Contractor or employee — and why the label is not yours to choose
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The CRA looks at how the work actually happens, not at what the agreement calls it. If the relationship is employment, payroll obligations applied from the first payment.
The agreement does not settle it
A written contract calling someone an independent contractor is evidence of what both parties intended, and intent does carry weight. It is not the answer. The CRA examines the actual working relationship, and where the facts and the label disagree, the facts win.
This matters because the consequences are not symmetrical. Treating an employee as a contractor means CPP and EI were never withheld or matched, and the CRA can assess both portions against the payer, with interest and penalties, going back over the periods concerned. Treating a contractor as an employee costs you deductions you did not need to make. One error is far more expensive than the other.
What the CRA actually weighs
No single factor decides it, and there is no threshold or checklist score. The agency considers the relationship as a whole, along these lines:
| Factor | Points toward employee | Points toward contractor |
|---|---|---|
| Control | You direct what is done, when and how | They decide method and schedule |
| Tools and equipment | You supply them | They supply their own and bear the cost |
| Subcontracting | The person must do the work themselves | They may hire or send someone else |
| Financial risk | Paid regardless of outcome, expenses covered | Can lose money on a job; carries fixed costs |
| Opportunity for profit | A wage or salary | Can increase profit by working more efficiently |
| Integration | The work is part of your business | They run a business of their own with other clients |
Invoicing you, having a business number, or being registered for GST does not make someone a contractor. Nor does working part-time, working remotely, or being paid a flat monthly amount. Those are administrative facts about how money moves, and the CRA looks past them.
A fictional example
A shop pays a bookkeeper a fixed amount each month against an invoice. The bookkeeper works from their own office, on their own hours, using their own software subscription, and has eleven other clients. That points to a contractor throughout. Change one thing — the shop requires them on site nine to five, supplies the computer and the software, and they have no other clients — and most of the factors have flipped, while the invoice has not changed at all.
When it is genuinely unclear, ask
Either the worker or the payer can request a CPP/EI ruling from the CRA, which decides the status for the period in question. It is free, and it is the only way to get an answer that binds the agency rather than an opinion. If the arrangement is borderline and ongoing, a ruling is cheaper than an assessment later.
What this changes in your books
A contractor is a supplier: their invoice is an expense, GST is claimed as an input tax credit if they charge it, and nothing is withheld. An employee is payroll: gross wages, employer CPP and EI, source deductions held and remitted, and a T4 at year end. Getting the classification right after the fact means restating months of records, not editing a category.
If you are unsure about someone you are already paying, tell us before we categorize a year of invoices. We flag the ones that look like employment rather than deciding it quietly.
If someone invoices me and charges GST, are they a contractor?
Not necessarily. GST registration and invoicing are administrative facts and the CRA looks past them to the working relationship — control, tools, financial risk, whether the person runs a business of their own. Someone can invoice you with GST and still be an employee in substance.
What is the difference between an employee and an independent contractor for the CRA?
The CRA looks at the working relationship: who controls how and when the work is done, whose tools are used, who carries the financial risk, and whether the person runs a business of their own, among other factors. A title, a GST number or an invoice does not decide it.
Can a part-time worker be an independent contractor?
Hours do not decide it. The same factors apply whether someone works five hours a week or forty, including control, tools, financial risk and whether they run a business of their own.
Can I just have them sign a contractor agreement?
A written agreement records what both parties intended, which the CRA does consider, but it does not override how the work is actually carried out. If the day-to-day relationship looks like employment, the agreement will not change the assessment.
What does it cost if I get it wrong?
If a contractor is reassessed as an employee, the CRA can assess the payer for the CPP contributions and EI premiums that should have been withheld and matched, plus interest and penalties, for the periods concerned. The payer carries this, not the worker.
Who can request a CPP/EI ruling?
Either the worker or the payer can request one from the CRA, and there is no fee. The ruling decides the status for the period in question and binds the CRA, which an accountant’s or lawyer’s opinion does not.
Does the answer change for WorkSafeBC or employment standards?
It can. A CRA ruling settles the CPP and EI question. WorkSafeBC coverage and BC employment standards entitlements are determined under their own rules, so a person can be treated differently under each. Check them separately rather than assuming one answer carries across.
If they are an employee: what payroll involves
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