The CRA looks at 6 major factors when determining whether the terms and conditions of work to be performed constitute an employee/employer or independent contractor relationship:
This test looks at the degree of control the University has over the worker concerning the manner in which the work is done and what work will be done.
- Does the University have the right to hire or terminate, determine the wage or salary to be paid, and decide the time, place and manner in which the work is to be done?
- What kind of reporting relationship exists with the University?
- Are the services provided by the worker similar to those provided by an employee of the University?
- Does the worker have the ability to accept or refuse work from the University?
Generally, an employment relationship exists where the University has the right to direct how, what, where and when the work will be done. It is not necessary that immediate control be exercised at all times, as long as the employer has the right to exercise this control.
Tools and Equipment
This test looks at who generally supplies the tools and resources to do the work. In an employee/employer relationship, the employer generally supplies the equipment and resources required by the employee. In addition, the employer covers the costs related to their use, repairs, insurance, rental and operations. In an independent contractor relationship, workers generally supply their own equipment and supplies and have their own business insurance. However, this alone is not determinative as some workers, such as skilled tradespeople, may be required to supply their own tools, even if they are full-time employees.
Subcontracting Work or Hiring Assistants
This test looks at whether the worker must perform the work personally to accomplish the result outlined in the contract and whether the worker can hire helpers or assistants.
- Is the worker paid to perform a specific task or to obtain a specific result or is he/she paid to put his/her personal service at the disposal of the employer for a period of time?
If the contract provides for a specific result to occur but does not contemplate the services of any particular worker to accomplish that result, then the worker may be an independent contractor (i.e. the University accepts that the worker may subcontract the work). In contrast, if the contract requires the services of one person to be put at the disposal of the University for a fixed or indeterminate time, the relationship may be that of employment.
This test looks at the degree of financial risk taken by the worker.
- Is the worker responsible for any operating expenses?
- Is the worker financially liable if he or she does not fulfill the obligations of the contract?
- Does the worker bear the cost of any training that may be required to fulfill the obligations of the contract?
Usually, employees will not have any financial risk as their expenses will be reimbursed, and they will not have fixed ongoing costs. Independent contractors, on the other hand, can have financial risk and incur losses because they usually pay fixed monthly costs even if work is not currently being performed. The potential that unforeseen expenses or additional time will have to be absorbed at the worker’s expense without compensation may indicate independent contractor status. It is expected that independent contractors will not be submitting reimbursement requests. Expenses (including but not limited to telecommunications, postage, insurances, etc.) are the cost of running a business and are the responsibility of the independent contractor.
Responsibility for Investment and Management
This test looks at the degree to which the worker is required to make an investment in order to provide the services.
- Has the worker made a capital investment (for example, in facilities and equipment)?
- Does the worker hire, manage, and pay individuals to help perform the work?
- Does the worker advertise their services in the marketplace?
- Is the work assignment in respect of ongoing tasks or to complete a specific project?
A significant investment and the worker’s freedom to make business decisions that can affect his or her profit or loss is evidence that a business relationship may exist.
Opportunity for Profit
This test looks at the extent to which the worker can control his/her proceeds and expenses to realize a profit.
- Is there a chance for changes in profit to the worker providing the service other than what they are being paid or dependent upon how they manage their expenses?
The absence of the potential for profit or loss may indicate an employment relationship. On the other hand, independent contractors have the chance of profit because they can pursue and accept contracts as they see fit, they can negotiate (or unilaterally set) the price for their services, they have the right to offer those services to more than one payer, and they can decrease their expenses in an effort to increase profit.
See CRA Publication RC4110 – Employee or Self-Employed? for more detailed guidance on the determination factors.