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@@ -356,6 +356,180 @@ Legislation
The Employee-Employer Relationship
-----------------------------------
In all situations, it is necessary to establish whether the relationship between the worker and
the organization is one of an employee and an employer or if the worker is self-employed.
This relationship determines the requirement for statutory withholdings and the requirement
for compliance with related legislation. The Canada Revenue Agency (CRA) has established
factors to assist in determining whether or not this relationship exists. It is not up to the
worker to decide whether or not they are an employee, subject to statutory withholdings.
Payroll can take a proactive role in communicating the importance of determining the
existence of the employee-employer relationship to all areas of the organization.
When an employee-employer relationship exists, payroll has a compliance responsibility
related to statutory withholdings, which requires that all employees have the appropriate
statutory deductions withheld from their pay and remitted to the government.
Where an employee-employer relationship exists, the CRA requires the employer to:
- register with the Canada Revenue Agency for a Business Number (BN)
- withhold the statutory deductions of income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums on amounts paid to employees
- remit the amounts withheld as well as the required employer's share of CPP contributions and EI premiums to the Canada Revenue Agency
- report the employees' income and deductions on the appropriate information return
- give the employees copies of their T4 slips by the end of February of the following calendar year
Information on the factors to consider when determining whether an employee-employer relationship exists can be found in the
Canada Revenue Agency guide, Employee or Self-Employed? - RC4110. The guide is available on the CRA's website,
https://www.canada.ca/en/revenue-agency.html.
Contract of Service (Employment)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A **contract of service** is an arrangement whereby an individual (the employee) agrees to
work on a full-time or part-time basis for an employer for a specified or indeterminate period
of time.
Under a contract of service, one party serves another in return for a salary or some other form
of remuneration.
Contract for Service (Subcontracting)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A **contract for service** is a business relationship whereby one party agrees to perform certain
specific work stipulated in the contract for another party. It usually calls for the
accomplishment of a clearly defined task but does not normally require that the contracting
party do anything him/herself. A person who carries out a contract for service may be
considered a contract worker, a self-employed person or an independent contractor.
A business relationship is a verbal or written agreement in which a self-employed individual
agrees to perform specific work for a payer in return for payment. There is no employer or
employee. The self-employed individual generally does not have to carry out all or even part
of the work himself. In this type of business relationship, a contract for services exists.
The self-employed individual is required to produce a given result within a period of time in
the manner he deems most appropriate. While performing the work, he is not under the
orders or control of the person for whom he is doing the work and he can use his own
initiative in matters that are not specified or determined at the outset. The payer is not
normally involved in the performance of the work and, therefore, has no control over it.
Under a contract for service, a self-employed individual assumes the chance of profit and risk
of loss. By agreeing, before he is engaged, to establish the overall cost of the work to be
done, owning his tools and instruments and being solely responsible for the manner in which
the work is done, the self-employed individual assumes all risk of loss resulting from events
that occur during the course of the work which were not, or could not, be foreseen when the
contract was negotiated. If, on the other hand, the work is completed sooner or more easily
than expected, the contractor's profit will be greater.
A contract for service is often used when an organization wishes to have work done which
does not fall within its usual scope of operations. The relationship between a payer and a
self-employed individual and that between an employer and their employees are sometimes
quite similar. The main difference between the two relationships is that, in a contract for
service, the party paying for the service is entitled to dictate what is to be done or what result
is to be achieved; whereas, in a contract of service, the employer is also entitled to stipulate
the manner in which the work is to be done.
Under a contract for service, the person for whom the work is being done exercises general
supervision. He can and should see that the work is completed in accordance with the
agreement, but it is not up to him to give orders to the self-employed individual regarding the
manner in which the work is to be done. The mere fact that a self-employed individual
receives general instructions from the project manager concerning the work to be done does
not mean that he can be considered an employee.
An employee-employer relationship is deemed to exist where the organization exercises, or
has the right to exercise, direct control over the individual. If the organization is unsure as to
whether or not a relationship exists, the Canada Revenue Agency (CRA) form Request for a
CPP/EI Ruling - Employee or Self-Employed? - CPT1 should be submitted to the CRA. A
sample of the CPT1 form is provided at the end of this section.
