The difference between an employee and an independent contractor in Canada depends on how the working relationship actually operates, not simply what the contract calls you.

Employees generally work as part of someone else’s business and have workplace rights such as minimum wage, vacation pay, overtime and termination protections. Independent contractors generally run their own business, control more of how the work is done and take on more financial risk.

If you are called an independent contractor but work much like an employee, you may have been misclassified. That can affect what you are owed while working and when the relationship ends.

⚠️ Don’t assume that signing an “independent contractor” agreement settles your status. The real day-to-day relationship matters more than the label.

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What Is the Difference Between an Employee and an Independent Contractor?

An employee works as part of the employer’s business, while an independent contractor is generally in business for themselves.

Employees are usually more closely directed by the employer. Independent contractors generally have more freedom over how they perform the work, may serve multiple clients and can make a profit or suffer a financial loss.

No single factor decides the issue. The full working relationship has to be considered. Federal guidance similarly looks at the overall relationship, including control, tools, financial risk and opportunity for profit.

💡 The simplest question is: Are you working as part of someone else’s business, or are you actually running your own?

How Is Employee or Contractor Status Decided?

Your status is decided by looking at the real working relationship as a whole.

Important factors include:

  • Control: Who decides when, where and how the work is done?
  • Tools and equipment: Who provides and pays for what you need to do the job?
  • Chance of profit: Can you increase your earnings by running the work more efficiently or finding more clients?
  • Risk of loss: Can your business actually lose money?
  • Hiring help: Can you hire someone else or subcontract the work?
  • Business independence: Do you market your services, work for several clients and operate like a separate business?

The Canada Revenue Agency uses these same kinds of factors when deciding whether someone is an employee or self-employed. It also emphasizes that the parties’ chosen label must match the real working conditions.

Does your contract decide whether you are an employee?

No. A contract calling you an “independent contractor” does not automatically make you one.

The agreement is one piece of evidence, but what happens in practice matters more. If the company controls your schedule, directs your work, provides the tools and treats you like part of the business, employee status may still be possible.

Does invoicing make you an independent contractor?

No. Sending invoices or being paid without payroll deductions does not by itself decide your legal status.

The same is true if you have registered a business, charge HST or GST, or are paid through a corporation. Those facts can matter, but the entire relationship still needs to be examined.

Employee vs. Independent Contractor: Quick Comparison

Employees tend to have less business independence, while independent contractors tend to control and financially manage their own work.

Employee Independent Contractor
Employer usually has more control over the work Worker usually has more control over how the work is done
Often uses employer tools and systems Often provides their own tools and business expenses
Usually works personally for the employer May be able to hire help or subcontract
Generally paid wages or salary Often sets or negotiates fees and invoices clients
Usually has little chance of business profit or loss Can make a profit or suffer a business loss
Can have employment standards and severance rights Rights usually depend more heavily on the contract and actual relationship

For the broader contractor rules, see Independent Contractor in Canada.

What If You Were Misclassified as an Independent Contractor?

If you were really an employee, calling you an independent contractor may have caused you to miss important workplace rights.

Depending on the law that applies, an employee can have rights to:

Ontario, for example, expressly prohibits employers from treating employees covered by the Employment Standards Act as if they are not employees.

Can you recover unpaid vacation or overtime?

Potentially, if you were actually an employee and the applicable employment standards law gave you those rights.

The amount and deadline depend on the jurisdiction and your circumstances, so keep your contracts, invoices, schedules, pay records and communications.

Can a misclassified employee get severance?

Yes. If you were really an employee, you can have employee severance pay rights even if the company called you a contractor.

That can be especially important after a long relationship ends suddenly. Don’t accept that you are owed nothing simply because your agreement says “independent contractor.”

⚠️ If the company has ended your relationship, don’t sign a release before your status is reviewed. Whether you were an employee, dependent contractor or independent contractor can make a major difference to what you are owed – you could receive up to 24 months’ pay.

What Is a Dependent Contractor?

A dependent contractor is self-employed but relies heavily on one company for work and income.

This is different from being a misclassified employee. A dependent contractor can genuinely be self-employed but still have severance rights because the relationship became highly dependent.

You may need to consider dependent-contractor status if you:

  • Worked mainly or almost entirely for one company
  • Received most of your income from that company
  • Worked with the company for many years
  • Had very few other meaningful clients

See our full guide to dependent contractors in Canada.

What Should You Do If You Are Unsure About Your Status?

Look at how the relationship actually worked and gather the records that show how much control and independence you really had.

  • Keep your contract. It matters, even though it does not decide the issue by itself.
  • Save schedules and instructions. These can show who controlled when and how you worked.
  • Keep invoices and income records. These can show whether you worked for multiple clients or depended on one company.
  • Record who provided the tools. Equipment, workspace and business expenses can be relevant.
  • Consider whether you could refuse work or hire help. Genuine business independence is important.
  • Get advice if the relationship ends. Your legal status can affect severance and other unpaid entitlements.

Can CRA decide whether you are an employee?

Yes. The Canada Revenue Agency can make an employment-status ruling for CPP and EI purposes.

CRA looks at the actual working relationship and considers factors such as control, tools, ability to hire help, financial risk and opportunity for profit.

A CRA determination can be important, but employment-law rights can also require a separate legal analysis under provincial or federal employment law.

Employee vs. Independent Contractor: Frequently Asked Questions

Does having your own business make you an independent contractor?

Not necessarily. Registering a business or corporation is relevant, but the actual working relationship still matters.

Can an independent contractor work full-time hours?

Yes. Full-time hours alone do not make someone an employee. The level of control, business independence and financial risk must also be considered.

Can an employee send invoices?

Yes, it is possible for someone who sends invoices to still legally be an employee. Invoicing is only one fact and does not override the real relationship.

Can an independent contractor get severance?

A truly independent contractor usually relies mainly on the contract for termination rights, but a dependent contractor can be entitled to severance pay.

What if I have worked for the same company for years?

A long relationship can be important, but length of service alone does not decide your status. Look at control, independence, financial risk and whether you worked for other clients.

⚠️ Unionized? Worker-status and employment disputes connected to a unionized position generally have to be handled through the union and grievance process. Samfiru Tumarkin LLP’s employment law team can’t assist with unionized workplace disputes.

Find Out Whether You Are Really an Employee or Contractor

Being called an independent contractor can affect pay, vacation, overtime, taxes and what you receive when the relationship ends. But the label does not decide your legal rights.

Samfiru Tumarkin LLP helps workers in Ontario, Alberta and British Columbia determine whether they are employees, dependent contractors or genuinely independent contractors.

If you work like an employee but are being treated as a contractor, have your status reviewed before accepting that you are not entitled to workplace protections or severance.

Are You Really an Independent Contractor?

If you work like an employee but are treated as a contractor, you may be missing important rights to vacation pay, overtime, severance and other entitlements.

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