Recruitment Obstacles

"One of the more complex payroll issues is determining whether a worker is an employee or a self-employed individual. Increasingly more organizations are choosing to contract out for service rather than hire, so you need to ensure compliance in this area. Although the differences can sometimes appear insignificant, incorrectly assessing the relationship can result in costly repercussions for your employer and the individual", according to Laura Angelo.

"It is important to decide whether a worker is an employee or a self-employed individual. Employment status directly affects a person's entitlement to employment insurance (EI) benefits under the Employment Insurance Act. It can also impact how a worker is treated under other legislation such as the Canada Pension Plan and the Income Tax Act", according to the Government of Canada.


What's the Difference Between an Employee and a Self-Employed Individual?

"A contract of service is an arrangement whereby an individual (an employee) agrees to work full-time, part-time or casually for an employer for a specified or indeterminate period. That employee may be paid a salary, an hourly rate, etc. The employer is responsible for deducting Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions, EI and Quebec Parental Insurance Plan (QPIP) premiums, and income tax, as applicable, from remuneration or other amounts paid to employees. The employer must remit these deductions along with its share of C/QPP contributions and EI/QPIP premiums to the Canada Revenue Agency (CRA) and Revenu Québec", explains Laura Angelo.

"A contract for service is an agreement whereby one party agrees to perform specific work stipulated in a contract for another party. This individual is usually required to produce a given result within a set period of time, and the payer is not typically involved in the performance of the work and therefore has no control over it. A person who carries out a service contract may be considered a contract worker, self-employed person or independent contractor", describes Angelo.


6 Factors to Discern between Employees and Self-Employed Persons

According to NPI's Employee or Self-Employed Payroll Best Practices Guidelines, the Canada Revenue Agency looks at the following in applying a "six-point test" to determine if the individual is an employee or a self-employed worker:

  1. Control
    Ability, authority, or right of a payer to exercise control over a worker concerning how the work is done and what work will be done.

  2. Ownership of Tools
    Consider if the worker owns and provides tools and equipment to accomplish the work.

  3. Subcontracting Work
    Consider if the worker can subcontract work or hire assistants.

  4. Financial Risk
    Consider the degree of financial risk taken by the worker. Evaluate if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed.

  5. Responsibility for Investment and Management
    A significant investment is an evidence that a business relationship may exist. You should also consider if the worker is free to make business decisions that affect their profit or loss.

  6. Opportunity for Profit
    Consider 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.


Do you think it's better for a company to hire employees or contract self-employed individuals? Tell us in the comments section below.  


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