Independent contractors or self-employed individuals are not considered employees of the
organization provided no employee-employer relationship exists. Persons who are truly selfemployed individuals will submit invoices and be paid through accounts payable. However,
the submission of an invoice to accounts payable is not sufficient to determine if the
individual is self-employed.
Factors Determining the Type of Contract
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The CRA uses a two-step approach to examine the relationship between the worker and the
payer for relationships outside the province of Québec. The approach used for relationships
in the province of Québec will be discussed in a later chapter.
**Step 1:**
The first step is to establish what the intent was when the worker and the payer entered into
the working arrangement. Did they intend to enter into an employee-employer relationship
(contract of service) or did they intend to enter into a business relationship (contract for
service). The CRA must determine not only how the working relationship has been defined
but why it was defined that way.
**Step 2:**
The CRA then considers certain factors when determining if a contract of service or a
contract for service exists. In order to understand the working relationship and verify that the
intent of the worker and the payer is reflected in the facts, they will ask a series of questions
that relate to the following factors:
- the level of control the payer has over the worker
- whether or not the worker provides the tools and equipment
- whether the worker can subcontract the work or hire assistants
- the degree of financial risk taken by the worker
- the degree of responsibility for investment and management held by the worker
- the worker's opportunity for profit
- any other relevant factors, such as written contracts
The CRA will look at the answers independently and then together and consider whether or
not they reflect the intent that was originally stated. Considered individually, the response to
each of these questions is not conclusive; however, when weighed together, certain
conclusions may be drawn. When there is no common intent, the CRA will decide if the
answers are more consistent with a contract of service or a contract for service.
Each of these factors will be discussed in the material and indicators showing whether the
worker is an employee or self-employed will be provided.
Control
~~~~~~~
The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer's control over the worker's daily activities and the payer's
influence over the worker will be examined. The relevant factor is the payer's right to
exercise control. Whether the payer actually exercises this right is irrelevant.
Worker is an *Employee* when:
- The relationship is one of subordination.
- The payer will often direct, scrutinize, and effectively control many elements of how the work is performed.
- The payer controls both the results of the work and the method used to do the work.
- The payer determines what jobs the worker will do.
- The worker receives training or direction from the payer on how to do the work.
Worker is a *Self-Employed* when:
- Individual usually works independently, does not have anyone overseeing them.
- The worker is usually free to work when and for whom they choose and may provide their services to different payers at the same time.
- The worker can accept or refuse work from the payer.
- The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration.
Tools and Equipment
~~~~~~~~~~~~~~~~~~~~
Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.
In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).
In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.
In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.
The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.
Review Summary
--------------
@@ -398,6 +572,16 @@ Employers are required to adhere to the employment and labour standards legislat
employees work, unless they are governed by federal labour standards. Where legislation mandates employer compliance,
financial penalties or legal action may be imposed to enforce adherence and promote accountability.
A contract of service is an arrangement in which an individual, referred to as the employee, agrees to work either full-time or part-time for an employer over a specified or indeterminate period. This type of contract establishes an employer-employee relationship, where the employer typically has control over the work performed and the conditions under which it is carried out.
In contrast, a contract for service defines a business relationship where one party agrees to perform specific tasks or services outlined in the contract for another party. This arrangement is more independent in nature and does not constitute an employer-employee relationship. Instead, it reflects a client-contractor dynamic.
To determine the nature of the relationship between a worker and a payer—particularly outside the province of Québec—the Canada Revenue Agency (CRA) applies a two-step approach. One of the key factors considered is the payer’s right to exercise control over the worker, including how the work is done and what tasks are performed. The degree of independence the worker holds is also evaluated, but the central issue is whether the payer has the authority to direct the work.
Another factor the CRA examines is the ownership of tools and equipment. The significance lies in the size of the investment made by the worker, as well as the costs associated with repair, replacement, and insurance. The CRA also considers whether the worker incurs fixed ongoing costs or unreimbursed expenses, which may indicate a greater level of independence.
