Employer-employee relationship questions and answers
June 21, 2017
Hello, and welcome to our questions and answers webinar on employment status. My name is Maurice, and I am your presenter.
Today's webinar is the second in a four-part series on questions and answers.
This webinar will be recorded and posted on the Canada Revenue Agency (the CRA) website at a later date.
We received a lot of questions. Unfortunately, some of the questions didn't provide enough details or were too broad, and we were not able to provide an answer because the variables would have been too extensive. If you are not certain of your employment status, you can ask for a ruling. We also received questions that were not about determining whether a worker is an employee or is a self-employed individual. I am not able to respond to those questions in this webinar. If you have such questions, please contact the CRA.
Before answering your questions, let's quickly review how the CRA determines employer-employee relationships.
Why is it important to determine whether a worker is an employee or a self-employed individual?
It's important because employment status directly affects a person's entitlement to employment insurance benefits under the Employment Insurance Act. It can also affect how the worker is treated under other legislations, such as the Canada Pension Plan and the Income Tax Act.
Certain factors have to be considered when deciding if a worker is a self-employed individual or an employee.
These factors differ if a contract is formed in the province of Quebec or in another province or territory. Usually, the province or territory where the contract was formed will decide which set of factors to use.
In a written contract, the parties may state that in the event of a disagreement about the contents of the contract, it is to be interpreted under the Civil Code of Quebec, even though the contract was formed, for example, in Ontario (where common law applies).
Depending on where the contract was formed, unless it is stated differently in a written contract, we will use the factors associated with the province or territory where the contract was formed. For example, the Civil Code of Quebec if formed in Quebec and common law if formed elsewhere in Canada.
When we examine whether a person is an employee or a self-employed individual, the key question to ask is whether the person is engaged to carry out services as a person in business on their own account, or as an employee.
To do this, we examine the total relationship between the worker and the payer, using a two-step approach under the principles of common law:
Step 1 – Establish the intention of the parties when they formed the contract; and
Step 2 – Analyze the working relationship, in light of the parties' intent.
The factors the CRA considers to determine the employment status of a worker are the level of control the payer has over the worker's activities; whether or not the worker provides the tools and equipment; whether the worker can subcontract the work or hire assistants; the degree of financial risk taken by the worker; the degree of responsibility for investment and management held by the worker; and the worker's opportunity for profit in doing his or her tasks.
In Quebec, when we examine whether an individual is an employee or self-employed, the key question to ask is whether the individual is engaged to carry out services as an individual in business on their own account, or as an employee.
To do this, we examine the total relationship between the worker and the payer, using a three-step approach following the Civil Code of Quebec.
Step 1 – Establish the intention of the parties when they formed the contract.
Step 2 – Confirm if the employment meets the definition of a contract of employment or of a contract for services, as defined in the Civil Code of Quebec, by considering the following factors:
- doing the work
- relationship of subordination
Step 3 – We compare each party's intentions with their working relationship. We determine whether the conditions of the working relationship represent the status that the parties choose and that they are consistent with the definitions of the Civil Code of Quebec.
Factors to consider under Step 2:
Doing the work – Whether there is an employer-employee relationship or a business relationship, the worker must do the work. It can be part-time or full-time for a specified or an indeterminate period.
Remuneration – It means how a worker is paid. It includes all consideration and benefits that have a monitory value. Whether there's an employer-employee relationship or a business relationship, the worker must receive remuneration for the work. The remuneration can be calculated by time, by piece, or in another manner.
Relationship of subordination – This factor helps distinguish the employer-employee relationship from a business relationship. The relationship of subordination is the capacity, the authority, or the right of a payer to exercise control over the worker's activities and how the work is to be done.
Now, let's answer your questions.
Can a worker be a self-employed contractor and an employee at the same time, for example, work as an employee for one department of the payer while working as a self-employed contractor for another department of the payer?
Although rare, it is possible for a worker to have two separate and distinct contracts with the same payer, where one contract could be seen as an employer-employee relationship with the other employment being considered as self-employed.
For this to happen, the two contracts would have to be independent and distinguishable from each other, and the terms and conditions of the working relationships would have to justify the respective employment statuses. If you feel that this is a situation that might apply to you, we would recommend that you ask for a ruling.
