News and Insights

Canada Revenue Agency Revises Guide RC4110, “Employee or self-employed?”

Tax Development Sep 04, 2013

The Canada Revenue Agency (CRA) released a revised guide RC4110, "Employee or self-employed" that may be used to determine a worker’s employment status. Once a determination of the employment status is made, a payer will know whether they are considered an employer, and in turn, will be responsible for deducting and remitting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax from any remuneration paid to their employees.. Depending on whether the contract is formed in Quebec or another province or territory, different sets of factors must be considered.

If the contract is formed outside the province of Quebec, the CRA will examine the total relationship between the worker and the payer, using a two-step approach.  Firstly, a determination of the intention of the working arrangement must be made, i.e. did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)? 

Secondly, the CRA would review a set of factors to verify the intent, such as:

  • Control over a worker’s activities;
  • Tools and equipment provided by a worker;
  • Subcontracting work or hiring assistants;
  • Financial risk taken by the worker;
  • Worker’s responsibility for investment and management; and
  • Worker’s opportunity for profit.

If the contract is within Quebec, the CRA uses a three-step process which includes: (i) verifying the intent of both parties; (ii) confirming the definition of a contract of employment (or a business contract) is met; and (iii) analyzing the working relationship.

For a Quebec contract, step 2 includes the following elements:

  • Performance of work;
  • Remuneration; and
  • Relationship of subordination.

The CRA has provided specific indicators, in each case, to help you distinguish between an employee and a self-employed individual. Special rules apply to some occupations, including temporary help services, placement and employment agency workers and employees outside of Canada. 

For more information , please refer to T4001, “Employers’ Guide –Payroll Deductions and Remittances.