Finally, the CRA assesses the extent to which the worker can control their revenue and expenses. A higher degree of financial control typically suggests a contract for service, while limited control may point to a contract of service. These factors collectively help determine the correct classification of the working relationship for tax and legal purposes.
Review Questions
----------------

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@@ -360,6 +360,167 @@ efficiently.</p>
</section>
<section id="the-employee-employer-relationship">
<h2><span class="section-number">4.6. </span>The Employee-Employer Relationship<a class="headerlink" href="#the-employee-employer-relationship" title="Link to this heading"></a></h2>
<p>In all situations, it is necessary to establish whether the relationship between the worker and
the organization is one of an employee and an employer or if the worker is self-employed.
This relationship determines the requirement for statutory withholdings and the requirement
for compliance with related legislation. The Canada Revenue Agency (CRA) has established
factors to assist in determining whether or not this relationship exists. It is not up to the
worker to decide whether or not they are an employee, subject to statutory withholdings.</p>
<p>Payroll can take a proactive role in communicating the importance of determining the
existence of the employee-employer relationship to all areas of the organization.
When an employee-employer relationship exists, payroll has a compliance responsibility
related to statutory withholdings, which requires that all employees have the appropriate
statutory deductions withheld from their pay and remitted to the government.</p>
<p>Where an employee-employer relationship exists, the CRA requires the employer to:</p>
<blockquote>
<div><ul class="simple">
<li><p>register with the Canada Revenue Agency for a Business Number (BN)</p></li>
<li><p>withhold the statutory deductions of income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums on amounts paid to employees</p></li>
<li><p>remit the amounts withheld as well as the required employer’s share of CPP contributions and EI premiums to the Canada Revenue Agency</p></li>
<li><p>report the employees’ income and deductions on the appropriate information return</p></li>
<li><p>give the employees copies of their T4 slips by the end of February of the following calendar year</p></li>
</ul>
</div></blockquote>
<p>Information on the factors to consider when determining whether an employee-employer relationship exists can be found in the
Canada Revenue Agency guide, Employee or Self-Employed? - RC4110. The guide is available on the CRA’s website,
<a class="reference external" href="https://www.canada.ca/en/revenue-agency.html">https://www.canada.ca/en/revenue-agency.html</a>.</p>
<section id="contract-of-service-employment">
<h3><span class="section-number">4.6.1. </span>Contract of Service (Employment)<a class="headerlink" href="#contract-of-service-employment" title="Link to this heading"></a></h3>
<p>A <strong>contract of service</strong> is an arrangement whereby an individual (the employee) agrees to
work on a full-time or part-time basis for an employer for a specified or indeterminate period
of time.</p>
<p>Under a contract of service, one party serves another in return for a salary or some other form
of remuneration.</p>
</section>
<section id="contract-for-service-subcontracting">
<h3><span class="section-number">4.6.2. </span>Contract for Service (Subcontracting)<a class="headerlink" href="#contract-for-service-subcontracting" title="Link to this heading"></a></h3>
<p>A <strong>contract for service</strong> is a business relationship whereby one party agrees to perform certain
specific work stipulated in the contract for another party. It usually calls for the
accomplishment of a clearly defined task but does not normally require that the contracting
party do anything him/herself. A person who carries out a contract for service may be
considered a contract worker, a self-employed person or an independent contractor.</p>
<p>A business relationship is a verbal or written agreement in which a self-employed individual
agrees to perform specific work for a payer in return for payment. There is no employer or
employee. The self-employed individual generally does not have to carry out all or even part
of the work himself. In this type of business relationship, a contract for services exists.</p>
<p>The self-employed individual is required to produce a given result within a period of time in
the manner he deems most appropriate. While performing the work, he is not under the
orders or control of the person for whom he is doing the work and he can use his own
initiative in matters that are not specified or determined at the outset. The payer is not
normally involved in the performance of the work and, therefore, has no control over it.</p>