You can ask for a ruling on the CRA website by filling out Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act, or by calling 1-800-959-5525.
We have a part-time employee who is paid by the hour. This employee generally works less than 20 hours per week. We have engaged the services of this employee to do work on a special project, which is paid at a higher hourly rate. The employee wants to be paid as an independent contractor for the special project. Is this permissible?
Although it rarely happens, it is possible for a worker to have two separate and distinct contracts with a payer: one being a contract of service (employer-employee relationship); and the other a contract for services.
The two contracts would have to be independent of each other and each employment would have to meet the terms and conditions of the employment status under the principles of common law or the Civil Code of Quebec, whichever applies.
In your example, you mentioned that the worker wanted to be paid as an independent contractor and was being paid an hourly rate. Being paid an hourly rate may indicate an employer-employee relationship.
If you hire family members for a small business are they treated as employees?
The employment status of a family member hired by the small business would be determined the same way as a non-family member using the criteria under the common law or the Civil Code of Quebec, whichever applies.
It is important to note that there is a special legislation within the Employment Insurance Act that deals with the insurability of workers who are related to the payer. For more information on that subject, see the CPP/EI Explained article entitled: "Not dealing at arm's length for purposes of the Employment Insurance Act (EIA)." In the employer's guide T4001 called Payroll Deductions and Remittances, Chapter 3 deals with the employment insurance. Under the heading "Employment, benefits and other payments from which you do not deduct EI premiums," we discuss the situation of not dealing with each other at arm's length.
Is there a ruling on freelance interpreters, photographers, etc. that organizations might use for events they are holding. Is this considered a business relationship?
There are no existing employment status rulings stating that all employment in a specific sector or discipline will be considered as under one employment status. The terms and conditions of an employment relationship between a worker and a payer will determine the worker's employment status.
For example, a payer could have hired two photographers where one could be employed under the terms and conditions indicating an employer-employee relationship, while the other could be employed under terms and conditions indicating a self-employed individual.
For the public sector: an individual is appointed under bylaw to provide services. What is the employer-employee relationship? The employee can set their own time when providing the services. However, the employer mandates the job training. The hiring contract shows they are responsible for any tax-related deductions, since they are independent of the municipality.
We do not have enough information to provide you with an accurate answer. Please see the CPP/EI Explained articles, including "Tenure of office" on the CRA website. If you are not certain, you can ask for a ruling.
When determining if this is a business-to-business or employee-employer relationship, what is the biggest factor to consider?
It is our position that control is a major part in determining employment status, but you have to address all the facts of the relationship between the worker and the payer.
What types of fines and enforcement exist regarding businesses not classifying workers correctly? What could be a possible reprisal?
If it is determined that there is an employer-employee relationship, the employer will have to pay the CPP contributions and the EI premiums that should have been deducted from the employee's pay, as well as the employer's part of these amounts. The CRA can assess four years back for CPP contributions and three years back for EI premiums.
The employer may be subject to penalties for failure to remit.
Can an individual who provides services to a corporation in which they are a minority shareholder and officer be self-employed by the corporation?
It is possible, but highly unlikely. Most people incorporate to run their business through the corporation. This is a situation where you should ask for a ruling. Paragraph 5(2)(b) of the Employment Insurance Act states that employment of a person by a corporation, if the person controls more than 40% of the voting shares, is excluded employment. Also, paragraph 5(2)(i) states that employment where the employer and the employee are not dealing with each other at arm's length is also excluded employment.
Paragraph 5(3)(b) of the Employment Insurance Act allows the minister of national revenue to include employment previously not included under paragraph 5(2)(i), if the minister is satisfied that the parties would have entered into a substantially similar contract with a non-related person.
Does the self-employed person need to have more than one customer under the Total Relationship Approach (the TRA)?
The fewer clients a person has, the more dependent they are on that one particular client. So, if you have only one client, then you are very dependent on that client, which could be viewed as indicating an employer-employee relationship. However, with that being said, under common law, we have to look at all the facts regarding the relationship between the payer and the worker. If other factors support or indicate self-employment, then the fact that the worker has one client would not be a determining factor.
Is it necessary for employers to issue a T4A slip for self-employed individuals? Is there any penalty?
Yes, a T4A slip should be prepared when a business hires a contractor. The amount paid should be shown in box 48 of the slip.
