Independent Contractor vs Employee
The distinction between an employee and independent contractor is not easy to define. Rather, it involves a contextual analysis of the relationship between the employer and the worker.1
There is no conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor.
The Supreme Court of Canada said that the central question is whether the person who has been engaged to perform services is performing them as a person in business on his/her own account.2 To answer this question, consider the following factors:
- Employee's level of control over the worker's activity;
- Whether the worker provides his/her own equipment;
- Whether the worker hires his/her own helpers;
- The worker's degree of financial risk; and
- The worker's opportunity for profit.
It is necessary to consider both the contract and the facts of the circumstances to make this determination.
Contract OF Services vs. Contract FOR Services
The Workplace Safety and Insurance Board (WSIB) has published an Operational Policy Manual that lists several characteristics that can be used to determine whether one is a worker or an independent contractor. This policy document indicates that there is a distinction between persons employed under a "contract of services" and persons employed under a "contract for services."
- Contract OF Services: The foundation of an employer-employee relationship. A worker agrees to work for an employer on a full- or part-time basis in exchange for wages or a salary. The employer has a right to control what work is performed, in what manner, and when.
- Contract FOR Services: The foundation of a business relationship. One person agrees to perform specific work in exchange for payment. The employer does not necessarily control the manner in which the specific work is done, or the time or place where it is performed.
| EMPLOYEES | INDEPENDENT CONTRACTORS | |
| Instructions | Complies with instructions on what, when, where, and how work is to be done. | Works on their own schedule, and does the job their own way. |
| Training & Supervision | Trained and supervised by an experienced employee of the payer. Required to take correspondence or other courses. Required to attend meetings and follow specific instructions which indicate how the payer wants the services performed. |
Use their own methods and are not required to follow instructions from the payer. |
| Hours of Work | The hours and days of work are set by the payer. | Often hires others to do the work without the payer's consent. |
| Full-Time Work | The hours and days of work are set by the payer. | Works whatever hours they choose. |
| Order or Manner of Work | Must devote full-time to the business of the payer. Cannot do work for other payers. |
Free to work when and for whom they choose. |
| Method of Payment | Performs services in the order or sequence set by the payer. Performs work that is part of a highly coordinated series of tasks where the tasks must be performed in a well-ordered sequence. |
Performs services at their own pace. Work on his/her own schedule. |
| Licenses | Payer holds licenses required to do the work. | Person holds licenses required to do the work. |
| Serving the Public | Does not make services available except on behalf, or as a representative, of the payer.
Invoices customers on the employer's behalf. |
Has own office. Listed in business directories and maintains business telephone. Advertises in newspapers, etc. Invoices customers on own behalf. |
| Status with Other Government Agencies | Terms of the relationship are governed by a collective agreement. Canada Revenue Agency either makes no ruling on the person's status, or rules that the person is a worker under the Canada Pension Plan (CPP) and the Employment Insurance Act (EIA). Collects and pays GST and other applicable taxes on payer's behalf. Payer deducts EI, CPP, insurance, income tax, etc. from pay. |
Terms of the relationship not governed by a collective agreement. Canada Revenue Agency has made an official ruling that the person is not a worker under the CPP and EIA. Collects and pays GST and other applicable taxes on own behalf. Takes no deductions from pay for EI, CPP, insurance, income tax, etc. |
Go to Part 2 - Employee & Employer Obligations
1 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 59 (S.C.C.).
2 Ibid at 48.