<p>Under a contract for service, a self-employed individual assumes the chance of profit and risk
of loss. By agreeing, before he is engaged, to establish the overall cost of the work to be
done, owning his tools and instruments and being solely responsible for the manner in which
the work is done, the self-employed individual assumes all risk of loss resulting from events
that occur during the course of the work which were not, or could not, be foreseen when the
contract was negotiated. If, on the other hand, the work is completed sooner or more easily
than expected, the contractor’s profit will be greater.</p>
<p>A contract for service is often used when an organization wishes to have work done which
does not fall within its usual scope of operations. The relationship between a payer and a
self-employed individual and that between an employer and their employees are sometimes
quite similar. The main difference between the two relationships is that, in a contract for
service, the party paying for the service is entitled to dictate what is to be done or what result
is to be achieved; whereas, in a contract of service, the employer is also entitled to stipulate
the manner in which the work is to be done.</p>
<p>Under a contract for service, the person for whom the work is being done exercises general
supervision. He can and should see that the work is completed in accordance with the
agreement, but it is not up to him to give orders to the self-employed individual regarding the
manner in which the work is to be done. The mere fact that a self-employed individual
receives general instructions from the project manager concerning the work to be done does
not mean that he can be considered an employee.</p>
<p>An employee-employer relationship is deemed to exist where the organization exercises, or
has the right to exercise, direct control over the individual. If the organization is unsure as to
whether or not a relationship exists, the Canada Revenue Agency (CRA) form Request for a
CPP/EI Ruling - Employee or Self-Employed? - CPT1 should be submitted to the CRA. A
sample of the CPT1 form is provided at the end of this section.</p>
<p>Independent contractors or self-employed individuals are not considered employees of the
organization provided no employee-employer relationship exists. Persons who are truly selfemployed individuals will submit invoices and be paid through accounts payable. However,
the submission of an invoice to accounts payable is not sufficient to determine if the
individual is self-employed.</p>
</section>
<section id="factors-determining-the-type-of-contract">
<h3><span class="section-number">4.6.3. </span>Factors Determining the Type of Contract<a class="headerlink" href="#factors-determining-the-type-of-contract" title="Link to this heading"></a></h3>
<p>The CRA uses a two-step approach to examine the relationship between the worker and the
payer for relationships outside the province of Québec. The approach used for relationships
in the province of Québec will be discussed in a later chapter.</p>
<p><strong>Step 1:</strong>
The first step is to establish what the intent was when the worker and the payer entered into
the working arrangement. Did they intend to enter into an employee-employer relationship
(contract of service) or did they intend to enter into a business relationship (contract for
service). The CRA must determine not only how the working relationship has been defined
but why it was defined that way.</p>
<p><strong>Step 2:</strong>
The CRA then considers certain factors when determining if a contract of service or a
contract for service exists. In order to understand the working relationship and verify that the
intent of the worker and the payer is reflected in the facts, they will ask a series of questions
that relate to the following factors:</p>
<blockquote>
<div><ul class="simple">
<li><p>the level of control the payer has over the worker</p></li>
<li><p>whether or not the worker provides the tools and equipment</p></li>
<li><p>whether the worker can subcontract the work or hire assistants</p></li>
<li><p>the degree of financial risk taken by the worker</p></li>
<li><p>the degree of responsibility for investment and management held by the worker</p></li>
<li><p>the worker’s opportunity for profit</p></li>
<li><p>any other relevant factors, such as written contracts</p></li>
</ul>
</div></blockquote>
<p>The CRA will look at the answers independently and then together and consider whether or
not they reflect the intent that was originally stated. Considered individually, the response to
each of these questions is not conclusive; however, when weighed together, certain
conclusions may be drawn. When there is no common intent, the CRA will decide if the
answers are more consistent with a contract of service or a contract for service.
