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Are you an Employee or a Self Employed Individual ?
| Guest post by: Brenda Parker |
Article Overview: How to determine if you are or should be an employee or a contracted self employed worker.
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Free Download - Accounting - Beyond the Tax Return By Brenda Parker |
Are you an Employee or a Self Employed Individual ?
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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Article Tags: arc, canada pension plan, canada revenue agency, circumstances, contract basis, cpp, cra, employment insurance canada, gc, income tax, insurance, legislations, nbsp, relationship, tax act
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About the Author: Brenda Parker RSS for Brenda's articles - Visit Brenda's website
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   Moving Expenses The ABCs of the Harmonized Sales Tax for Business Dig hard for those valuable tax receipts and reap the rewards When Your Business Requires Wheels Business Vehicle Expenses Accounting Beyond the Tax Return |
Related Forum Posts
Young Entrepreneur
- I'm fifteen and last year, when I was fourteen I owned a motor sports marketing company. So yes, I do feel last year I was a "Young CEO." This year I'm getting more involved in investing. I assume I am now a "young investor."
And for everyone's reference, there are four types of people in this world:
1.)The Employed
2.) The Self Employed
3.) Business Owners
4.) Investors
The difference between the self employed and business owners is that business owners can leave their company for one year and come back and find that it is more profitable than when he/she left. A self employed person is like a Doctor or Dentist.
Post subject: It's Not Personal, just business
- I so agree! Actually, the business world as we know it IS in trouble. I heard some stats last week that they expect by the time 2050 that 70% of workers will be freelancers. Employee/Executive Bullying won't be able to stand it when it could be easier for someone to simply contract with the nicer guy (or gal). I, for one, will be choosing the nicer ones!
2 Forums Updates
- Many of you have been writing in suggesting that on my website and in my newsletter we include the link to the actual forum post and not just the name of the post and a link to the Forums home page. Well, after looking into it I'm pleased to announce that this feature is now available. Thank you everyone for the suggestions!
We've also added names for members based on how much they post. Level one is Newbie, Level 2 is Intern, Level 3 is Employee and so on... There are 10 levels in total. I'm looking forward to seeing how everyone does!
Keep the suggestions coming - they are great!
Hark work, individual talent and luck
- [quote="LoveInventions":1makjhi6]I think it’s more that I spent six, seven years after leaving school wandering, not really doing anything with my life. It feels like I wasted those years and now I’m playing catch up to what I want to achieve.
At the end of the day I’m happy with the direction I’m now going in and enjoy the process, so all in all it’s not bad.[/quote:1makjhi6]
Hi LoveInventions,
I believe success is influenced by 3 things:
1.) Hard work
2.) Individual talent
3.) Luck (and not fate)
So in my opinion, whether or not you have an additional 6 or 7 years won't affect your chances of reaching your goal. Some people achieve what they set out to do in a few years, while others can spend a lifetime and still fail because of the 3 factors I've listed above.
Moreover, there are people who'll spend 6 or 7 years chasing their dream only to sink into debt or later discover that "the dream" wasn't what they expected and then pursue something else.
Re: Finding AND Keeping Good People
- Employee retention or as you mention “Keeping the Good People” is one of the biggest challenges for any growing business. It takes a huge effort from the entrepreneur’s end.
I can come up with the following when it comes to KEEPing the good people-
1. Motivation of the employees
2. Recognition of the needs of the employees
3. Activities to make the employees feel valuable towards the organization
4. Make benefits more accessible
5. Offer profit sharing incentives
6. Create clear career paths at the company
7. Consider telecommuting, job sharing and other flexible working arrangements
8. Incentives are essential and they don't have to be huge
9. Have other managers praise an employee's work
10. Be sensitive to the balance between work and private life
Share this article with your friends. Fund someone's dream.
Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.
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