You can be either self-employed or an employee. The distinction is important, as your employment status will impact your tax obligations.

What is a self-employed person?

Generally speaking, a self-employed person is a person who operates a sole proprietorship and is free to choose what jobs they do and how and when they do the work. No relationship of subordination exists between the person and their clients. In other words, no one decides, oversees or controls the person's activities. A self-employed person is also referred to as an “individual in business,” an “independent contractor” or, more commonly, a “freelancer.” People who are self-employed can practise a profession, exercise a trade or carry on an activity for profit. However, in all cases, they are their own boss and the profits are theirs alone.

What is an employee?

An employee is generally a person who is bound to an employer by an employment contract and a relationship of subordination. Unlike a self-employed person, an employee's working conditions are governed by labour standards covering such things as minimum wage, hours of work and statutory holidays.

In return, the employee must perform their work in accordance with their employment contract.

Self-employed or employee?

Although the distinction between being self-employed or an employee seems simple, it is important to decide which one you are based on specific criteria. The terms of the mandate, agreement or contract with your client or employer should make your employment status clear and help all parties in the working relationship meet their tax obligations. 

Importance of determining the correct employment status

Even if you consider yourself to be self-employed or are considered self-employed by your work provider, you may still be considered an employee according to our criteria. Your employer might even encourage you to become self-employed; however, the fact that you and your employer agree on your status does not mean we will consider you to be self-employed.

We may, in the course of an audit, assess the situation and conclude that you are actually an employee. Your employer would then have to pay the employer contributions that should have been remitted.

Criteria for determining your employment status

Below are the six main criteria used to determine a worker's employment status:

• Effective subordination
• Financial or economic considerations
• Ownership of tools
• Integral nature of the work
• Specific result of the work
• Agreement on the working relationship

The degree of subordination to the client or employer is the first indicator showing that you are self-employed or an employee. 

Criterion of effective subordination

As the following diagram illustrates, effective subordination in the performance of work is the most important criterion and may be enough to decide whether you are self-employed or an employee.

If your relationship to your client or employer is clearly one of subordination, you are an employee and the other criteria are moot. 

However, if a relationship of subordination is not evident, all the criteria (see the diagram above) need to be weighed to decide whether the balance tips to you being an employee or self-employed.

It is important to note that although all the criteria are designed to determine employment status, not all of them will apply in every situation. 

The following table will help determine whether a relationship of subordination exists between you and your client or employer.

Criteria	You are self-employed	You are an employee
Control over the performance of work	Your client explains their expectations for the work, but has no say in the methods used to do the work.	Your employer assigns you a specific task and related responsibilities.
Individual performance of the contract	You are free to subcontract all or some of the work as well as hire assistants or a replacement.	You cannot be replaced without your employer's permission.
Work schedule	As a rule, your client does not set your work schedule.	Your employer sets your work schedule and dictates and controls the hours worked. Overtime is recorded and paid.
Place of work	As a rule, your client does not dictate your place of work.	You normally work either at your employer's place of business or remotely.
Hiring and firing conditions	The term of the contact is generally defined. If the contract is breached, the client can terminate it. You assume the cost of any damages (e.g. by taking out liability insurance) you cause in performing the work. You are responsible for your own training and professional development.	Your employment contract is renewable by agreement between you and your employer. You have a steady volume of work. Your employer can take disciplinary action against you. Your employer assumes the cost of any damages you cause in performing the work. Your employer covers expenses related to training, professional development and the workplace.

The following table shows the other criteria used for determining employment status:

Criteria	You are self-employed	You are an employee
Financial or economic considerations: who assumes the financial risks?	You can earn profits, but you can also incur losses.  In addition, you must cover your business's operating costs, such as the cost of meals, transportation and accommodation.	You normally assume no financial risk. You have a stable income that is not affected by your employer's financial results. In addition, you are entitled to annual vacation, paid leave and and benefits. You may also receive fixed allowances, bonuses and taxable benefits.
Ownership of tools: who owns the tools used to perform the work?	You usually supply your own tools and equipment for a contract and cover the related costs.	Your employer generally owns and provides the tools and equipment for performing the work and covers the related costs (such as the cost of financing, operation and repairs).
Integral nature of the work: is the work performed integral to the business's activities?	The services you provide (for example, as an outside consultant) are not part of the business's normal activities. You can provide your services to more than one client.	You are an employee if, for example, you:  sell a business's products and sales are among the business's activities; earn income primarily by working for a single employer.
Results: is there an obligation to achieve a specific result?	You are hired to carry out a specific mandate. The business relationship with your client ends once the work has been done.	You personally enter into the employer's service for a set period of time.
Agreement: does the working relationship reflect the terms of the agreement?	You and your client or employer often agree in writing as to whether your relationship is that of a business contract or an employment contract. This criterion is only relevant if the parties act accordingly.	You and your client or employer often agree in writing as to whether your relationship is that of a business contract or an employment contract. This criterion is only relevant if the parties act accordingly.

Help determining your employment status

If you and your employer disagree on your employment status, you can ask us to decide by filing the following forms:

• Application for Determination of Status as an Employee or a Self-Employed Person (RR-65-V);
• Questionnaire for Determination of Status as an Employee or a Self-Employed Person (RR-65.A-V).

The Canada Revenue Agency also publishes a guide entitled Employee or Self-Employed? (RC4110).