Each of these factors will be discussed in the material and indicators showing whether the
worker is an employee or self-employed will be provided.</p>
</section>
<section id="control">
<h3><span class="section-number">4.6.4. </span>Control<a class="headerlink" href="#control" title="Link to this heading"></a></h3>
<p>The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer’s control over the worker’s daily activities and the payer’s
influence over the worker will be examined. The relevant factor is the payer’s right to
exercise control. Whether the payer actually exercises this right is irrelevant.</p>
<p>Worker is an <em>Employee</em> when:</p>
<blockquote>
<div><ul class="simple">
<li><p>The relationship is one of subordination.</p></li>
<li><p>The payer will often direct, scrutinize, and effectively control many elements of how the work is performed.</p></li>
<li><p>The payer controls both the results of the work and the method used to do the work.</p></li>
<li><p>The payer determines what jobs the worker will do.</p></li>
<li><p>The worker receives training or direction from the payer on how to do the work.</p></li>
</ul>
</div></blockquote>
<p>Worker is a <em>Self-Employed</em> when:</p>
<blockquote>
<div><ul class="simple">
<li><p>Individual usually works independently, does not have anyone overseeing them.</p></li>
<li><p>The worker is usually free to work when and for whom they choose and may provide their services to different payers at the same time.</p></li>
<li><p>The worker can accept or refuse work from the payer.</p></li>
<li><p>The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration.</p></li>
</ul>
</div></blockquote>
</section>
<section id="tools-and-equipment">
<h3><span class="section-number">4.6.5. </span>Tools and Equipment<a class="headerlink" href="#tools-and-equipment" title="Link to this heading"></a></h3>
<p>Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.</p>
<p>In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).</p>
<p>In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.</p>
<p>In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.</p>
<p>The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.</p>
</section>
</section>
<section id="review-summary">
<h2><span class="section-number">4.7. </span>Review Summary<a class="headerlink" href="#review-summary" title="Link to this heading"></a></h2>
@@ -394,6 +555,11 @@ jurisdiction falls within provincial or territorial control.</p>
<p>Employers are required to adhere to the employment and labour standards legislated by the jurisdiction in which their
employees work, unless they are governed by federal labour standards. Where legislation mandates employer compliance,
financial penalties or legal action may be imposed to enforce adherence and promote accountability.</p>
<p>A contract of service is an arrangement in which an individual, referred to as the employee, agrees to work either full-time or part-time for an employer over a specified or indeterminate period. This type of contract establishes an employer-employee relationship, where the employer typically has control over the work performed and the conditions under which it is carried out.</p>
<p>In contrast, a contract for service defines a business relationship where one party agrees to perform specific tasks or services outlined in the contract for another party. This arrangement is more independent in nature and does not constitute an employer-employee relationship. Instead, it reflects a client-contractor dynamic.</p>
<p>To determine the nature of the relationship between a worker and a payer—particularly outside the province of Québec—the Canada Revenue Agency (CRA) applies a two-step approach. One of the key factors considered is the payer’s right to exercise control over the worker, including how the work is done and what tasks are performed. The degree of independence the worker holds is also evaluated, but the central issue is whether the payer has the authority to direct the work.</p>
<p>Another factor the CRA examines is the ownership of tools and equipment. The significance lies in the size of the investment made by the worker, as well as the costs associated with repair, replacement, and insurance. The CRA also considers whether the worker incurs fixed ongoing costs or unreimbursed expenses, which may indicate a greater level of independence.</p>
<p>Finally, the CRA assesses the extent to which the worker can control their revenue and expenses. A higher degree of financial control typically suggests a contract for service, while limited control may point to a contract of service. These factors collectively help determine the correct classification of the working relationship for tax and legal purposes.</p>
</section>
<section id="review-questions">
<h2><span class="section-number">4.8. </span>Review Questions<a class="headerlink" href="#review-questions" title="Link to this heading"></a></h2>
@@ -440,7 +606,14 @@ financial penalties or legal action may be imposed to enforce adherence and prom
</ul>
</li>
<li><a class="reference internal" href="#legislation">4.5. Legislation</a></li>
<li><a class="reference internal" href="#the-employee-employer-relationship">4.6. The Employee-Employer Relationship</a></li>
<li><a class="reference internal" href="#the-employee-employer-relationship">4.6. The Employee-Employer Relationship</a><ul>
<li><a class="reference internal" href="#contract-of-service-employment">4.6.1. Contract of Service (Employment)</a></li>
<li><a class="reference internal" href="#contract-for-service-subcontracting">4.6.2. Contract for Service (Subcontracting)</a></li>
<li><a class="reference internal" href="#factors-determining-the-type-of-contract">4.6.3. Factors Determining the Type of Contract</a></li>
<li><a class="reference internal" href="#control">4.6.4. Control</a></li>
<li><a class="reference internal" href="#tools-and-equipment">4.6.5. Tools and Equipment</a></li>
</ul>
</li>
<li><a class="reference internal" href="#review-summary">4.7. Review Summary</a></li>
<li><a class="reference internal" href="#review-questions">4.8. Review Questions</a></li>
</ul>

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# Sphinx build info version 1
