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Staffing: Employees or Sub-contractors?

Updated: Jul 20, 2023

In your business, not much is more important than your staff. Without diving into the deep end of staffing, HR, retention or such - let's consider when your people are considered employees and when they're considered sub-contractors.

(We've touched on this subject before, when we blogged about the idea of "casual labour" in this post!)

The CRA has a full guide on this topic, so this is by necessity a brief overview. In short, an employee is someone who works for you, on a schedule you set, with tools, resources and equipment that you supply. And generally, a sub-contractor is an individual that has their own business, and they set their hours. They may or may not use their own own equipment and resources, depending on the type and location of the work.

An employee is paid through payroll, with income tax deducted and other employee and employer payroll deductions remitted to the CRA. A sub-contractor will generally submit an invoice for payment and they may charge GST on their services. The contractor is responsible for their own taxes owing and CPP contributions.

As an employer, you'll want to remember that an employee's payroll source deductions can add up to about 15% over and above the base wage. This means that a sub-contractor is traditionally paid more, as they deal with their own deductions.

And, at the end of the year, both have different reporting requirements. Employee wages are reported to the CRA through the filing of T4s, while sub-contractor fees are reported through T4A or T5018s.

Are you confused yet? Check out the link above to the CRA's guide on the topic. Otherwise, we are here to help you with all things payroll. Drop us a line!

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