{"id":10006,"date":"2021-04-12T11:04:00","date_gmt":"2021-04-12T11:04:00","guid":{"rendered":"https:\/\/procomservices.com\/understanding-contractor-classification-types-in-canada\/"},"modified":"2025-11-19T18:21:55","modified_gmt":"2025-11-19T18:21:55","slug":"understanding-contractor-classification-types-in-canada","status":"publish","type":"post","link":"https:\/\/procomservices.com\/en-us\/insights\/understanding-contractor-classification-types-in-canada\/","title":{"rendered":"Understanding contractor classification types in Canada"},"content":{"rendered":"\n

When onboarding an independent contractor in Canada, organizations must classify aspects of the\u00a0contingent worker<\/a>\u00a0relationship to ensure compliance with the correct tax and employment laws. Misclassification of workers happens in Canada when Canada Revenue Agency (CRA) and\/or regulatory bodies deem one or more of an organization\u2019s contract workers as actual employees. Independent Contractor classification will also affect the cost of employing specific contractor types.\u00a0<\/p>\n\n

The digital transformation is\u00a0not only\u00a0changing the way\u00a0companies do business,\u00a0it\u2019s\u00a0also changing the way\u00a0they\u00a0use talent to\u00a0get it done.<\/p>\n\n

Historically, the full-time employment model was the \u201cgo to\u201d method for acquiring talent, now – however, more and more organizations are engaging temporary resources rather than hiring full-time employees in order to remain competitive and meet their business objectives.\u00a0<\/p>\n\n

Looking ahead, four\u00a0in\u00a010\u00a0Canadian businesses say their organization is committed to\u00a0growing their\u00a0non-employee\u00a0workforce to create greater flexibility over the next five years.<\/p>\n\n

Understanding contractor classification in Canada<\/h1>\n\n

And while these workers may be referred to by\u00a0many different names\u00a0\u2013\u00a0temporary resources,\u00a0freelancers, gig or remote workers, contractors, consultants, etc. \u2013 there are\u00a0generally\u00a0four\u00a0different\u00a0types\u00a0of\u00a0employment statuses that\u00a0they\u00a0can\u00a0present\u00a0themselves as when entering a working relationship, and all of them come with varying classification requirements\u00a0that\u00a0employers must\u00a0consider.\u00a0\u00a0<\/p>\n\n

Misclassifying workers can have serious financial, legal and reputational implications on your business, and as such, it\u2019s important to become familiar with the different types of contingent workers before onboarding them into your workforce.\u00a0<\/p>\n\n

Below is a breakdown of the four different employment statuses that contingent workers can present themselves as in Canada:\u00a0<\/p>\n\n

Incorporated Contractor (INC)<\/h1>\n\n

The incorporated contractor, commonly referred to as an INC in the staffing world, represents a worker who has chosen to be in business for themselves and has incorporated a business to provide his or her services through.\u00a0\u00a0Engaging a worker that is incorporated to perform services for your organization essentially represents a business to business relationship between your company and another company.\u00a0\u00a0<\/p>\n\n

As a business, the INC will have registered for an HST number if their business has had revenues exceeding $30,000 in a consecutive four quarter period.\u00a0\u00a0<\/p>\n\n

Sole Proprietor (SP)<\/h3>\n\n

According to the Canada Revenue\u00a0Agency (CRA)\u00a0a\u00a0sole\u00a0proprietorship\u00a0\u201cis an unincorporated business that is owned by one individual. It is the simplest kind of business structure\u201d.\u00a0<\/p>\n\n

Workers classified as a sole proprietorship are similar to incorporated contractors in that they have chosen to start a business for themselves, however the primary differences are that a sole proprietor is personally liable for the obligations of the contract and they may be doing business under their personal name rather than under a registered business name.\u00a0\u00a0\u00a0<\/p>\n\n

Temporary Worker (T4)<\/h3>\n\n

Temporary\u00a0workers\u00a0is\u00a0the typical relationship for contractors and the most common\u00a0engagement type in\u00a0use. These individuals\u00a0have an employment relationship\u00a0that\u00a0is\u00a0usually\u00a0defined through a written contract.\u00a0\u00a0\u00a0As a\u00a0temporary\u00a0worker\u00a0engaged\u00a0on a term\u00a0assignment, the employer\u00a0is responsible for all\u00a0employment standards\u00a0obligations and tax remittance requirements such as\u00a0EI, CPP and income tax\u00a0collection\u00a0at source.\u00a0 Specific provincial tax obligations, such as the\u00a0employer\u00a0heath\u00a0tax\u00a0also apply.\u00a0\u00a0\u00a0<\/p>\n\n

At the end of every year, a temporary worker must receive a T4 from his or her employer which details their earnings and withholdings\/remittances for the year, and the employer is responsible to publish a Record of Employment at the end of the assignment.\u00a0\u00a0<\/p>\n\n

Partnerships<\/h3>\n\n

Contract workers sometimes structure themselves as partnerships, although this is not one of the more common structures. A partnership is defined as a business relationship between two or more people or companies and it can even include two or more partnerships.\u00a0\u00a0<\/p>\n\n

Revenues earned by the partnership are split according to the\u00a0terms of the partnership agreement and it is the responsibility of the partners themselves to be compliant with\u00a0CRA tax reporting and payment guidelines.\u00a0\u00a0<\/p>\n\n

Partnerships act as employer of record for the individuals they place on contract, and clients should take reasonable steps to ensure that a supplier organized as a partnership is in good standing with all relevant tax and government authorities.\u00a0\u00a0\u00a0<\/p>\n\n

What are the risks involved in engaging contingent workers?<\/h3>\n\n

The shift towards a more agile workforce offers greater opportunity for flexibility and improved access to highly skilled people.\u00a0 For individuals, it also offers more flexibility, and the opportunity to organize their career by their skill set and develop valuable expertise.\u00a0\u00a0For both parties though, it also brings risks associated with unintended co-employment and relationship misclassification.\u00a0\u00a0<\/p>\n\n

At the root of both contingent worker risks is the determination as to whether there is an employer-employee relationship between the company and the contingent worker.\u00a0\u00a0<\/p>\n\n

Simply engaging workers who have organized themselves through a corporation or a sole proprietorship does not mean that you have avoided any of the risks that can be associated with contingent workers.\u00a0\u00a0<\/p>\n\n

As contingent workers increasingly become\u00a0a more\u00a0integral part of the workforce, it\u2019s important for organizations to be aware of compliance issues that can arise from engaging temporary resources\u00a0and\u00a0to have a process internally that ensures that they get it right.<\/p>\n\n

To learn more about how competitive organizations are managing contingent worker risk, download our free white paper:\u00a0A Checklist for Contingent Worker Risk:<\/strong><\/p>\n\n

*Disclaimer:\u00a0\u00a0the information provided in this article is intended to be helpful information on the subjects discussed therein.\u00a0 It is not intended to be and should not be used as legal, business, or financial advice.\u00a0<\/p>\n\t\t\n\t\t\t\t\t