Employee vs. Self-Employed

Are you an employee or a self-employed contractor?

There is no clear-cut answer in determining whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship. There have been many court cases on this subject. Generally, a government auditor would base their decision on the following criteria:

  • Chance of profit or loss – Self-employed individuals may make or lose money depending on the job. Employees are paid if they work
  • Operation integration – Employees are normally part of an organization’s processes. For example, employees don’t have to find their own replacement to go on holidays
  • Ownership of tools – Self-employed individuals are responsible for providing their own tools. Employees are generally provided with the necessary tools
  • Control over work performance – Self-employed individuals are generally hired to do a job with little direction over how the work is to be performed. Employees are generally under supervision and direction as to how a job is to be performed. Often employees’ hours and work days are dictated whereas self-employed individuals determine their own schedules
  • No one criteria makes the determination

Employee Advantages

  • They qualify for Employment Insurance (EI) benefits
  • Canada Pension Plan premiums paid are matched by the employer
  • They participate in employee benefits; including vacation pay, health benefits, disability insurance, pension plans, worker’s compensation coverage
  • Possible higher rate of pay for overtime
  • They qualify for severance pay if terminated
  • Less record-keeping and administration
  • The employer purchases and maintains necessary equipment
  • The can have their employer sign a T2200 Declaration of Conditions of Employment, which will permit them to deduct expenses necessarily incurred to earn income

Self-employed Advantages

  • More expenses may be deductible
  • More control over working conditions and hours
  • They can work for more than one client
  • Opportunities for increased profits
  • No mandatory Employment Insurance (EI) premiums withheld from pay

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