There may be penalties associated with the late-filing of T4A returns.
There are a lot of factors to be determined. Can I contact the CRA directly to get a ruling before entering into a contract with a worker?
If a worker or payer is not sure of a worker's employment status, either party can ask for a ruling to have the status evaluated after the parties have entered into a contract, since it is based on the facts of the working relationship. A ruling indicates whether a worker is an employee or is self‑employed, and whether that worker's employment is pensionable and/or insurable. If you have a payroll program account and are registered on My Business Account, you can use the "Request a CPP/EI ruling" service in My Business Account.
An authorized representative for the payer can ask for a ruling online through Represent a Client.
A payer or a worker can ask for a ruling by sending a letter or a filled out Form CPT1 to their tax services office. You can get this form under "Forms and publications" on the CRA website or by calling 1-800-959-5525.
A worker or an employer can ask for a ruling before June 30th of the year following the year to which the question relates. For example, if the employment took place in 2016, the ruling request has to be made before June 30, 2017.
I am a freelance worker and want to work at an office once or twice a week with their equipment, doing whatever their needs are. Does that make me an employee?
The fact that you use their equipment and do whatever their needs are, would both indicates an employer-employee relationship. But we do not have enough facts to give an opinion or a decision.
If you are not sure of your employment status, you should ask for a ruling.
We received a lot of questions about hiring a person for a short time (even a few days). Would they be considered an employee or self-employed?
We issued a T4 slip for a temporary employee, but that employee now wants a T4A slip instead. Is this correct?
Hiring for a short time doesn't necessarily mean that the worker is self-employed. The duration of the employment does not indicate the employment status. You would have to look at all the factors mentioned earlier or ask for a ruling if you are not sure.
If the worker is an employee, you were correct to deduct income tax, CPP contributions and EI premiums and issue a T4 slip.
What is the status of health professionals who bill their clients, but pay a practice a certain percentage of billings for administration and using their equipment?
Although there are not enough facts to give you an opinion on the health professional's employment status, we can offer you the following comments:
The fact that the professional bills their clients indicates a self-employed. However, because they pay the practice a certain percentage of billings for administration and the use of equipment, this could indicate an employer-employee relationship.
If you are not sure, you should ask for a ruling.
What is a personal service business, a PSB?
A personal service business is a business that a corporation carries on to provide services to another entity that an officer or an employee of that entity would usually perform. Instead, an individual performs the services on behalf of the corporation. That individual is called an incorporated employee.
Any income the corporation gets from providing the services is considered income from a personal services business, as long as both of the following conditions are met:
- The incorporated employee who is providing the services, or any person related to him or her, is a specified shareholder of the corporation.
- The employee would, if it were not for the existence of the corporation, reasonably be considered an officer or employee of the entity receiving the services.
However, if the corporation employs more than five full-time employees throughout the year or provides the services to an associated corporation, the income is not considered to be from a personal services business.
As a temporary agency we want to make sure we set up a relationship with our candidates that have their own business and want to contract with our clients. I'm interested to know who should get a T4A slip.
It sounds like the payer is a placement agency, rather than a temporary personnel agency. We do not have enough information to give an opinion on the status of the worker. The legislation for the Canada Pension Plan and for employment insurance deals with placement agencies. As such, the payer may be responsible to deduct and remit CPP contributions and EI premiums from payments to workers, even though those workers are not their employees.
Most temporary help firms are service contractors who provide their employees to clients for assignments. Workers are usually employees of the temporary personnel agency. As a result the agency has to deduct and remit CPP contributions, EI premiums, and income tax from the amounts paid. They also have to report these amounts on T4 slips.
For more information, see the article Placement /Employment Agencies on the CRA website.
I am a sole proprietor working through a placement agency. This year I received a T4 slip with nothing in box 81. They said the amount in box 14 was right but I do not understand how I can have employment income when I invoice them. Their client directs me what to do and when to show up.
There isn't enough information to accurately address this question. I think you are saying that you are a self-employed worker covered under the placement agency provision in subsection 34(1) of the Canada Pension Plan and paragraph 6(g) of the Employment Insurance Act.
If this is correct, then the placement agency is deemed to be the employer under the legislation.
