Contractors Using a Personal Services Corporation in Ontario: What Employers Should Know

It has become common for individual contractors — especially in professional and technical fields — to invoice through their own corporation rather than as a sole proprietor. Businesses sometimes assume that paying a personal services corporation rather than an individual settles the classification question and removes any risk that the worker could later be found to be an employee. That assumption is not correct, and it is worth understanding why before you rely on it.

This article looks at what a personal services corporation actually is, why the structure is so common, and what it does — and does not — change from an Ontario employment-law perspective.

What Is a Personal Services Corporation?

A personal services corporation is simply a corporation, usually owned by a single individual, that the individual uses to provide their personal services to one or more clients. Instead of invoicing a business directly as a sole proprietor, the worker invoices through the corporation, and the corporation pays the individual as its employee or through dividends.

There is nothing unusual about this structure on its own — incorporating is a normal business decision available to any Ontario resident who meets the basic requirements, and a corporation providing services through its owner is common in consulting, IT, and similar fields.

Why Contractors and Businesses Use This Structure

Contractors often incorporate for reasons that have nothing to do with the classification question: potential tax planning advantages, liability separation for their own business activities, and simply presenting as a business rather than an individual when contracting with clients. From the hiring business's side, paying an invoice from "ABC Consulting Inc." can feel more clearly like a business-to-business arrangement than paying an individual directly.

Does Incorporation Change the Employment-Law Analysis?

Not on its own. Whether a worker is, in substance, an employee, a dependent contractor, or a genuine independent contractor depends on the real nature of the working relationship — the degree of control the business exercises, how integrated the worker is into the business, and similar factors — not on the corporate vehicle used to send invoices.

A court or tribunal assessing classification will generally look past the corporate structure to the substance of how the individual actually works day to day. Interposing a corporation between the worker and the business does not, by itself, insulate the arrangement from a misclassification finding.

The Two Separate Risks Employers Face

It helps to keep two distinct questions apart:

• Employment-law classification risk — whether the individual providing the services is, in substance, an employee or dependent contractor of your business, regardless of how they are paid. This is the risk this article focuses on.
• Tax treatment of the contractor's own corporation — the Canada Revenue Agency has its own separate rules for how a corporation used mainly to provide one individual's services to a single client can be taxed differently than an ordinary small business corporation. That is a tax question for an accountant or tax lawyer, not something a general legal information article should try to summarize.

A business can face employment-law exposure on the first point even where the tax treatment of the contractor's own corporation is entirely the contractor's problem to manage.

What This Means for Your Contractor Agreements

• Do not treat "the contractor invoices through a corporation" as a substitute for a properly drafted, substance-consistent agreement.
• Structure the actual working relationship — control, exclusivity, integration into the business — consistently with genuine contractor status, not just the invoicing mechanics.
• Review long-term relationships with incorporated contractors the same way you would review any other contractor relationship for classification risk.
• Recommend, but do not rely solely on, the contractor getting their own tax advice about how their corporation is treated.

Frequently asked questions