# This file records the configuration used when building these files. When it is not found, a full rebuild will be done.
config: e71a59c32b96a99736c5e694850e3da0
config: 69fe7cfdaa7660eed6e314a588b65406
tags: 62a1e7829a13fc7881b6498c52484ec0

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@@ -1309,6 +1309,359 @@ efficiently.
&para;
</a>
</h3>
<p>
In all situations, it is necessary to establish whether the relationship between the worker and
the organization is one of an employee and an employer or if the worker is self-employed.
This relationship determines the requirement for statutory withholdings and the requirement
for compliance with related legislation. The Canada Revenue Agency (CRA) has established
factors to assist in determining whether or not this relationship exists. It is not up to the
worker to decide whether or not they are an employee, subject to statutory withholdings.
</p>
<p>
Payroll can take a proactive role in communicating the importance of determining the
existence of the employee-employer relationship to all areas of the organization.
When an employee-employer relationship exists, payroll has a compliance responsibility
related to statutory withholdings, which requires that all employees have the appropriate
statutory deductions withheld from their pay and remitted to the government.
</p>
<p>
Where an employee-employer relationship exists, the CRA requires the employer to:
</p>
<blockquote>
<div>
<ul class="simple">
<li>
<p>
register with the Canada Revenue Agency for a Business Number (BN)
</p>
</li>
<li>
<p>
withhold the statutory deductions of income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums on amounts paid to employees
</p>
</li>
<li>
<p>
remit the amounts withheld as well as the required employer&rsquo;s share of CPP contributions and EI premiums to the Canada Revenue Agency
</p>
</li>
<li>
<p>
report the employees&rsquo; income and deductions on the appropriate information return
</p>
</li>
<li>
<p>
give the employees copies of their T4 slips by the end of February of the following calendar year
</p>
</li>
</ul>
</div>
</blockquote>
<p>
Information on the factors to consider when determining whether an employee-employer relationship exists can be found in the
Canada Revenue Agency guide, Employee or Self-Employed? - RC4110. The guide is available on the CRA&rsquo;s website,
<a class="reference external" href="https://www.canada.ca/en/revenue-agency.html">
https://www.canada.ca/en/revenue-agency.html
</a>
.
</p>
<section id="contract-of-service-employment">
<h4>
Contract of Service (Employment)
<a class="headerlink" href="#contract-of-service-employment" title="Link to this heading">
&para;
</a>
</h4>
<p>
A
<strong>
contract of service
</strong>
is an arrangement whereby an individual (the employee) agrees to
work on a full-time or part-time basis for an employer for a specified or indeterminate period
of time.
</p>
<p>
Under a contract of service, one party serves another in return for a salary or some other form
of remuneration.
</p>
</section>
<section id="contract-for-service-subcontracting">
<h4>
Contract for Service (Subcontracting)
<a class="headerlink" href="#contract-for-service-subcontracting" title="Link to this heading">
&para;
</a>
</h4>
<p>
A
<strong>
contract for service
</strong>
is a business relationship whereby one party agrees to perform certain
specific work stipulated in the contract for another party. It usually calls for the
accomplishment of a clearly defined task but does not normally require that the contracting
party do anything him/herself. A person who carries out a contract for service may be
considered a contract worker, a self-employed person or an independent contractor.
</p>
<p>
A business relationship is a verbal or written agreement in which a self-employed individual
agrees to perform specific work for a payer in return for payment. There is no employer or
employee. The self-employed individual generally does not have to carry out all or even part
of the work himself. In this type of business relationship, a contract for services exists.
