The distinction between employees and independent contractors seems sometimes blurry, but this important distinction can have huge financial consequences for both payers and workers. When you sign in as an employee, payers have the responsibility of withholding applicable payroll taxes and Employment Income and Canadian Pension Plan contributions. This also makes workers subject to the provisions of federal and provincial labour standards legislation, including restrictions on work hours and mandatory holiday and overtime pay.
Because independent contractors are considered self-employed, they don’t qualify for employee protections. On the upside, this means you can deduct legitimate business expenses from your net income, which remains fully taxable for those classified as employees. The Canadian Revenue Administration looks at these issues carefully. Payers who improperly classify employees as independent contractors can be held liable for back payroll taxes and must pay their and the employees share of EI and CPP contributions alongside any holiday or overtime pay the worker should’ve received and any applicable fines or penalties. The case of Omarali vs. Just Energy illustrates the potential financial consequences of improperly classifying employees as independent contractors.