Written by Evelyn Mytka, contributing writer
When you’re running a small business, hiring help can be a huge step forward. But whether you’re bringing on a bookkeeper, graphic designer, or a part-time painter, it’s important to know if they are an employee or an independent contractor? The answer matters more than you might think – especially when it comes to taxes, insurance, and your legal responsibilities as an employer.
What’s the Key Difference?
The core difference lies in control and independence:
- Employees typically work under your direction, using your tools, during your set hours.
- Contractors work independently, set their own schedules, use their own tools, and invoice for services.
Why This Matters
Misclassifying someone can lead to:
- Penalties from Canada Revenue Agency (CRA)
- Unpaid CPP, EI, and vacation pay
- Issues with Workers’ Compensation Board (WCB) coverage or Employment Standards compliance
- Potential lawsuits or backpay claims
Quick Comparison Table
| Employee | Contractor | |
| Works under your direction | Yes | Self-managed |
| Brings their own tools | Rarely | Usually |
| Gets regular paycheques | Yes | No – they invoice |
| Covered under your WCB | Yes – required | Self-managed |
| Pays own CPP/EI | No – you deduct it | Yes – they remit it themselves |
| Vacation pay required? | Yes | No (unless in contract) |
Real-World Examples
- A painting business hiring someone for regular site work, using your ladders, van, and schedule? That’s likely an employee.
- A web designer you hire once to build a site and who invoices you for the job? Likely a contractor.
- A construction labourer you bring on for a few months, but they work full-time hours under your supervision and drive your truck to job sites? Probably an employee.
- A marketing consultant working part-time from home on a monthly retainer, with multiple clients and full control over how they deliver the work? That’s typically a contractor.
What the CRA Looks at
The CRA uses several tests to determine status:
- Level of control
- Ownership of tools
- Chance of profit/risk of loss
- Integration into your business
See CRA’s Guide on Employee or Self-employed for more detailed information.
Tips to Protect Your Business
- Always use a written agreement (even for contractors).
- Avoid directing how a contractor completes their work.
- Consult with a legal or HR advisor when in doubt.
Whether you’re expanding your team for the first time or bringing in extra help during busy seasons, it’s important to understand the legal differences between contractors and employees. Missteps can be costly, but with a bit of knowledge and the right support, you can set up your working relationships properly from the start.
Not sure where your situation fits? Business Link’s advisors can walk you through it. Book a free appointment and get clarity on how to build your team the right way.