</p>
<p>
The self-employed individual is required to produce a given result within a period of time in
the manner he deems most appropriate. While performing the work, he is not under the
orders or control of the person for whom he is doing the work and he can use his own
initiative in matters that are not specified or determined at the outset. The payer is not
normally involved in the performance of the work and, therefore, has no control over it.
</p>
<p>
Under a contract for service, a self-employed individual assumes the chance of profit and risk
of loss. By agreeing, before he is engaged, to establish the overall cost of the work to be
done, owning his tools and instruments and being solely responsible for the manner in which
the work is done, the self-employed individual assumes all risk of loss resulting from events
that occur during the course of the work which were not, or could not, be foreseen when the
contract was negotiated. If, on the other hand, the work is completed sooner or more easily
than expected, the contractor&rsquo;s profit will be greater.
</p>
<p>
A contract for service is often used when an organization wishes to have work done which
does not fall within its usual scope of operations. The relationship between a payer and a
self-employed individual and that between an employer and their employees are sometimes
quite similar. The main difference between the two relationships is that, in a contract for
service, the party paying for the service is entitled to dictate what is to be done or what result
is to be achieved; whereas, in a contract of service, the employer is also entitled to stipulate
the manner in which the work is to be done.
</p>
<p>
Under a contract for service, the person for whom the work is being done exercises general
supervision. He can and should see that the work is completed in accordance with the
agreement, but it is not up to him to give orders to the self-employed individual regarding the
manner in which the work is to be done. The mere fact that a self-employed individual
receives general instructions from the project manager concerning the work to be done does
not mean that he can be considered an employee.
</p>
<p>
An employee-employer relationship is deemed to exist where the organization exercises, or
has the right to exercise, direct control over the individual. If the organization is unsure as to
whether or not a relationship exists, the Canada Revenue Agency (CRA) form Request for a
CPP/EI Ruling - Employee or Self-Employed? - CPT1 should be submitted to the CRA. A
sample of the CPT1 form is provided at the end of this section.
</p>
<p>
Independent contractors or self-employed individuals are not considered employees of the
organization provided no employee-employer relationship exists. Persons who are truly selfemployed individuals will submit invoices and be paid through accounts payable. However,
the submission of an invoice to accounts payable is not sufficient to determine if the
individual is self-employed.
</p>
</section>
<section id="factors-determining-the-type-of-contract">
<h4>
Factors Determining the Type of Contract
<a class="headerlink" href="#factors-determining-the-type-of-contract" title="Link to this heading">
&para;
</a>
</h4>
<p>
The CRA uses a two-step approach to examine the relationship between the worker and the
payer for relationships outside the province of Qu&eacute;bec. The approach used for relationships
in the province of Qu&eacute;bec will be discussed in a later chapter.
</p>
<p>
<strong>
Step 1:
</strong>
The first step is to establish what the intent was when the worker and the payer entered into
the working arrangement. Did they intend to enter into an employee-employer relationship
(contract of service) or did they intend to enter into a business relationship (contract for
service). The CRA must determine not only how the working relationship has been defined
but why it was defined that way.
</p>
<p>
<strong>
Step 2:
</strong>
The CRA then considers certain factors when determining if a contract of service or a
contract for service exists. In order to understand the working relationship and verify that the
intent of the worker and the payer is reflected in the facts, they will ask a series of questions
that relate to the following factors:
</p>
<blockquote>
<div>
<ul class="simple">
<li>
<p>
the level of control the payer has over the worker
</p>
</li>
<li>
<p>
whether or not the worker provides the tools and equipment
</p>
</li>
<li>
<p>
whether the worker can subcontract the work or hire assistants
</p>
</li>
<li>
<p>
the degree of financial risk taken by the worker
</p>
</li>
<li>
<p>
the degree of responsibility for investment and management held by the worker
</p>
</li>
<li>
<p>
the worker&rsquo;s opportunity for profit
</p>
</li>
<li>
<p>
any other relevant factors, such as written contracts
</p>
</li>
</ul>
</div>
</blockquote>
<p>
The CRA will look at the answers independently and then together and consider whether or
not they reflect the intent that was originally stated. Considered individually, the response to
each of these questions is not conclusive; however, when weighed together, certain
conclusions may be drawn. When there is no common intent, the CRA will decide if the
answers are more consistent with a contract of service or a contract for service.
