Employee or contractor: which way do the CRA's factors lean for the person you pay?

The two steps the CRA works through

Where common law governs the agreement, the CRA runs a two-step test. Step one asks what the two of you meant to set up when the work started, employment or a deal between two businesses. Where you understood it differently, the CRA treats that as no common intention. Step two tests the intention against six elements, and the checker asks one plain question about each of them.

The instruction the CRA gives is the reason this page counts rather than concludes. For each element you look at the indicators separately, then look at them all together and compare them with the intention the two of you stated. A worker who reads as a contractor on four elements and an employee on two is a judgment call, and that judgment belongs to a person who has read the file.

A written agreement is evidence of intention and nothing more. The law goes further and voids an agreement to take no deductions off a worker’s pay, so a contract calling somebody a contractor can’t make them one. The popular rule that a contractor is safe below 80% of their income from one payer appears nowhere in the test.

The six factors, and the fact behind each one

Control is about the right to direct the work, rather than about whether you use that right. Nobody supervises a skilled professional hour by hour, so the CRA weighs the wider control alongside the daily kind. Moving a worker onto another job, setting their hours and vetting who else they work for all count.

Tools and equipment, subcontracting and financial risk each ask whether the worker carries costs of their own. Ownership of a toolbox settles little on its own, because employed mechanics buy their own. What counts toward a business is a real investment the worker insures and replaces, or a genuine right to send a substitute. The chance of finishing a job out of pocket counts toward a business as well.

Investment and management, and opportunity for profit, ask whether the worker runs an operation of their own. A business has money going out as well as coming in, and it can do better or worse on a job depending on how it runs the work. The CRA says the method of payment may help show that, because an hourly rate with every expense reimbursed leaves no room for either a profit or a loss.

The CRA gives no element a fixed weight, and neither does the tally here, which counts all six the same. Where you’d refuse to let somebody send a competent replacement, that factor reads as a job, and it’s still one factor of six that the CRA reads together.

What a reclassification costs the payer

A payer that didn’t deduct is assessed for both halves rather than for its own. The CRA states the rule plainly for an employer that under-deducted: you’re responsible for remitting the balance due for both the employer’s and the employee’s shares. The calculator prints your half and the worker’s half separately, so the difference between the two is visible.

Contributions run on pay between $3,500 and $74,600 at 5.95% each side, and a second slice runs from $74,600 to $85,000 at 4% each side. Premiums run on pay up to $68,900 at 1.63% for the worker, and you pay 1.4 times whatever the worker pays. One worker for one year therefore tops out at $11,988.27 across both halves, and you only reach that ceiling at $85,000 of pay.

A penalty on the amounts you should have deducted, and interest that compounds daily until you pay, sit on top of that figure. Neither is in the arithmetic above, because the penalty turns on whether the CRA treats the failure as a first one, and the interest rate resets every quarter.

How far back the CRA can go depends on the Act the amount falls under. Under the Canada Pension Plan an assessment can reach back four years from the day a contribution was due, penalty and interest included. Under the Employment Insurance Act the limit is three years after the end of the year the premium was due. Both limits lift where the payer made a misrepresentation or committed fraud in filing a return or supplying information. Income tax is the exception, because the penalty and interest for not withholding it can be assessed at any time. Any of these bills can reach you personally as a director if the corporation can’t pay it.

What this checker leaves out

Quebec is the largest omission and a deliberate one. The place the contract was formed generally sets the legal test unless the agreement names another law, so work outside Quebec can still fall under its Civil Code. Quebec payroll also runs on its own pension and parental insurance plans. Neither the questions nor the figures on this page transfer, and Cadence doesn’t prepare Quebec returns.

Where the worker bills you through a corporation of their own, the payroll exposure priced here largely falls away and a different problem lands on the worker. Their company can be taxed as a personal services business, which strips almost every deduction and applies a punitive rate, so the risk is theirs rather than yours. Reporting is separate again, so a construction payer still files a T5018 for each subcontractor over the threshold and other payers may owe a T4A.

Four smaller omissions are worth naming, and the first is the back income tax, which the CRA collects from a worker who lives in Canada and files their own return. Provincial exposure is left out as well, so a payroll levy, workers’ compensation premiums and employment-standards back pay are all extra. Deemed-insurable occupations follow their own path, which the checker doesn’t model (i.e. the trades the rules treat as insurable whatever the six factors say, such as barbers and taxi drivers). And the arithmetic assumes a worker at arm’s length who holds no more than 40% of your voting shares. A worker outside that assumption may be in excluded employment for premiums.

The full argument, including what a favourable ruling protects you from and how far back the CRA can reach, sits in the guide this checker was built from. Are your contractors actually employees? sets out the ruling route, the director exposure and how far back the CRA can reach.

Three worked examples

All three examples assume the offeror received acceptance in Ontario and the agreement names no other law, so the common-law test applies.

To provide an example, take a worker who signed a contractor agreement, brings their own laptop, works the hours you set, can’t send anybody in their place, and invoices you by the hour with expenses reimbursed.

The tally reads five toward employee and one toward contractor, and the one factor pointing the other way is the equipment. On $85,000 of pay a reclassification costs $11,988.27, being $9,292.90 of contributions and $2,695.37 of premiums, of which $5,769.52 is the worker's share that payroll would have deducted from their pay. Payroll from the start would have cost you $6,218.75.

The second example is the arrangement the first one is usually mistaken for, a worker who quotes a price, runs their own equipment and sends a helper when the job needs two people.

Here the tally reads six toward contractor, with nothing reading against the deal between two businesses the two of you agreed. The bill if that reading were wrong is $9,070.70 on $60,000 of pay, or 15.12 cents for every dollar you paid them.

The third example is what an honest first pass usually looks like, with nothing written down at the start and half the questions unanswered.

With three of the six answered "not sure" the tally reads three toward employee and three neither, and no intention was stated for those to be read against. The cost side still works: $30,000 of pay carries $4,327.10 of contributions and premiums across both halves, 14.42 cents in the dollar.

What one reclassified worker costs you

Each row prices one worker for one year at the 2026 rates, and the last row is the pay at which both ceilings bind. The two columns after the pay are both halves of the contributions and both premiums. The column headed Payroll would have cost is what putting the worker on payroll from the start would have cost you.

The Payroll would have cost column is the cost that payroll carries from the start, and the gap between it and the Assessed against you column is the worker’s share. You can recover that share only out of later pay to the same worker within twelve months.