Calling someone a contractor does not make them one. The Employment Standards Act, the Canada Revenue Agency and the courts each apply their own test to what actually happened day to day. A signed agreement is evidence, not the answer. If the reality looks like employment, you pay as if it were.
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From $1,128.87 taxes included
The central question the Supreme Court of Canada uses is whether the person is performing the services as a person in business on their own account. Around that sit the familiar factors: control over how and when the work is done, who supplies the tools and equipment, the worker's chance of profit and risk of loss, and how far the worker is integrated into your business. No single factor decides it. The whole picture does.
Facts that push toward employee: set hours, a company email address and title, working for you and nobody else, being told how rather than what, no right to send a substitute, no invoices, no business insurance, and full reimbursement of every cost. Facts that push the other way: several clients, own tools and staff, fixed-price quotes, and a genuine chance of losing money on a job.
The written agreement still matters. It frames the parties' intention and can decide genuinely close cases. What it will not do is survive a record of daily direction, mandatory shifts, and a worker who has no other source of income.
Section 5.1 of the Employment Standards Act, 2000 prohibits an employer from treating a person who is an employee as if they were not. If an officer finds employment, the entitlements follow: unpaid overtime, vacation pay, public holiday pay, termination pay and interest. There is a statutory limit on how far back an order can reach, but it is measured in years.
On the tax side, if a CRA ruling goes against you, you owe both the employer and employee shares of CPP and EI that were never withheld, plus penalties and interest. You can buy certainty in advance: either party can ask the CRA for a ruling on the status of a particular worker, ideally before the relationship starts rather than after it ends badly.
The WSIB will assess unpaid premiums for the period the worker should have been covered. HST charged by the worker proves nothing either way. And an indemnity clause in your services agreement does not bind the CRA, the Ministry of Labour or the WSIB — it only gives you a claim against a person who usually cannot pay it.
Ontario common law recognises an intermediate status between employee and independent contractor. A contractor who works substantially or exclusively for one client over a long period, and is economically dependent on it, can be a dependent contractor. They are not an employee for ESA purposes, but they are entitled to reasonable notice of termination at common law — and "thirty days' notice" in your services agreement will not necessarily hold.
Exclusivity is the factor courts weigh hardest, then duration, then economic dependence. If your longest-serving contractor invoices you and nobody else, that is the file to price now, while you can still restructure it or negotiate an exit on your own timing.
Draft to the arrangement you actually want, then run the business that way. Deliverables and outcomes rather than hours. No mandatory attendance at internal meetings unrelated to the deliverable. The contractor supplies their own equipment, carries their own liability insurance, invoices for work done, and is free to take other clients. A genuine right to subcontract is powerful evidence even if it is never used.
Include a real termination provision, an intellectual property assignment, confidentiality obligations, and a clear statement about who remits what. One caution: Ontario prohibits non-compete agreements with employees, with narrow exceptions. If the worker turns out to have been an employee all along, your non-compete is void too.
No. Neither the ESA nor the CRA treats the worker's preference as decisive, and the worker can change their mind the day the relationship ends. The remittance obligation sits with the employer, so it is the business that gets assessed for the unpaid CPP and EI, not the person who asked for the arrangement.
No. Incorporation is one factor, not an answer. A one-person corporation performing set shifts under your direction, with no other clients, is routinely treated as employment in substance. The CRA also has separate and unfavourable tax treatment for personal services businesses, which can hit the contractor hard and sour the relationship you were trying to protect.
You pay the unremitted CPP and EI for both the employer and the employee share for the years under review, plus penalties and interest. Directors can be personally liable for unremitted source deductions. The employee-side amounts are technically recoverable from the worker in some circumstances, but as a practical matter the business absorbs them.
Yes, in two ways. If they are found to be an employee, ESA notice and termination pay apply. If they are a dependent contractor at common law, reasonable notice applies even though the ESA does not. Long, exclusive relationships carry the most risk, and a short contractual notice period is the first thing a court will look at.
Carefully, and with advice first. Converting someone to employee status can be read as an admission about the past. Depending on the numbers, the sensible sequence may involve a CRA ruling request, a voluntary disclosure, a properly documented transition, or a negotiated exit. Doing it in the wrong order can convert a manageable problem into an audit.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.