer is considered an employer and the worker an employee. Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration, 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 required 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. For more employer information, go to Payroll.

Note

Non-arm's length relationship – If an employee is not dealing at arm's length with the employer, it is possible that their employment is not insurable under the Employment Insurance Act. For more information, read the interpretive article on this subject at CPP/EI Explained.

If the worker is a self-employed individual, they must operate a business and be engaged in a business relationship with the payer.

For more information, go to Businesses taxes.

Employment insurance for self-employed individuals

Some self-employed individuals may be eligible for employment insurance special benefits by contributing to the plan.

For more information, visit Service Canada.

Self-employed individuals in Quebec may be eligible for benefits under the Quebec Parental Insurance Plan (QPIP). For more information, visit Revenu Québec.

Requesting a ruling

If a worker or payer is not sure of the worker's employment status, either can ask the CRA for a ruling. A ruling shows whether a worker is an employee or self‑employed, and whether that worker's employment is pensionable or insurable. 

To ask for a CPP/EI ruling, you can:

 

Note

This guide does not replace a formal request for a ruling.

Time limit for requesting a ruling

A worker or a payer can request a ruling by June 29 of the year following the year to which the question relates. For example, if the employment took place in 2023, the ruling request has to be made no later than June 29, 2024. When June 29 falls on a Saturday or a Sunday, your request is considered on time if the CRA receives it or if it is postmarked on or before the next business day.

Ruling period that applies to a decision

A ruling applies to a specific period or periods of employment. A decision letter will include the names of the worker and the payer, and whether the employment is pensionable or insurable, or both, for the period(s) of employment. Unless a decision is appealed, it is final.

If the terms and conditions of the employment change after the ruling is issued, and you do not know if the employment is pensionable or insurable, or both, you can ask for another ruling.

Employment status

Certain factors have to be considered when deciding if a worker is an employee or a self-employed individual.

These factors differ if the contract is formed in the province of Quebec or in any other province or territory. Usually, the province or territory where the contract was formed will decide which set of factors to use.

Note

Use the appropriate factors for your situation based on where the contract was formed, unless the contract states something else. For example, the contract can state that if the worker and payer disagree about the contents of the contract, the contract will be interpreted under Quebec law (civil code), even though the contract was formed in Ontario (common law).

Deciding a worker's employment status in a province or territory other than Quebec

When the CRA examines whether a person is an employee or a self-employed individual, the key question to ask is whether the person is engaged to carry out services as a person in business on their own account, or as an employee. To do this, we examine the total relationship between the worker and the payer, using a two-step approach.

Step 1

The CRA asks the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)?

The CRA needs to know how they defined their working relationship and why they defined it as such.

Sometimes the intention is clear and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding as to the status of their working relationship, in which case there is no common intent.

To decide the parties’ intentions, the CRA gets a copy of the contract, or testimony by the parties and examines the parties’ actions. Both parties’ intentions form part of the context of the employment that the CRA analyses.

Note

Workers and payers can choose how they set up their affairs; however, the employment status they choose must reflect their working relationship. In other words, all of the facts, including the actual terms and conditions of employment, determine a worker's employment status, not just the intention.

Step 2

The CRA asks the worker and the payer questions that will help us understand the working relationship and allow us to verify whether the intent of the parties is reflected in the facts.

These questions relate to the following elements:

The CRA looks at the answers separately for each element and then together.

The CRA considers whether they reflect the stated intention and decides if the actual working conditions are more consistent with a contract of service or with a contract for services.

Factors to consider

To help you understand the process, the CRA explains each factor below and provides some indicators that show that the worker may be an employee or a self-employed individual.

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.

Degree of control or independence

Consider the degree of control held by the payer or the degree of independence held by the worker.

The actual degree of control will vary with the type of work and the skills of the worker.

Deciding the degree of control can be difficult when examining the employment of professionals such as engineers, doctors, and IT consultants. Because of their expertise and specialized training, they may need little or no specific direction in their daily activities. When examining the factor of control, it is necessary to focus on both the payer's control over the worker's daily activities and the payer's influence over the worker.

Payer's right to exercise control

It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right.

It is the control of a payer over a worker that is relevant and not the control of a payer over the end result of a product or service purchased.

Indicators showing that the worker is an employee

Indicators showing that the worker is a self-employed individual

Tools and equipment

Consider if the worker owns and provides tools and equipment to accomplish the work. Contractual control of, and responsibility for, an asset in a rental or lease situation is also considered under this factor.