Normally, a placement agency would use box 81 to report income from the workers they placed, unless they are considered to be employees of the agency. Box 81 is used to enter the gross earnings of placement and employment agency workers. If the agency hired a worker as an employee of the agency or if the agency paid the worker and placed them in employment under the control and direction of its client, box 81 should not be used.
You can read the CPP/EI Explained article Placement/employment agencies. Also, see "Placement or employment agency workers and code 81" in Guide RC4120, Employers' Guide: Filing the T4 Slip and Summary. You can also contact the CRA to explain your situation and get the information you need.
If an owner gets a worker to sign a letter stating the worker is accepting work as a casual laborer with no payroll deductions or vacation pay, is it still an employer-employee relationship? The worker is taking direction from the owner's foreman to carry out his duties, and the worker is working for only this company and no others.
It is the terms and conditions of the working relationship between the payer and the worker as viewed under the principles of common law or the Civil Code of Quebec that determines the status of a worker.
If a worker is employed under an employer-employee relationship, signing a letter or contract not to withhold payroll deductions will not change the fact that the worker may be an employee and that the employer is responsible for the CPP contributions and the EI premiums that were required to be deducted and remitted, even if these amounts were not deducted from the employee's remuneration.
I have a yard service business and I hire seasonal workers. For snow removal: I have workers that do snow removal when needed depending on the snowfall. For spring cleanup: I hire up to 20 workers that work casual hours. For summer: Workers are hired to cut lawns weekly as per a contract. I supply the workers with the equipment, the vehicle, the instructions for the type of service required and a list of addresses. What is the relationship? How do I report this to the CRA? What deductions is my company responsible for?
It seems that you have workers engaged in three types of work. Those engaged during the winter months doing snow removal, those working during the spring cleanup and those involved in the weekly lawn cutting.
Duration of employment does not determine employment status.
We do not have enough information to give you an answer. However, some of the statements such as "I supply the workers with equipment, the vehicle and instructions" indicate an employer-employee relationship.
If you are not sure of the employment status of the workers, you should ask for a ruling.
If the workers are in fact employees, then you should ask them to fill out TD1 forms that you will keep on file. You don't send these forms to the CRA.
You would be responsible for deducting income tax, CPP contributions and EI premiums from the employees' pay and sending those amounts, along with your share of the CPP contributions and EI premiums to the CRA. You would also need to have a payroll program account number from the CRA. If you don't already have one, see "Opening a payroll program account" on the CRA's website.
You would have to provide T4 slips to employees who worked for you during the year by February 28 of the following year.
To help you calculate the deductions from the employees' pay, you can use PDOC, the Payroll Deductions Online Calculator, on the CRA website. This calculator gives you the amount of your share of CPP and EI amounts and gives you the total of the remittance you should send to the CRA. It is easy to use. Or you can use the T4032 Payroll Deductions Tables.
Also, the CRA has recorded webinars on its website, which you can watch at your convenience to help you with all the aspects of payroll.
I am the sole shareholder of a corporation. I receive a monthly wage from the corporation with CPP contributions and income tax deducted. Would this be considered an employer-employee relationship?
Yes, this treatment would be consistent with an employer-employee relationship, and you would be correct in deducting income tax and CPP only. Paragraph 5(2)(b) of the Employment Insurance Act excludes the employment of a person by a corporation if the person controls more than 40% of the voting shares of the corporation.
It is possible for a shareholder to also be an employee. If you are not sure about the employment relationship, please ask for a ruling, because we do not have enough information to make that determination.
I work for a massage and spa holistic company as a receptionist. My employer has given me a T4A slip instead of a T4 slip. I do not believe I am self-employed. What should I do?
It sounds like you feel that you are an employee but are being treated as if you were self-employed. If in fact you are an employee, your employer would be required to make the required statutory deductions at source and report them and your earnings on a T4 slip.
You have the right as a worker to ask for a ruling to properly determine your employment status.
You can use the form CPT1 and send it to your tax services office. You can get the address on the CRA website at cra.gc.ca/tso.
What are some examples of intent as a factor of employment that could push the CRA into interpreting someone to be an employee or contractor?
We ask the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter in a contract for services (a business-to-business relationship)?
Sometimes the intention is clear and both parties are in agreement (common intent). Sometimes the two parties have a different understanding as to the status of their working relationship, in which case there is no common intent.
