What is an 'incorporated employee' and how is it different from a personal services business?

These two terms describe the same underlying situation from two different angles. An "incorporated employee" refers to the individual, someone who provides their services through a corporation but who, if that corporation didn't exist, would reasonably be considered an employee of the client they work for. A "personal services business" refers to the corporation itself, the classification the Income Tax Act applies to that corporation once the incorporated-employee test is met.

In other words, you don't have one without the other: if an individual is found to be an incorporated employee with respect to a particular client relationship, the corporation through which they provide those services is the personal services business, and the tax consequences discussed elsewhere, losing the small business rate and most ordinary deductions, attach to the corporation because of what the individual's relationship with the client actually looks like.

Understanding this distinction matters mainly for how people talk about the issue: describing yourself as an "incorporated employee" is really shorthand for saying your corporation is at risk of, or has been found to be, a personal services business, and the practical fix involves changing the substance of the working relationship, not just how you describe your corporate structure.