What is relevant is the significant investment in the tools and equipment along with the cost of replacement, repair, and insurance. A worker who has made a significant investment is likely to retain a right over the use of these assets, diminishing the payer's control over how the work is carried out. In addition, such a significant investment may place the worker at a risk of a financial loss.

Note

Tools and equipment can vary widely in terms of value and can include everything from wrenches and hammers, to specialized clothing, appliances, stethoscopes, musical instruments, computers, and vehicles such as trucks, and tractors.

Self-employed individuals often supply the tools and equipment required for a contract. As a result, the ownership of tools and equipment by a worker is more commonly associated with a business relationship.

However, employees sometimes also have to provide their own tools. The courts have acknowledged that because a worker is required to provide tools of the trade, this does not in itself mean that the worker is a self-employed individual. For example, many skilled tradespeople such as auto mechanics have to supply their own tools, even if they are full-time employees.

Indicators showing that the worker is an employee

Indicators showing that the worker is a self-employed individual

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

Indicators showing that the worker is a self-employed individual

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.

Usually, employees will not have any financial risk as any expenses will be reimbursed, and they will not have fixed ongoing costs.

Self-employed individuals, on the other hand, can have financial risk and incur losses because they usually pay fixed monthly costs even if work is not currently being done.

Employees and self-employed individuals may be reimbursed for business or travel expenses. Therefore, focus on the expenses that are not reimbursed by the payer.

Indicators showing that the worker is an employee

Indicators showing that the worker is a self-employed individual

Responsibility for investment and management

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

Is the worker required to make any investment in order to provide the services?

A significant investment is evidence that a business relationship may exist. You should also consider if the worker is free to make business decisions that affect their profit or loss.

Indicators showing that the worker is an employee

Indicators showing that the worker is a self-employed individual

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.

This factor has to be considered from the worker's perspective, not the payer's. It is for the most part an assessment of the degree to which the worker can control their proceeds and expenses.

Employees normally do not have the chance of a profit and risk of a loss even though their remuneration can vary depending on the terms of their employment contracts. For example, employees working on a commission or piece-rate basis, or employees with a productivity bonus clause in their contract can increase their earnings based on their productivity. This increase in income is not normally viewed as a profit, as it is not the excess of proceeds over expenses.

Employees may have expenses directly related to their employment, such as automobile expenses, and board and lodging costs. Normally, expenses would not place employees at risk of incurring a loss because it is unlikely that the expenses would be greater than their remuneration.

Self-employed individuals normally have the chance of profit or risk of loss, because they have the ability to pursue and accept contracts as they see fit. They can negotiate the price (or unilaterally set their prices) for their services and have the right to offer those services to more than one payer. Self-employed individuals will normally incur expenses to carry out the terms and conditions of their contracts, and to manage those expenses to maximize net earnings. Self-employed individuals can increase their proceeds and/or decrease their expenses in an effort to increase profit.

Employees generally do not share in profits or suffer losses incurred by the payer's business.

The method of payment may help to decide if the worker has the opportunity to make a profit or incur a loss. In an employer-employee relationship, the worker is normally guaranteed a return for the work done and is usually paid on an hourly, daily, weekly, or similar basis.

Similarly, some self-employed individuals are paid on an hourly basis. However, when a worker is paid a flat rate for the work done, it generally indicates a business relationship, especially if the worker incurs expenses in doing the work.

Indicators showing that the worker is an employee

Indicators showing that the worker is a self-employed individual

Deciding a worker's employment status in the province of Quebec

When the CRA examines whether a person is an employee or a self-employed individual in the province of Quebec, the CRA examines the relationship between the worker and the payer, using a three-step approach.

Step 1

The CRA asks the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer‑employee relationship) or did they intend to enter into a contract for services (business relationship)?

The CRA needs to know how they defined their working relationship and why they defined it as such.

Sometimes the intention is clear and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding of the status of their employment relationship, in which case there is no common intent.

To decide the parties' intentions, the CRA gets a copy of the contract, or testimony by the parties and examines the parties' actions. Both parties' intentions form part of the context of the employment that the CRA analyses.

Note

Workers and payers can choose how they set up their affairs; however, the employment status they choose must reflect their working relationship. In other words, all of the facts, including the actual terms and conditions of employment, determine a worker's employment status, not just the intention.