Sometimes the intent can be found in a written agreement, the testimonies of the parties or by an examination of the parties' actions.
For more information on intent, see Guide RC4110, Employee or Self-employed?
If an employer follows most of the factors set out under a contract of employment, but also has various contradictions, such as the employee providing their own tools, or being expected to pay some expenses for the work done, at what point does the CRA consider the relationship tipped in favor of employee or contractor? What are the thresholds to which employers or employees can determine their status when there is a mix of factors that work at either end of the spectrum?
In some situations the employment status will be quite clear with all factors clearly indicating one status over the other. However, in other situations the employment relationship can be quite complicated, with some factors indicating one status and other factors indicating another status.
Some factors might not carry as much weight in some types of employment. For example, within the mechanical field, it is common practice for employees to supply their own tools. So this would not carry as much weight as a worker who supplies the truck, trailer and backhoe to dig a foundation within the construction industry.
We must stand back and consider all the factors together (the total relationship). We must look at a relationship as a whole to determine whether someone is an employee or self-employed.
Can you give examples of financial involvement as a factor, or taking risks with profit or loss, and describe how these are different? Can you also give context to Revenu Québec's similar but alternative phrasing of the rule?
Factors within a working relationship can have an influence on more than one factor that we analyze when establishing the employment status of a worker.
For financial risk, we consider the degree of financial risk taken by the worker. Does the worker have any fixed ongoing costs or any expenses that are not reimbursed. For example, did the worker sign a lease agreement to house the equipment used to perform their service? This shows the worker has a financial risk, as the worker has a financial responsibility to pay the rental amount on a monthly basis.
For opportunity for profit, we consider whether the worker can realize a profit or incur a loss, as this indicates that a worker controls the business aspect of services rendered. To have a chance of a profit and a risk of a loss, a worker has to have potential proceeds and expenses, and one could be more than the other.
We cannot comment on Revenu Québec's policies. You will have to contact them directly.
As an employer, our company recruits volunteers. If there is money available, we provide a monetary per diem to these volunteers. Under CRA policy, would those volunteers be considered employees once money is provided?
You would have to look at all the factors. But considering they are volunteers who might receive a per diem, we would probably treat them as if they were employees.
If I hire someone who used to be an employee and now I hire her to do some contract work (hourly or project), what rules should I pay attention to and how do I set up the contract/agreement properly from a tax perspective? What if she doesn't have a business or a licence, just an individual, like a graphics artist?
You can hire an ex-employee as a contractor. If it is both your intentions for this worker to be self-employed, then you will need to make sure that the terms of the working relationship are consistent with that of a self-employed person.
To help you form your working relationship, see Guide RC4110, Employee or Self-Employed.
You should note that paying someone by the hour usually indicates an employee-employer relationship.
If the worker is self-employed and is performing services for which GST/HST applies, the worker should register and get a GST/HST number from the CRA if their revenues will reach $30,000 in the last 4 consecutive quarters.
If a worker would typically be classified as an employee, are there any provisions which allow you to override this and class them as a self-employed worker instead: for example, because of the short duration of the contract in question?
It is not the duration of the contract that is a factor in determining if a worker is an employee or a contractor. You will have to look at all the factors. If you are not sure, you can ask for a ruling.
What is the CRA view on dependent contractors, or is it only a status given by a labour board?
We are aware of the use of the term dependent contracts by some labour boards. Any questions on this matter should be directed to the related labour board.
However, it is our understanding that they are not using this term to define whether the worker status is that of an employee or whether the workers' status is self-employed. They seem to use this term to refer to self-employed persons whom they want legislation to apply to, even though they are not employees.
This classification has no bearing on how the CRA establishes employment status.
Are the music ministry individuals in a church, for example, the organist, pianist, or choir director considered employees or contractors?
There is no set or predetermined status for individuals involved with music within a church or ministry. Their employment status will be determined in the same way as other workers. One must look at all the factors.
If you are not sure, please ask for a ruling.
Do you consider a retired or terminated employee who becomes an independent contractor as self-employed or as an employee?
If the retired or terminated employee is re-employed under the same terms and conditions, then it would be reasonable to think that the worker is still an employee. This would be the case as long as the worker was correctly identified as an employee in the first place.
