CRA & Revenu Québec

Determine Your Employment Status

Sometimes, determining whether you are an employee or self-employed is a tougher question to answer than you might imagine. When you are an employee, your employer is responsible for payroll deductions, but when you are self-employed, you must remit your own deductions on your own behalf. The Canada Revenue Agency has six factors that is uses to help you determine your employment status.

Are You An Employee or Self-Employed?

It is important to determine whether you are considered an employee or self-employed. Your employment status determines whether you are entitled to Employment Insurance benefits. It also determines how to treat payroll deductions, such as the Canada pension plan and federal tax.

If you are an employee, your employer is responsible for deductions including CPP contributions, Employment Insurance premiums and federal tax. Your employer must remit these amounts to the CRA on your behalf. If your employer does not make the proper deductions for CPP and EI, it is responsible for paying both your share and its own share in addition to interest and penalties.

If you are self-employed, you are responsible for paying CPP contributions and EI premiums on your own behalf. You must pay the employee portion as well as the employer portion. However, there are some advantages to being self-employed: you are able to claim tax deductions for expenses related to your business.

Factors to Consider

The CRA uses six different factors to determine whether you are considered an employee or self-employed:

  1. Control: Control is the ability, authority or right you possess with respect to how work is performed and what work is performed.
  2. Tools and Equipment: Determine whether you own and provide your own tools and equipment to finish your work. The CRA also considers whether you are contractually responsible for paying for the rental or lease of tools and equipment.
  3. Subcontracting Work or Hiring Assistants: Examine whether you have the ability to subcontract work or employ workers. It can have a bearing on your opportunity for profit or loss, as hiring an assistant costs money from your bottom line.
  4. Financial Risk: Examine how much financial risk you have, and consider whether you have any fixed ongoing expense or costs not reimbursed by your employer. If you are an employee, you should not have any financial risk, as your employer should reimburse you for expenses and you should not have any ongoing expenses. If you are self-employed, you have greater financial risk; you are still responsible for paying ongoing expenses, even when the work is not being performed.
  5. Responsibility for Investment and Management: Determine whether you must make a financial investment to render services delivered by the business.
  6. Opportunity for Profit: Examine the financial stake you have in your business and your opportunity to make a profit or a loss. Consider your degree of risk.