Employee Vs Contractor – What’s the Difference

In Canada, there are two main types of employment relationships: employee and contractor. While both types of workers perform tasks and services for an employer, they have different legal rights and obligations and are treated differently under the law. It is important to understand the differences between being an employee and a contractor, as well as the benefits and drawbacks of both, to make an informed decision about your employment status.

An employee is a person who works for an employer under a contract of employment. The employer controls how, when, and where the work is done, and the employee is entitled to certain rights and benefits such as vacation pay, statutory holidays, overtime pay, and employment insurance. Employees also have certain protections under the law, such as the right to minimum wage, safe working conditions, and protection against discrimination and harassment.

A contractor, on the other hand, is a person who provides services to an employer under a contract for services. The contractor controls how, when, and where the work is done and is usually not entitled to the same rights and benefits as employees. Contractors are responsible for their own taxes, benefits, and insurance, and they do not have the same protections under the law as employees.

So, what are the benefits of being an employee versus a contractor?

Benefits of being an employee:

  • Stable and predictable income
  • Employment insurance and other benefits
  • Legal protections under the law
  • Ability to contribute to a registered pension plan

Benefits of being a contractor:

  • Flexibility and control over your work
  • Potential for higher income
  • Ability to claim business expenses as deductions on your tax return

It is important to note that the line between an employee and a contractor is not always clear and can be complex. The Canada Revenue Agency (CRA) has developed a set of guidelines known as the “tests of dependency” to determine whether a worker is an employee or a contractor. The tests consider factors such as the degree of control the employer has over the worker, the ownership of tools and equipment, and the level of financial risk assumed by the worker.

In conclusion, being an employee or a contractor in Canada has its own set of benefits and drawbacks. It is important to understand the differences between the two and the legal implications of your employment status. If you are unsure about your employment status, it is recommended to seek professional advice or consult with the CRA.