The proper approach would be to analyze the current working relationship to determine if the current terms and conditions of employment indicate a self-employed worker.
Just because a former employee was rehired does not mean that the worker has to be engaged under the same terms and conditions that were in place when they last worked for the payer. It is the facts of the current working relationship that will determine their employment status.
Should a self-employed person invoice the contracting company for travel kilometres (at a reasonable rate)? If so, should they be charging GST/HST on top of the reasonable rate?
It is up to the parties to determine how they charge, or if they charge, for kilometres travelled, depending on the stipulations of the contract between the parties.
GST/HST applies on taxable supplies made in Canada, calculated at the applicable rate, on the value of the amount paid or payable for the supply of a good or service, unless a specific provision in the Excise Tax Act allows relief from the tax. The amount includes any amount payable for a supply under the law. If the self-employed person includes travel kilometres on the invoice, then it becomes part of the amount charged and this amount therefore forms part of the amount paid for the taxable supply on which GST/HST is to be calculated.
Company A works part time as a contractor for Company B every month, but Company A also has other clients it works for every so often. Company A doesn't have to be an employee of Company B, does it?
If Company A (a corporation) mainly provides services to Company B, but also has other clients, then this will likely be viewed as a business-to-business relationship.
The worker who represents Company A and who is performing the services would most likely be seen as an employee of Company A.
You need to make sure that the contract is between Company A and Company B and not between the individual worker (representing Company A) and Company B. The invoice has to be issued from Company A and not in the name of the individual worker. Also, Company B needs to make sure that the payment is made to Company A and not to the individual worker who performed the services on behalf of Company A.
For the purposes of CPP/EI, the CRA will not pierce the corporate veil. However, personal services corporations have income tax implications specific to them.
In what situation would a person, who is an incorporated entity and who is providing services to a business, be considered an employee of this business and not a subcontractor?
In situations where a person has incorporated and provides their services to the payer through their personal service corporation (a PSC), the CRA, for purposes of CPP/EI, will not pierce the corporate veil.
However, if it is evident that the worker is not providing their services through the PSC, then the CRA would question the employment status of the worker. For example, if the worker sends the invoices in their name rather than invoicing under the name of the PSC and/or the payer pays the worker directly rather than paying the PSC, then it might be reasonable to conclude that the contract is actually between the worker and the payer, rather than between the worker's PSC and the payer.
If the worker is providing their services through a PSC, it does not mean that the worker is self-employed. In these situations, the worker would most likely be an employee of their PSC.
Is the worker under a contract of service or a contract for services?
To help you determine that, see Guide RC4110, Employee or Self-employed, or ask for a ruling.
A person is working for a computer program company but signs a contract as a field technician. He is told he is a self-employed contractor, yet has to work their hours, go where they send him, and do the work they give him to do. He gets paid an hourly wage, but has no deductions taken from his pay and is not issued a T4 slip. He gets paid mileage if he has to travel more than 20 km and sometimes uses the company's rented vehicles to make deliveries of computers. Is he self-employed or is he an employee. Is he required to have his own workplace insurance and pay double CPP contributions and both parts of EI premiums as a self-employed business person?
Because of the limited facts we have, we cannot provide a definitive opinion. However, some of the facts indicate an employer-employee relationship.
If you are not sure of the status of your working relationship, you should ask for a CPP/EI ruling from the CRA.
We cannot comment on workplace insurance. You should send your enquiry about this to the provincial authority.
If the worker is an employee, then the payer would have to make the necessary statutory deductions at source and to report the earnings and deductions on a T4 slip.
If the worker is self-employed, then the worker would pay both parts of the CPP contributions.
If the worker is self-employed, the worker may choose to pay EI premiums to be eligible to receive EI special benefits. For more information, contact Service Canada.
Regarding an employee who is related (family) to the employer: Can the employee get a ruling on EI, so that the employee could collect the benefit if needed? What is required?
Yes. An employee who is related to an employer can ask for a ruling as to whether that employment is insurable.
When the employer and the employee are related to each other (by blood, marriage or adoption), they are deemed not to deal with each other at arm's length under paragraph 5(2)(i) of the Employment Insurance Act.
