Employee Or Independent Contractor (Self Employed)?

At the start of a business relationship a worker and payer often think it is a very good idea to set up their relationship as an independent contractor entering into a contract with the paying business. This permits the paying business the advantage of not having to make source deductions of Employment Insurance "EI", CPP, and income taxes nor pay health tax and workplace safety insurance premiums. The worker benefits in that he/she can deduct all reasonable business expenses from income. Sounds good but is it?

Why Does It Matter?

There are a couple of reasons:

• The Canada Revenue Agency ("CRA") may audit the paying business and determine that the relationship is not one involving an independent contractor but rather is in reality an employer/employee relationship. The CRA will then demand that the employer remit past unremitted EI and CPP and charge penalties and interest. The corporate employer's directors may be held personally liable. The employee may be