Step 2

The CRA looks to see if the employment meets the definition of a contract of employment or of a business contract (contract for services) defined in the Civil Code of Québec by considering the following factors:

It is important to gather the facts and analyze them in light of the specific context of the employment and the intent of the parties.

Step 3

The CRA compares each party's intentions with their actual working relationship. The CRA decides whether the conditions of the working relationship represent the status that the parties have chosen and that they are consistent with the definitions of the Civil Code of Québec.

Factors to consider

Examine the relationship between the worker and the payer by considering the factors outlined in Step 2.

To help you understand the process, the CRA explains each factor and provides some indicators to show whether a relationship of subordination exists.

Carrying out the work

Whether there is an employer-employee relationship or a business relationship, the worker has to do the work. It can be part-time or full-time for a specified or indeterminate period.

Remuneration

Remuneration means how a worker is paid. It includes all consideration and benefits that have a monetary value. Whether there is an employer-employee relationship or a business relationship, the worker will receive remuneration in exchange for work. The remuneration can be calculated by time, by the piece, or in another manner.

Relationship of subordination

This factor helps distinguish the employer-employee relationship from a business relationship.

The relationship of subordination is the capacity, the authority, or the right of a payer to exercise control over the worker's activities and the manner in which the work is done.

Degree of control or independence

Consider the degree of control held by the payer or the degree of independence held by the worker.

The actual degree of control will vary with the type of work and the skills of the worker.

Deciding the degree of control can be difficult when examining the employment of professionals such as engineers, doctors, and IT consultants. Because of their expertise and specialized training, they may require little or no specific direction in their daily activities. When examining the factor of control, it is necessary to focus on both the payer's control over the worker's daily activities and the payer's influence over the worker.

Payer's right to exercise control

It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right.

It is the control of a payer over a worker that is relevant and not the control of a payer over the end result of a product or service that they have purchased.

Indicators showing that the worker is an employee
Indicators showing that the worker is a self-employed individual

Note

Since in certain working relationships it can be difficult to decide whether there is a relationship of subordination, the CRA can also take into consideration indicators used in common law, referred to above in Step 2 of the section "Deciding a worker's employment status in a province or territory other than Quebec."

For more information on CPP/EI matters

For more information on the CPP/EI Rulings Program, go to Canada Pension Plan (CPP) and Employment Insurance (EI) Rulings.

Have you received a CPP/EI ruling

If you received a CPP/EI ruling, and if a worker’s employment has changed from either:

The CRA has information that could be of interest to you.

To find out more about the possible implications of a CPP/EI Ruling, go to Have you received a CPP/EI ruling

Filing an appeal

If a CPP/EI ruling has been issued and the worker or payer does not agree with the decision, either party has the right to file an appeal within 90 days after being notified of the CPP/EI ruling.

If a CPP/EI payroll deductions assessment has been issued, the payer has the right to file an appeal within 90 days after being notified of that payroll assessment.

However, if you receive a payroll assessment because your payment was not applied to your account correctly, before you file an appeal, the CRA recommends that you call or write to the tax services office or tax centre to discuss it. Many disputes are resolved this way and can save you the time and trouble of appealing.

To appeal a CPP/EI ruling decision or a payroll deductions assessment, you can:

For more information on how to appeal a CPP/EI ruling decision or a payroll deductions assessment, see Booklet P133, Your Appeal Rights – Canada Pension Plan and Employment Insurance Coverage.

CPP/EI Explained – Interpretive articles

Series of CPP/EI Explained articles for workers and employers on matters relating to CPP and EI. You can find the series at CPP/EI Explained.

Topics:

Special situations

Special rules concerning CPP, EI, and income tax apply to the following occupations or situations:

For more information on special situations, see Chapter 7 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances, or go to Payroll.

Court decisions

Legislative references

ARCHAMBAULT, Pierre: Contract of Employment: Why Wiebe Door Services Ltd. Does Not Apply in Quebec and What Should Replace It, and The Harmonization of Federal Legislation with Quebec Civil Law and Canadian Bijuralism: Second Collection of Studies in Tax Law, Montreal, APFF, 2005

Digital services

Handle your business taxes online

My Business Account lets you view and manage your business taxes online.

Use My business Account throughout the year to:

To sign in to or register for the CRA's digital services, go to:

For more information, go to E-services for Businesses.

Receive your CRA mail online

Register for email notifications to find out when your CRA mail, like your PD7A – Statement of account for current source deductions, and remittance voucher, is available in My Business Account.

