![]() |
||||||||||||||||||
![]() |
|
|||||||||||||||||
Employee or Self Employed?RC4110(E) Rev. 06 If you have a visual impairment, you can get our publications in Braille, large print, or etext (CD or diskette), or on audio cassette or MP3. For details, visit our About multiple formats page or call 1-800-959-2221. Table of contents
Do you need more information?If you need more help after you read this guide call 1-800-959-5525. You can get forms and publications from our Forms and publications page or by calling 1-800-959-2221. Teletypewriter usersIf you use a teletypewriter (TTY), you can call our bilingual enquiry service at 1-800-665-0354. Interpretive articlesTo view articles that will help you understand the requirements of the Canada Pension Plan and the Employment Insurance Act, visit our CPP/EI Explained page. Court decisions
Legislative references
Legal materialARCHAMBAULT, Pierre. “Contract of Employment: Why Wiebe Door Services Ltd. Does Not Apply in Quebec and What Should Replace It.” The Harmonisation of Federal Legislation with Quebec Civil Law and Canadian Bijuralism: Second Collection of Studies in Tax Law. Montreal. APFF. 2005. What’s newThis publication has been updated to include the process to use when determining a worker’s employment status in the province of Quebec. Before you startWho should use this guide?Use this guide if you are a payer or a worker. It will help you understand how to determine a worker’s employment status. It is important to determine whether a worker is an employee or a self-employed individual. Employment status directly affects a person’s entitlement to Employment Insurance (EI) benefits. It can also have an impact on how a worker is treated under other legislations such as the Canada Pension Plan, the Employment Insurance Act, and the Income Tax Act. The facts of the relationship as a whole will determine employment status. If the worker is an employee, (employer-employee relationship) the payer is considered an employer. Employers are responsible for deducting Canada Pension Plan (CPP) contributions, Employment Insurance premiums, and income tax from remuneration or other amounts they pay to their employees. They must remit these deductions along with their share of CPP contributions and EI premiums. An employer who fails to deduct the required CPP contributions and EI premiums must pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus penalties and interest. For more information, see our Payroll page. Note If the worker is a self-employed individual (business relationship), he or she is considered to have a business. For more information, see our Business page. Requesting a rulingIf a worker or payer is not sure of the worker’s employment status, either party can request a ruling to have the status determined. Use Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act. You can download and print this form by selecting its link above, or you can get a printed copy by calling 1-800-959-2221. For information about rulings, see our “How CPP/EI Rulings work” page. Note Determining a worker’s employment statusCertain factors must be considered when determining if a worker is an employee or a self-employed individual. These factors differ if the contract is formed in the province of Quebec or in another province or territory. Usually, the province or territory where the contract was formed will determine which set of factors to use. Note Determine a worker’s employment status in a province or territory (other than Quebec)When we examine whether or not a person is an employee or self-employed individual, the key question we ask is whether or not the person is engaged to perform services as a person in business on his or her own account, or as an employee. To do this, we examine the total relationship between the worker and the payer, using a two-step approach. Step 1We ask the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)? We need to know how they defined their working relationship and why they defined it as such. Sometimes the intention is clear, and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding as to the status of their working relationship, in which case there is no common intent. Workers and payers can set up their affairs as they see fit; however, they must ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. Step 2We ask the worker and the payer questions that will help us understand the working relationship and allow us to verify whether the intent of the parties is reflected in the facts. These questions relate to:
We look at the answers separately and then together. We consider whether or not they reflect the stated intention. When there is no common intent, we decide if the answers are more consistent with a contract of service or with a contract for services. Factors you should considerTo help you understand the process, we explain each factor and show some indicators that the worker may be an employee or a self-employed individual. ControlControl is the ability, authority, or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done. Degree of control or autonomyConsider the degree of control held by the payer or the degree of autonomy held by the worker. The actual degree of control will vary with the type of work and the skills of the worker. The determination of the degree of control can be difficult when examining the employment of professionals such as engineers, doctors, and IT consultants-because of their expertise and specialized training, they may require little or no specific direction in their daily activities. When examining the factor of control, it is necessary to focus on both the payer's control over the worker's daily activities, and the payer's influence over the worker. Payer's right to exercise controlIt is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right. It is the control of a payer over a worker that is relevant, and not the control of a payer over the end result of a product or service that he or she has purchased. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Tools and equipmentConsider if the worker owns and provides tools and equipment to accomplish the work. Contractual control of, and responsibility for, an asset in a rental or lease situation is also considered under this factor. What is relevant is the significance of the investment in the tools and equipment along with the cost of replacement, repair, and insurance. A worker who has made a significant investment is likely to retain a right over the use of these assets, diminishing the payer's control over how the work is performed. In addition, a significant investment in tools and equipment and the maintenance and replacement costs associated with these assets may place the worker at the risk of a loss. Note Self-employed individuals often supply the tools and equipment required to complete a contract. As a result, the ownership of tools and equipment by a worker is more commonly associated with a business relationship. However, employees can also be required to provide their own tools. The courts have acknowledged that a worker being required to provide his or her tools of the trade does not, by itself, place that worker in the status of a self-employed individual. For example, many skilled trades people such as auto mechanics are required to supply their own tools, even if they are full-time employees. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Subcontracting work or hiring assistantsConsider if the worker can subcontract work or hire assistants. This factor can help determine a worker's business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Financial riskConsider the degree of financial risk taken by the worker. Determine if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed. Usually, employees will not have any financial risk as their expenses will be reimbursed, and they will not have fixed ongoing costs. However, self-employed individuals can have financial risk and incur losses because they usually pay fixed monthly costs whether or not work is currently being performed. Employees and self-employed individuals may be reimbursed for business or travel expenses. Consider only the expenses that are not reimbursed by the payer. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Responsibility for investment and managementConsider the degree of responsibility for investment and management held by the worker. Is the worker required to make any investment in order to provide the services? A significant investment is evidence that a business relationship may exist. You should also consider if the worker is free to make business decisions that affect his or her profit or loss. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Opportunity for profitConsider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. To have a chance of a profit and a risk of a loss, a worker must have potential proceeds and expenses, and one could exceed the other. Employees normally do not have the chance of a profit and risk of a loss even though their remuneration can vary depending on the terms of their employment contracts. For example, employees working on a commission or piece-rate basis, or employees with a productivity bonus clause in their contract can increase their earnings based on their productivity. This increase in income is not normally viewed as a profit, as it is not the excess of proceeds over expenses. Employees may have expenses directly related to their employment, such as automobile expenses, board and lodging costs. Normally, expenses would not place employees at risk of incurring a loss because it is unlikely that the expenses would be in excess of their remuneration. Self-employed individuals normally have the chance of profit or risk of loss, because they have the ability to pursue and accept contracts as they see fit. They can negotiate the price (or unilaterally set their prices) for their services and have the right to offer those services to more than one payer. Self-employed individuals will normally incur expenses to carry out the terms and conditions of their contracts, and to manage those expenses to maximize net earnings. Self-employed individuals can increase their proceeds and/or decrease their expenses in an effort to increase profit. This factor must be considered from the worker's perspective, not the payer's. It is for the most part an assessment of the degree to which the worker can control his or her proceeds and expenses. Employees generally do not share in profits or suffer losses incurred by the business. The method of payment may help to determine if the worker has the opportunity to make a profit or incur a loss. In an employer-employee relationship, the worker is normally guaranteed a return for the work done and is usually paid on an hourly, daily, weekly, or similar basis. However, some self-employed individuals may be paid on an hourly basis. When a worker is paid a flat rate for the work performed, it generally indicates a business relationship, especially if the worker incurs expenses in performing the services. Indicators that the worker is an employee
Indicators that the worker is a self-employed individual
Determining a worker’s employment status in the province of QuebecWhen we examine whether or not a person is an employee or self-employed individual, we examine the relationship between the worker and the payer, using a three-step approach. Step 1We ask the worker and the payer what their intent was when they entered into the working arrangement. We need to know how they defined their working relationship and why they defined it as such. Sometimes the intention is clear, and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding as to the status of their employment relationship, in which case there is no common intent. Workers and payers can set up their affairs as they see fit; however, they must ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. To determine the parties’ intentions, we obtain a copy of the contract, or a testimony by the parties and examine the parties’ actions. Both parties’ intentions form part of the context that we analyse. Step 2We look to see if the employment meets the definition in the Civil Code of Québec of a contract of employment, or of a business contract (contract for services) by considering the following factors:
It is important to gather the facts and analyse each of them in light of the specific context of the employment and the intent of the parties. Step 3We compare each parties’ intentions with their actual working relationship. We confirm that the conditions of the working relationship meet the status that the parties have chosen and that they are consistent with the definitions of the Civil Code of Québec. Factors you should considerExamine the relationship between the worker and the payer by considering the factors outlined in Step 2. To help you understand the process, we explain each factor and show some indicators to display whether or not a relationship of subordination exists. Performance of workWhether or not there is an employer employee relationship or a business relationship, the worker must perform the work. It can be part-time or full-time for a specified or indeterminate period. RemunerationRemuneration means all considerations and benefits having a monetary value. Whether or not there is an employer employee relationship or a business relationship, the worker will receive remuneration in exchange for work. The remuneration can be calculated by time, by the piece or another manner. Relationship of subordinationThis factor helps distinguish the employer-employee relationship from a business relationship. The relationship of subordination is the capacity, the authority or the right of a payer to exercise a control over the worker’s activities and the manner in which the work is done. Degree of control or autonomyConsider the degree of control held by the payer or the degree of autonomy held by the worker. The actual degree of control will vary with the type of work and the skills of the worker. The determination of the degree of control can be difficult when examining the employment of professionals such as engineers, doctors, and IT consultants-because of their expertise and specialized training, they may require little or no specific direction in their daily activities. When examining the factor of control, it is necessary to focus on both the payer’s control over the worker’s daily activities, and the payer’s influence over the worker. Payer’s right to exercise controlIt is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right. It is the control of a payer over a worker that is relevant, and not the control of a payer over the end result of a product or service that he or she has purchased. Indicators that the worker is an employee
Indicators that the worker is a self employed individual
Special situationsSpecial rules concerning CPP, EI and income tax for workers engaged in certain occupations apply. Here are a few examples:
For information on these workers and the special rules that apply, visit our Payroll page.
|
||||||||||||||||||
|