Employment Status Options in Canada

Different employment arrangements are becoming more and more common. While many people still prefer to be an employee of a company, others prefer to be self-employed and act as an independent contractor.  Our hope is that the information provided will help you clarify the characteristics and differences of each method, while helping you determine the option that best suits you.

Employee

If you are a full-time or part-time employee, your employer - by law - must:

• Withhold income tax, Canada Pension Plan (CPP) contributions, Quebec Pension Plan (QPP) contributions (if applicable), and Employment Insurance (EI) premiums on amounts paid to you
• Remit the amounts withheld as well as the required employer's share of the CPP/QPP (Quebec Pension Plan) contributions and EI premiums to Canada Revenue Agency (CRA)
• Report your income and deductions on the appropriate information return
• Give you copies of your T4 slips by the end of February of the following calendar year
• Pay for statutory holidays and vacation time

Independent Contractor

If you have decided to become an Independent Contractor, there are two methods to consider.

Sole Proprietorships

A sole proprietorship is defined as a business owned and operated by one individual.

• It is not considered to be a legal entity under the law, but rather an extension of the individual who owns it.
• It does not require any specific legal organization, apart from the normal requirements such as licenses, registration information and permits.
• The owner has possession of the business assets and is directly responsible for the debts and liabilities incurred by the business.
• Any loans made to the proprietorship are tantamount to personal loans to the individual.
• This is known as unlimited liability.
• The income or loss of a sole proprietorship is combined with the other earnings of the individual for income tax purposes.
• If the sole proprietor secures work through another firm, the sole proprietor is responsible for submitting their income tax documentation - not the firm.
• You are responsible for remitting your own employee and employer deductions as well as sourcing and financing your own benefits.
• Your customers are not required to pay for statutory holidays or vacation time. It is up to you to work all of these costs into your bill rate.

Incorporated Independent Contractor 

A corporation is defined as a separate legal entity, and exists under the authority granted by either Provincial or Federal law. A corporation has all of the legal rights of an individual and is responsible for its debts. It must also file income tax returns and pay taxes on income it derives from its operations. In most cases, the owners and shareholders of a corporation are protected from the liabilities of the business.

• Corporations must file annual income tax returns with the Canada Revenue Agency (Federal) and the Ministry of Finance (Provincial).
• The legal fees involved in becoming an incorporated independent contractor may vary, but they involve legal fees for start-up, government fees (depending on the province in which you do business) and, if the contractor so chooses, maintenance fees.
• You are responsible for remitting your own employee and employer deductions as well as sourcing and financing your own benefits.
• Your customers are not required to pay for statutory holidays or vacation time. It is up to you to work all of these costs into your bill rate
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Hope that helps Nabil