For more information, go to Email notifications from the CRA – Businesses.

Create a pre-authorized debit agreement from your Canadian chequing account

A pre-authorized debit (PAD) is a secure online self-service payment option for individuals and businesses to pay their taxes. A PAD lets you authorize withdrawals from your Canadian chequing account to pay the CRA. You can set the payment dates and amounts of your PAD agreement using the CRA’s secure My Business Account service at My Business Account. PADs are flexible and managed by you. You can use My Business Account to view your account history and modify, cancel, or skip a payment. For more information, go to Pay by pre-authorized debit.

For more information

If you need help

If you need more information after reading this guide, go to Payroll or call 1-800-959-5525.

Direct deposit

Direct deposit is a fast, convenient, and secure way to receive your CRA payments directly into your account at a financial institution in Canada. For more information and ways to enrol, go to Direct deposit or contact your financial institution.  

Forms and publications

The CRA encourages you to file your return. If you need a paper version of the CRA’s forms and publications, go to Forms and publications or call 1-800-959-5525.

Electronic mailing lists

The CRA can send you an email when new information on a subject of interest to you is available on the website. To subscribe to our electronic mailing lists, go to Electronic mailing lists.

Tax Information Phone Service (TIPS)

For tax information by telephone, use the CRA’s automated service, TIPS, by calling 1-800-267-6999.

Teletypewriter (TTY) users

If you use a TTY for a hearing or speech impairment, call 1-800-665-0354.

If you use an operator-assisted relay service, call the CRA’s regular telephone numbers instead of the TTY number.

Formal disputes (objections and appeals)

You have the right to file an appeal if you disagree with an assessment, determination, or decision.

For more information, go to File and Objection.

CRA Service Feedback Program

Service complaints

You can expect to be treated fairly under clear and established rules, and get a high level of service each time you deal with the CRA. For more information, go to Taxpayer Bill of Rights.

You may provide compliments or suggestions, and if you are not satisfied with the service you received:

  1. Try to resolve the matter with the CRA employee you have been dealing with or call the telephone number provided in the correspondence you received from the CRA. If you do not have contact information, go to Contact information.
  2. If you have not been able to resolve your service-related issue, you can ask to discuss the matter with the employee’s supervisor.
  3. If the problem is still not resolved, you can file a service related complaint by filling out Form RC193, Service-Feedback. For more information and to learn how to file a complaint, go to Service-Feedback

If you are not satisfied with how the CRA has handled your service-related complaint, you can submit a complaint to the Office of the Taxpayers’ Ombudsperson.

Reprisal complaints

If you have received a response regarding a previously submitted service complaint or a formal review of a CRA decision and feel you were not treated impartially by a CRA employee, you can submit a reprisal complaint by filling out Form RC459, Reprisal Complaints.

For more information, go to Complaints and disputes.

Due dates

When a due date falls on a Saturday, Sunday, or public holiday recognized by the CRA, your payment is considered on time if the CRA receives it on or it is processed at a Canadian financial institution on or before the next business day.

For more information, go to Payroll.

Tax services office (TSO)

Fax or mail your ruling request with a copy of relevant documents to the CPP/EI Rulings Division in the province or territory of your residence or place of business according to the table below.

Tax services office addresses and fax numbers by province or territory
Provinces and Territories Fax numbers Addresses
New Brunswick
Newfoundland and Labrador
Nova Scotia
Prince Edward Island
902-426-3062 Nova Scotia TSO
CPP/EI Rulings Division
PO Box 638, Station Central
Halifax NS B3J 2T5
Quebec 1-866-230-8786 Eastern Quebec TSO
Chicoutimi site
CPP/EI Rulings Division
Box 1660
Jonquière QC G1J 1Y5
Nunavut
Ontario
905-540-3143 Hamilton Niagara TSO
CPP/EI Rulings Division
55 Bay Street North
Hamilton ON L8R 3P7
Alberta
Manitoba
North West Territories
Saskatchewan
204-984-0396 Eastern Prairie TSO
CPP/EI Rulings Division
600-360 Main Street
PO Box 1022 Station Main
Winnipeg MB R3C 2W2
British Columbia
Yukon
604-658-8777 Coastal and Central BC TSO
CPP/EI Rulings Division
468 TA-03
9755 King George Blvd
Surrey BC V3T 5E1

For a complete list of our tax services offices, go to Tax services offices and tax centres.

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