Understanding the difference between a self-employed contractors and an employee might sound like a no-brainer, but there’s a very good reason to make the distinction: The CRA has strict guidelines that distinguish employees from contractors.
What does this mean for you? Payroll and deduction requirements are different depending on whether you’re dealing with a contractor or an employee.
Here are the main differences between a self-employed contractor and an employee
- Works independently, without supervision. Sets his or her own schedule and rates. Is free to turn down work without penalty, and is not bound by any form of loyalty to the payer.
- Provides own workplace, tools, and equipment and is responsible for their maintenance and insurance costs.
- May hire subcontractors to perform the work in question, and is responsible for paying and supervising them. Payer has no say in whom the worker hires.
- Worker markets him or her services and performs a substantial amount of work from own workspace. As an independent contractor, receives no benefits or protection from the payer.
- Is contractually obligated to complete the specific work he or she is hired for – financial implications may otherwise result.
- May receive a profit or loss from the work performed.
- Is compensated by a flat or hourly fee per project and incurs expenses.
- Works under the supervision of the payer, who directs, scrutinizes, and approves the work. Work performed is determined by the payer. Payer controls and determines the method and amount of payment.
- Payer supplies and owns workplace, tools, and equipment and is responsible for their maintenance and insurance costs. If worker supplies tools and equipment, payer reimburses him or her.
- May not hire others to perform assigned tasks.
- Is hired by the payer on an ongoing basis and not responsible for operating costs. Receives benefits and protection from the payer.
- Is not financially liable if the work is not completed.
- Does not receive a profit or loss from the work performed.
- Is compensated by a salary or ongoing hourly fee. Does not incur expenses.