However, under paragraph 5(3)(b) of this act, the employment may be included in insurable employment if the minister of national revenue is satisfied that, considering all the circumstances of the employment, it is reasonable to conclude that the parties would have entered into a substantially similar employment if they had been dealing with each other at arm's length. If it is determined that the parties are dealing at arm's length, the employment will be insurable (unless it is non-insurable or excluded under another provision of the act).
To ask for a ruling, fill out Form CPT1 and send it to your tax services office. You can find the address at cra.gc.ca/tso.
1. What are the responsibilities of an employer in determining if a person is self-employed?
2. Many people claim to be consultants and have a company. Is this enough proof? How much effort must an employer go to make the determination?
3. Why is it the employers' responsibility to make the determination?
1. It is important that a payer make an accurate determination of a workers employment status to insure compliance with provincial and territorial and federal legislation for employment. Proper classification of a workers' employment status reduces the risk of future assessments, reassessments, and penalty and interest charges against an employer as a result of non-compliance due to an error in the classification of a workers' employment status.
2. It is not enough that workers refer to themselves as consultants. The employment status of a worker is established by examining the working relationship that they have with the payer. It depends on whether the parties enter into a contract of service or a contract for services. All factors must be considered to make a proper determination.
3. Employers are responsible for payroll deductions when a worker is an employee. Employers are responsible for complying with the provincial and federal legislation for employment. If an employer doesn't make the appropriate deductions on a worker's remuneration, and it is later determined that the worker is an employee, the employer could have to pay both parts of the CPP contributions and EI premiums, as well as interest and penalties. The CRA can go back four years to reassess CPP contributions and three years for EI premiums.
I was recently hired on my first job and my employer didn't deduct any federal or provincial/territorial taxes. What should I do?
There are a couple of reasons why your employer may not deduct tax from your pay.
First, Form TD1, Personal Tax Credits Return, you completed and gave to your employer may show that your total personal deductions will be more than the basic personal amount shown on line 1 of the form.
Second, your employer may be treating you as a self-employed individual.
We suggest that you discuss this situation with the payer/employer.
If you are having CPP/QPP contributions and EI premiums deducted from your remuneration, then the payer is most likely treating you as an employee. If you are advised that the reason they are not deducting any income tax is because they are treating you as self-employed, you may want to consider asking for a CPP/EI ruling, to confirm your correct status.
If ruled that hired workers were employees and not self-employed, but the workers claimed income and paid CPP contributions on these self-employed earnings, would the employer have to pay CPP contributions on this money as well?
The employer is responsible for sending to the CRA their CPP contribution on their employees' remuneration, as well as the employees' contributions. When an employee has contributed too much to the CPP, the exceeding contributions may be reimbursed, depending on the employee's tax situation at the time.
We are a business who hired a consultant to deliver services. The consultant does not have a GST/HST number, because the consultant earns less than $30,000 a year. Can we issue a payment without a GST/HST number or do we have to get more information, such as the consultant's name and social insurance number?
You will have to determine if the consultant would be considered an employee under a contract of service, or a self-employed individual under a contract for services. Look at the factors we talked about during the presentation. If the consultant is self-employed, you would have to declare the amount paid for them on a T4A slip, under code 48. To fill out the T4A slip, you will need the person's name, address, and either a business number or a social insurance number.
Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada has to be registered for GST/HST purposes, except in certain circumstances, for example, when the person is a small supplier.
A person is a small supplier when their total revenues from taxable supplies, including those of its associates are not more than $30,000 in the last four consecutive calendar quarters and in any single calendar quarter.
If the person is a small supplier, they do not have to be registered for GST/HST and do not have to charge or collect GST/HST on the supply of goods or services. However, a small supplier engaged in a commercial activity in Canada may choose to register voluntarily. If the person chooses to register voluntarily, they would then have to charge GST/HST on any taxable supplies they make from then onward.
So, to answer your question, if the consultant doesn't have a GST/HST number, they cannot charge GST/HST on the invoice given to clients.
The not-for-profit society that I work for pays individuals for various purposes, such as teaching dancing lessons, soccer refereeing, etc. The society issues T4A slips for the amount paid annually over $500. Is this the correct minimum amount for a T4A?
The answer to this question really depends on whether or not the individuals providing the services are employees or self-employed.
If the workers are self-employed, the CRA's position is that a payer does not have to file a T4A slip for services performed if the total remuneration in the year was $500 or less and the payer did not deduct or withhold any tax from the remuneration. For more information, see our webpage called What to report and exceptions.
