Employment vs Self-Employed

    A question often asked is "am I an employee or self-employed (an independant contractor)?  The Revenue Canada pamphlet RC 4110 includes checklists for determining this.  This is important because of the significant trend for employers to engage independent contractors, as opposed to employees, to save on payroll costs such as employment insurance, Canada Pension Plan and vacation pay.

       The following checklist may be used as a guideline to determine employment status:

RC 4110

Analysis of facts related to control	Payer	Worker	N/A
Who is responsible for planning the work to be done?
Who decides how and how much the worker is to be paid?
Who decides on the time frames?
Who decides on the hours of work?
Who decides on the work location?
Who assigns the individual task?
Who sets the standards to be met?
-Quality?
-Volume?
-Time frame?
Who decides whether work must be redone?
-Who covers the related costs?
Who is responsible for training?
-Who covers the related costs?
Who decides on territory to be covered?
Who decides on periodic activity reporting?
Who decides if the work is to be done by the worker himself?
Who hires helpers?

If you answer "Payer" to most of these questions, it means that the payer exercises control over the worker. An employer-employee relationship probably exists.   Otherwise, it indicates that a business relationship may exist.

Analysis of facts related to ownership of tools	Payer	Worker	N/A
Who supplies the heavy equipment or covers its rental costs?
Who supplies the specialized equipment or covers its rental costs?
Who covers equipment maintenance costs?
Who supplies the large tools or covers their rental costs?
Who supplies the specialized tools or covers their rental costs?
Who supplies the small tools?
Who covers tool maintenance costs?
Who has invested in the equipment and tools?
Who supplies the materials?

If you answered "Payer" to most of these questions, it means that by supplying the tools and equipment, the payer exercises control over the worker.   There is no risk of loss for the worker.  An employer-employee relationship probably exists.  Otherwise, it indicates that a business relationship may exist.

Analysis of facts related to chance of profit, or risk of loss	Payer	Worker	N/A
Who covers the costs of damage to equipment or materials?
Who covers the costs of liability insurance?
Who covers the office expenses?
Who covers rental costs?
Who covers delivery and shipping costs?
Who covers costs related to bad debt?
Who assumes responsibility for the performance of the work?
Who guarantees the quality of the work?
Who assumes responsibility for ensuring that guarantees relating to materials are honored?
Who covers the costs incurred by the worker in carrying out the work?
Who covers the costs of the worker's benefits (paid vacation, sick leave, life insurance premiums, etc)?

If you answer "Payer" to most of these questions, it means that there is little involvement on the side of the worker, and that the income does not depend on the results achieved at the end of the contract.  An employer-employee relationship probably exists.  Otherwise, it indicates that a business relationship may exist.

Integration	Payer	Worker	N/A
What was the answer to most of the questions related to the control factor?
What was the answer to most of the questions related to the ownership of tools factor?
What was the answer to most of the questions related to the chance of profit/risk of loss factor?

If you answer "Worker" to these questions, it indicates that the worker integrates the payer's activities to his own activities.  A business relationship probably exists.  Otherwise, it is reasonable to conclude that an employer-employee relationship exists.

Portions of this text were taken from Video Tax News.