It is very important to determine this relationship prior to any hiring is done. There are a lot of expense savings in hiring a contractor (self-employed individual), however if its determined down the road this contractor is actually considered an employee by CRA you will have much more expenses, taxes and penalties to remit.
Here is what you need to know:
Is it a Contract of service (employment contract) or a Contract for services?
Who is in control?
Can you clearly identify when and where the work or services have to be done (employee)? Or can there be a negotiation and or compromise on both sides (contractor)?
Can the individual get someone else to perform the work (contractor) or the worker has to perform the work assigned (employee).
Is there a chain of command where the individual reports work and is assigned work by a manager (employee) or the individual has access go straight to the top for any work or issues (contractor)
Are you providing training to the individual (employee)? Or should the individual already be equipped or if needed seek training from another party (contract)
Is there a designated area for the individual (employee)? Or can they work independently as long as the services is completed in the agreed timeframe (contractor).
Is someone overseeing the individuals work? (employee)
Can the individual refuse work? (contractor)
Are you providing the tools and equipment for the work (employee)? Who owns the equipment?
Who is liable for any damages that may result in financial loss? The contracted individual should have his or her owns insurance for these situations.
CRA reporting and remittances
Are you deducting and submitting the employee and employer portions to CRA (employee)? Are you providing a T4 (employee)? Or the individual is responsible for submitting these on their own under their own business name. (contractor)
We found a great guide provided by Wage Point here. You’ll find all the details of each side of the employment and also how to handle special situations like transitioning contractors to employees.
Always contact an employment lawyer and CRA to help you avoid costly penalties and future audits down the road.