Each of these factors will be discussed in the material and indicators showing whether the
worker is an employee or self-employed will be provided.
</p>
</section>
<section id="control">
<h4>
Control
<a class="headerlink" href="#control" title="Link to this heading">
&para;
</a>
</h4>
<p>
The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer&rsquo;s control over the worker&rsquo;s daily activities and the payer&rsquo;s
influence over the worker will be examined. The relevant factor is the payer&rsquo;s right to
exercise control. Whether the payer actually exercises this right is irrelevant.
</p>
<p>
Worker is an
<em>
Employee
</em>
when:
</p>
<blockquote>
<div>
<ul class="simple">
<li>
<p>
The relationship is one of subordination.
</p>
</li>
<li>
<p>
The payer will often direct, scrutinize, and effectively control many elements of how the work is performed.
</p>
</li>
<li>
<p>
The payer controls both the results of the work and the method used to do the work.
</p>
</li>
<li>
<p>
The payer determines what jobs the worker will do.
</p>
</li>
<li>
<p>
The worker receives training or direction from the payer on how to do the work.
</p>
</li>
</ul>
</div>
</blockquote>
<p>
Worker is a
<em>
Self-Employed
</em>
when:
</p>
<blockquote>
<div>
<ul class="simple">
<li>
<p>
Individual usually works independently, does not have anyone overseeing them.
</p>
</li>
<li>
<p>
The worker is usually free to work when and for whom they choose and may provide their services to different payers at the same time.
</p>
</li>
<li>
<p>
The worker can accept or refuse work from the payer.
</p>
</li>
<li>
<p>
The working relationship between the payer and the worker does not present a degree of continuity, loyalty, security, subordination, or integration.
</p>
</li>
</ul>
</div>
</blockquote>
</section>
<section id="tools-and-equipment">
<h4>
Tools and Equipment
<a class="headerlink" href="#tools-and-equipment" title="Link to this heading">
&para;
</a>
</h4>
<p>
Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.
</p>
<p>
In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).
</p>
<p>
In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.
</p>
<p>
In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.
</p>
<p>
The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.
</p>
</section>
</section>
<section id="review-summary">
<h3>
@@ -1364,6 +1717,21 @@ jurisdiction falls within provincial or territorial control.
employees work, unless they are governed by federal labour standards. Where legislation mandates employer compliance,
financial penalties or legal action may be imposed to enforce adherence and promote accountability.
</p>
<p>
A contract of service is an arrangement in which an individual, referred to as the employee, agrees to work either full-time or part-time for an employer over a specified or indeterminate period. This type of contract establishes an employer-employee relationship, where the employer typically has control over the work performed and the conditions under which it is carried out.
</p>
<p>
In contrast, a contract for service defines a business relationship where one party agrees to perform specific tasks or services outlined in the contract for another party. This arrangement is more independent in nature and does not constitute an employer-employee relationship. Instead, it reflects a client-contractor dynamic.
</p>
<p>
To determine the nature of the relationship between a worker and a payer&mdash;particularly outside the province of Qu&eacute;bec&mdash;the Canada Revenue Agency (CRA) applies a two-step approach. One of the key factors considered is the payer&rsquo;s right to exercise control over the worker, including how the work is done and what tasks are performed. The degree of independence the worker holds is also evaluated, but the central issue is whether the payer has the authority to direct the work.
</p>
<p>
Another factor the CRA examines is the ownership of tools and equipment. The significance lies in the size of the investment made by the worker, as well as the costs associated with repair, replacement, and insurance. The CRA also considers whether the worker incurs fixed ongoing costs or unreimbursed expenses, which may indicate a greater level of independence.
</p>
<p>
Finally, the CRA assesses the extent to which the worker can control their revenue and expenses. A higher degree of financial control typically suggests a contract for service, while limited control may point to a contract of service. These factors collectively help determine the correct classification of the working relationship for tax and legal purposes.
</p>
</section>
<section id="review-questions">
<h3>