Independent contractor (contractor vs employee)

An independent contractor runs their own business and is not your employee. The CRA looks at the whole relationship, not the label you use.

Also called: self-employed worker, contractor vs employee, freelancer, employee or self-employed

What independent contractor means

An independent contractor is a self-employed person who provides services to your business under a contract for services. They run their own business: they decide how to do the work, may work for other clients, use their own tools, and carry the chance of profit and the risk of loss.

An employee works under a contract of service. You direct the work, they are part of your business, and you must deduct and remit income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums from their pay. Employees are also covered by employment standards.

Calling someone a contractor does not make them one. The Canada Revenue Agency (CRA), employment standards officers and courts all look at how the relationship works in practice. If you get it wrong, you may owe unpaid deductions and other amounts later.

How it works

The CRA's guide, Employee or Self-employed? (RC4110), first asks what the parties intended, then tests that against the facts. The main factors are: the degree of control the payer has over the work (it is the right to control that matters, not whether you use it); who provides the tools and equipment, and who pays to repair and insure them; whether the worker can hire helpers or subcontract the work; the degree of financial risk the worker takes on; the worker's investment and management responsibility; and the worker's opportunity for profit.

No single factor decides it. The CRA weighs the facts together in the context of the whole relationship. A highly skilled worker may need little direction and still be an employee. Being required to bring their own tools does not by itself make someone self-employed.

Signs that point to employment: you set the hours, you train the person, they work only for you, you supply what they need, they are paid by the hour with no way to make or lose money on the job, and they do work that is a core, ongoing part of your business. Signs that point to self-employment: they quote a price, set their own methods, have other clients, invoice you, and would bear the cost of fixing their own mistakes.

If you are unsure, the CRA can give a ruling on a worker's status for CPP and EI purposes. Put a written agreement in place that matches how you will actually work together, and review it if the relationship changes.

Is it the same in every province?

The CRA test for tax, CPP and EI purposes applies across Canada, with a separate approach for contracts formed in Quebec. Employment standards are provincial, so also check how your province's employment standards office would see the worker.

Example: Two workers at a renovation company

Jasmine runs an 8-person renovation company in Fredericton. She hires Sam, an electrician with his own company, van, tools, insurance and several other clients. He quotes a fixed price for each job and fixes his own errors at his own cost. He looks like an independent contractor.

She also has Leo, who has worked for her full time for two years. She sets his hours, provides his tools, assigns his jobs and pays him hourly on invoice. Using the RC4110 factors, Jasmine sees that Leo looks like an employee, moves him onto payroll and starts deducting CPP, EI and income tax.

Payroll in the Staffkin HR Suite

If you move a worker from invoices onto payroll, the Staffkin HR Suite payroll module can handle their deductions. Book a demo to see it.

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Free tools and guides for this

Questions about independent contractor

How does the CRA decide if a worker is an employee or self-employed?

It looks at the parties' intent and then at the facts: control, tools and equipment, ability to subcontract or hire helpers, financial risk, investment and management, and opportunity for profit. The factors are weighed together.

Can I make someone a contractor by having them sign a contract?

No. A written contract shows intent, but the CRA and other bodies look at how the relationship actually works.

What happens if I treat an employee as a contractor?

You may be assessed for the CPP contributions, EI premiums and income tax you should have deducted. Employment standards may also apply to the worker, so check with your province.

Can I ask the CRA to decide?

Yes. The CRA can give a ruling on whether a worker is an employee for CPP and EI purposes.

Official sources

General information for Canadian employers, not legal advice. Rules differ by province and territory and change over time, so check with your provincial employment standards office (or the federal Labour Program if you are federally regulated) before you rely on it. See employment standards by province.

Checked against official sources on 4 November 2026.