Are you an Employee or a Self Employed Individual ?

Guest post by: Brenda Parker
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Accounting - Beyond the Tax Return - By Brenda Parker

If you are an employer, you have probably been asked the big question at some point during an interview for a potential new hire. As a potential worker, you may have been the one asking the big question. What's the big question? "Can you hire me and pay me on a contract basis instead of as an employee?" Or vice versa. At this point, the employer probably has questions as to whether or not this is allowable in the eyes of CRA and the potential new hire is thinking "Wow. I'll get paid without deductions coming off! " or perhaps, "I want to keep my independence as a self employed individual". Hopefully the thought is the latter one.

It is important to determine at the very start whether you are an employee or a self-employed individual. It will affect eligibility for employment insurance and how you will be treated under other legislations such as the Canada Pension Plan, and the Income

Tax Act.

The first step is to look at the facts of the relationship. If you are indeed an employee, the employer is required to deduct employment insurance, Canada pension and income tax from your compensation and remit this to the Canada Revenue Agency along with the employer share of CPP and EI contributions. If the employer fails to do so, they are responsible to remit both the employee and employer share along with interest and penalty.

Furthermore, if the employer and employee are not dealing at arm's length with each other (for example, spouses working for each other) , then they may not be eligible for EI unless the circumstances meet certain criteria. If you are a self employed worker, then you are considered to have a business.

CRA has information on their website which will assist you when defining the nature of the relationship. The link is:cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-08e.pdf. After reading the guide and answering the questions, you should have a better picture of the relationship at hand.

The guide will go through various steps and basically look at such things as- Who sets the hours? Who provides the supplies needed to do the job? Who basically has control over the situation? Can the worker hire subcontractors ? How much financial risk does each

party assume? If other workers within the organization are doing a similar job and are treated differently, can it be justified? and so on. If you are still unsure of the relationship after asking the various questions, you may request a ruling from the Canada Revenue

Agency just to be on the safe side. It is important to be proactive on these issues since it can lead to unnecessary headaches down the road.

Some individuals enjoy just being employees. Others love the independence of being self employed. Whichever path you choose, just make sure that the relationship is clearly defined. Whatever that relationship ends up being, best of luck and enjoy!

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Accounting - Beyond the Tax Return - By Brenda Parker

About the Author: Brenda Parker

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Brenda Parker operates Scotia Accounting and Tax Services located in Stellarton, NS, Canada. After graduating summa cum laude from St. Mary's University in Halifax with a B Comm in Finance and a BA in Economics, she worked for a national grocery firm in various departments with her last role being assistant manager of Taxation. During this time she attained her Certified General Accountant's designation. Since getting her CGA, she has worked in various management/accounting positions for government ,public accounting firms, and as controller of a regional hotel chain and a new car dealership. She is a Simply Accounting Certified Consultant and Quickbooks partner. In her accounting practice she has served both large and small clients in a wide variety of sectors. From personal taxes to businesses in manufacturing, wholesale, retail and services to charities and not-for-profit organizations. She has clients from Cape Breton Island, NS to Montreal, Quebec to Calgary, Alberta and in many locations in mainland NS. All information in her articles is offered without prejudice and she advises readers to consult a professional accountant in person in regards to their personal situations.

Click here to visit Brenda's website.

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