This is a common question that often comes up in conversation with small business owners, especially so in the construction/ repeating services industry, where the turnover could be high, the staff is seasonal and freedom to perform tasks is significant.
I was quite pleased to hear that CRA allows you / your business to get a ruling to help you determine the employment status of a person prior to hiring them. This inquiry can be done through My Business Account with CRA. I hope you have opened a My Business Account, as it can be a great source of information for you and your accountant. It also helps you to communicate with CRA more effectively.
Let’s have a look at some of the factors that are considered when CRA determines employment status:
The level of control the payer has over the worker’s activities: The less control the worker has, the more likely he/she is an employee
Whether or not the worker provides the tools and equipment: Should the individual provide their own tools , the probability of him/her being self-employed (contractor) increases
Whether or not the worker can subcontract the work or hire assistants: The more freedom to perform tasks/duties may indicate a self-employment status
The degree of financial risk taken by the worker: Handled similarly as above
The degree of responsibility for investment and management held by the worker: Handled similarly as above
The worker’s opportunity for profit in doing their tasks: Handled similarly as above
We can surmise from the list above that the more control the worker has as to how he/she performs his/her duties by means of scheduling, tools, subcontracting, risk, financial profit, the more likely that the individual is considered a subcontractor in the eyes of Revenue Canada.
How about employing family members for your small business? CRA’s stance on this topic is quite straightforward. This determination is based on the same way as a non-family member, or using the criteria discussed above. For more details, you can refer to Chapter 3 of Guide T4001, Employers’ Guide: Payroll Deductions and Remittances.
This is a high level intro to the information CRA considers when determining employment status. I hope you found this information valuable. Should you have any comments please feel free to reach out.
For more information:
Consult Guide RC4110, Employee or Self-employed? At cra-gc.ca
Learn more at cra.gc.ca/cppeiexplained
Form CPT1, Request for A Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act