Employee or Contractor? What’s Best Option for Your Business

If you run a business and work with others, you might wonder: who counts as an employee, and who counts as a contractor?

It’s more than just a label. How you classify someone affects taxes, benefits, and legal obligations. The CRA has guidelines to help, and we’ll break them down so it’s clear and practical.

Employee vs Contractor: The Cheat Sheet

Employee:

• Starts a new job = Employee
• Paid salary = Employee
• Bonus = Employee
• Benefits = Employee
• RRSP = Employee
• Works for a single business = Employee

Contractor / Subcontractor / Consultant:

• Sets their own prices
• Sets their own hours
• Works for multiple businesses
• Paid for deliverables, not hours worked

Key Factors to Determine Classification

No single factor decides everything. Look at the overall working relationship.

1. Control Over Work

Who decides how, when, and where the work gets done? If your company sets schedules, tools, and processes, leans to employees. Contractors have more freedom to work how they want.

2. Opportunity for Profit or Loss

Contractors can influence their income and take on multiple clients. Employees usually have set pay.

3. Investment in Equipment or Materials

Contractors usually provide their own tools. Employees typically use company resources.

4. Skill and Initiative

Specialized or entrepreneurial work points to a contractor. Following set procedures points to an employee.

5. Permanency of the Relationship

Long-term, exclusive relationships usually indicate an employee. Short-term, project-based arrangements are more contractor-like.

6. How Integral the Work Is

If the role is central to your business, it leans to employee. If it’s peripheral or project-based, that’s contractor territory.

The #1 Myth About Employees

“But employees cost more than contractors!”

It’s true that employees come with taxes and benefits. Contractors might look cheaper at first, but many experienced contractors build their own taxes, insurance, and overhead into their rates. That means a “cheap” contractor can actually cost more than an employee in the long run.

Relying only on contractors also adds hidden costs: you spend time finding, onboarding, and training new people for each project. Over time, that effort adds up — and it’s exhausting.

Employees Are an Investment

Employees handle day-to-day operations and support the bigger picture. They’re invested in your business, which makes them more reliable over the long term. They also help build and maintain your company culture, bringing consistency, shared values, and team cohesion.

Contractors are excellent for specific projects, but employees help your business grow consistently, foster a strong culture, and save you stress in the long run.

What’s Next

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