Employee or Independent Contractor? How CRA Decides

Calling someone a "contractor" in a written agreement doesn't make them one. CRA looks at how the working relationship functions, not just what the paperwork says — and getting it wrong can leave the business responsible for CPP contributions, EI premiums, penalties, and interest that should have been handled through payroll.

What's Happening

CRA's guidance on this used to be a single publication, Guide RC4110. That guide was cancelled on January 30, 2026, and replaced with web-based guidance called "Employment status: Employee or self-employed." The underlying legal test hasn't changed — it's still built on the same court decisions — but if you've got RC4110 bookmarked anywhere, that specific document doesn't exist anymore.

The first thing CRA checks is where the contract was formed — generally, where the person making the offer received the other party's acceptance. This matters because Quebec uses the Civil Code of Québec, while the rest of Canada uses common law. A contract can also specify which law governs it, so location isn't always the end of the question. This article covers the common-law test that applies outside Quebec.

Once that's settled, CRA works through two steps.

Step 1: What did both sides intend? Did the worker and the payer mean to create an employer-employee relationship (a "contract of service"), or a business relationship (a "contract for services")? Usually visible in the written agreement, if there is one, or in how both sides describe and behave toward the arrangement.

Step 2: Do the facts match that intention? This is where most disputes come from. You can call someone a contractor in writing, but if the day-to-day reality looks like employment, the label doesn't win. CRA looks at six elements together — no single one decides it on its own:

Control. Who directs how, when, and where the work gets done? It's the payer's right to control the work that matters, not whether they use it. A hands-off client who could direct the work if they wanted to still points toward employment.

Tools and equipment. Who supplies what's needed, and who covers repairs, insurance, and replacement? A worker who's put real money into their own tools looks more like a business — though needing your own tools alone doesn't settle it; plenty of employees, like tradespeople, supply their own too.

Subcontracting or hiring assistants. Can the worker send someone else to do the job, or hire help on their own dime without needing the payer's sign-off? Employees generally have to do the work themselves.

Financial risk. Does the worker carry fixed costs that show up whether or not there's active work? Are they on the hook if the job goes wrong? Employees are usually insulated from this; self-employed workers usually aren't.

Investment and management. Has the worker put real capital into doing this work — equipment, workspace, staff? Do they make their own calls on how the business runs?

Opportunity for profit. Can the worker earn more by managing their own costs and pricing, and could they lose money if expenses outrun what they bring in? A flat fee where the worker covers their own expenses points toward a business relationship. Hourly or salaried pay with expenses reimbursed points toward employment.

CRA weighs these six together, then checks that against what both sides said they intended going in.

Managing This Ongoing

Don't lean on the contract wording alone. A written agreement calling someone an "independent contractor" shows intent — it isn't proof. If CRA reviews the actual relationship and it looks like employment, the label doesn't change the outcome.

Reassess when the relationship changes, not just at the start. A worker who began as a real contractor — setting their own hours, working for multiple clients, using their own gear — can drift into something that looks like employment over time, especially if they end up full-time with one client, on-site, on company equipment. Check periodically, not just once at hiring.

Watch skilled or specialized roles closely. CRA's own guidance flags that control can be hard to assess for people like engineers, doctors, and IT consultants — professionals who need little day-to-day direction simply because of their expertise. Low supervision alone doesn't settle the question.

If you're unsure, either the worker or the payer can request a formal CPP/EI ruling. CRA reviews the relationship and issues an official written decision for the period covered. If the working arrangement later changes, a new ruling may be needed.

If You Think the Classification May Be Wrong

If a worker who should have been on payroll has been treated as a contractor, don't leave it sitting there. The business can become responsible for CPP contributions, EI premiums, and income tax that should have been handled through payroll, along with interest and possible penalties.

One consequence many businesses don't expect: the business can end up owing both the employer's and employee's share of CPP and EI, on top of whatever it already paid the worker as a contractor.

If you think a classification is wrong, bring it to your accountant or bookkeeper before CRA raises it.

To see what a reclassification can cost, read what happens if CRA reclassifies your contractor as an employee. For the slips that follow the classification, see T4 or T4A? Which slip you issue and why it matters.

FAQ

If the worker prefers to be treated as a contractor, does that settle it?
No. Both sides can want a contractor relationship, but CRA still checks whether the facts support it. Preference doesn't override the six-factor test.

Does having only one client automatically make someone an employee?
No. Having one client can be relevant to the overall picture, but it doesn't determine status on its own. CRA still looks at the whole relationship — including control, tools, ability to hire help, financial risk, investment and management, and opportunity for profit.

Is the test different in Quebec?
Yes. Quebec runs on the Civil Code of Québec rather than the common-law test above, and the framework is structured differently. A business operating in Quebec shouldn't assume the common-law factors carry over unchanged.

What's the fastest way to get certainty on a specific worker?
Request a CPP/EI ruling from CRA. Either side can ask, and CRA issues an official written decision for the period it covers — the most reliable way to settle a genuinely close call.

Is there a deadline to ask CRA for a CPP/EI ruling?
Yes. A worker or payer generally has until June 29 of the year following the year the question relates to. If you're dealing with an older period, don't assume a ruling request is still available — get advice on how to correct the situation.

Follow the system. File with confidence.