Employee or Self-Employed Guide RC4110 notes that it is important to determine whether a worker is an employee or a self-employed individual because of the fact that 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. When we examine whether a person is an employee or a self-employed individual, CRA advises that the key question they ask is whether the person is engaged to perform services as a person in business on his or her own account, or as an employee. To do this, CRA examine the total relationship between the worker and the payer, using a two-step approach: as follows:
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)?
CRA states that they need to know how the parties defined their working relationship and why they defined it as such. As CRA notes, “[s]ometimes 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.”
CRA further observes that workers and payers can set up their affairs as they see fit although they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the working relationship.
CRA then asks the worker and the payer questions that will help CRA to understand the working relationship and allow CRA to verify whether the intent of the parties is reflected in the facts.
These questions relate to the following elements:
- the level of control the payer has over the worker’s activities;
- whether the worker provides the tools and equipment;
- whether the worker can subcontract the work or hire assistants;
- the degree of financial risk the worker takes;
- the degree of responsibility for investment and management the worker holds;
- the worker’s opportunity for profit; and
- any other relevant factors, such as written contracts.
CRA will examine the answers separately for each element and then together and will also consider whether they reflect the stated intention. When there is no common intent, CRA will decide if the actual working conditions are more consistent with a contract of service or with a contract for services.
For a more complete analysis of the various elements and a discussion of the slightly different process in Quebec please refer to Guide RC 4110.