One-person corporation (director and shareholder):
1. Is a T4 slip (for any amount) enough to make the employer-employee relationship arm's length?
2. Can you complete Form T2200, Declaration of Conditions of Employment, for yourself?
3. Can health benefits, for example, payments from a private health services plan or any other benefit be considered non-taxable? 3a. Can you deduct medical expenses through your corporation?
4. What conditions would prevent a separation between employee and employer?
5. Generally, does the employer-employee relationship hold when it is a one-person corporation, especially a personal services business?
1. In these situations, normally what you have is an individual who incorporates and runs the services that they provide through a personal service corporation (a PSC). Normally the worker is an employee of their own corporation. If the worker is an employee, for purposes of the EI we would not be concerned about whether it is or is not an arm's length relationship, because the employment would not be insurable under paragraph 5(2)(b) of the Employment Insurance Act, because they control more than the 40% of the voting shares. In this example the worker controlled 100% of the voting shares.
For purposes of establishing the employment status of a worker, whether or not the worker and the payer are dealing with each other at arm's length is not material. However, it is material as to whether or not that employment is insurable or not. If the worker and the payer are not dealing with each other at arm's length under paragraph 5(2)(i) of the Employment Insurance Act and the minister is not satisfied with regard to paragraph 5(3)(b) of the act, then that employment will not be insurable employment.
So, no, a T4 slip would not be enough to change a non-arm's length relationship into an arm's length one.
2. It is possible for an incorporated employee to claim eligible employment expenses. However, certain restrictions may apply depending on the type of services provided by the corporation. You may want to speak with an accounting advisor to explore all of your options. You can also contact the Business Enquiries line at the CRA.
3. and 3a. We cannot answer these questions, because they do not relate to this webinar's subject. For information on health and medical benefits, see Guide T4130, Employers' Guide: Taxable Benefits and Allowances.
4. We do not have enough information to answer this question.
5. We will not pierce the corporate veil providing that you are actually operating through the corporation. For more information, see our answer on PSCs.
I am in the construction industry and we hire trade employees from various unions. Employees are dispatched through the union to various employers throughout the year. We often received employee requests on the TD1 forms for tax exemption for not making more than the basic tax exempt limit. We know the employees have multi-employers and will be making over the exempt amount if they work regularly. In this case, are we liable to deduct tax for such an employee?
Although I said that I would only respond to questions about employer-employee relationship, this question seems common in various industries. So I will answer it.
When an employee has more than one employer, the TD1 form they provide to the other employers should indicate $0 at the bottom of page 1. It should be indicated on page 2 of the forms that the employee has more than one employer at the same time. Each employer keeps the completed TD1 form in the employee's file. The employer and the employee don't need to send this form to the CRA.
The employer will deduct taxes without considering the basic personal amount. The employer must also deduct CPP contributions and EI premiums on the wages paid to the employee.
EI premiums must be paid from the first dollar earned. The annual maximum insurable and pensionable earnings apply to each job the employee holds with different employers. If an employee leaves one employer during the year to start working with another employer, the new employer also has to deduct EI premiums and CPP contributions without taking into account what the previous employer paid. This is the case even if the employee has paid the maximum amounts during the previous employment.
It is the employee's responsibility to properly fill out Form TD1. If they do not, they may owe tax when they file their income tax and benefit return. So, although you may not have to deduct income tax, depending on the employee's situation and how they filled out their TD1 form, you are liable to deduct CPP contributions and EI premiums and send them with your share of the contributions and premiums to the CRA.
If you want more information about employment relationships, you can visit our website at cra.gc.ca where you can find the following publications:
- Guide RC4110, Employee or Self-employed?
- CPP/EI Explained articles
If you need a ruling, you can fill out the Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act.
You can also watch our recorded webinars on different aspects of payroll. They are available on the CRA website when you click on videos.
This is all the time we have. Thank you for joining me today. I hope that the questions and answers we reviewed during this webinar will be useful to help you meet your payroll obligations.
Please join us for the next webinar in this series, "Questions and Answers on the Small Business Deductions" that will be presented on October 18, 2017. If you have questions about the small business deductions, you will be able to send them between August 7 and September the 1st.
Thank you for watching.
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