03 Sep 2013

Am I an employee or am I self-employed?

We’re getting some blurred lines in the work force between the two employment statuses. Many employers are hiring contractors, or self-employed individuals, to reduce costs, especially administrative and payroll expenses.

According to Statistics Canada’s Labour Force Survey released in July, the number of self-employed people in Canada rose 2.4 per cent from 2012.

And in an earlier survey, Statistics Canada learned Calgary has:

  • The largest concentration of small businesses among Canadian cities per capita (38.8 per 1,000 population)
  • The highest number of self-employed per capita in Canada (88.8 per 1,000 population)
  • The largest portion of self-employed people in Canada within the 15-44 age range (43.5 per cent)

The government needs you to be very clear on the differences.

It’s kind of a big deal for Employment Insurance (EI), the Canada Pension Plan (CPP) and when it’s time to file your taxes.

The Canada Revenue Agency (CRA) last month released a bigdocument to help Canadians learn the difference between employment and self-employment.

Employers are responsible for deducting CPP contributions, EI premiums and income tax. They must remit these deductions, along with their share of CPP contributions and EI premiums to the CRA.

When you’re self-employed &8212; whether you’re a sole proprietor, run a corporation or belong in a partnership &8212; you don’t get the benefit of CPP contributions. You can participate in the EI program, since the federal government introduced the Special Benefits access to the self-employed.

And while that all might sound negative, you are eligible for a number of self-employed tax credits and benefits, along with deducting many of your work expenses.

Determining your employment status

The CRA considers several factors in determining whether you are self-employed or employed:

  • Control: A self-employed individual or contractor typically works more independently, without anyone supervising or overseeing the activities or work duties.
  • Tools and Equipment: A self-employed individual typically supplies his own tools and equipment to accomplish the work. He is also responsible for the replacement, repair and insurance of that equipment.
  • Subcontracting: A self-employed individual has the ability to hire help to complete the services, but at the risk of their profits.
  • Financial risk: Employees should not face any financial risk in performing their work duties as their expenses must be reimbursed. Self-employed individuals, however, can incur losses, thanks to expenses or a lack of work to perform.
  • Investment and management: An employee makes no investment in the business by which she is employed.
  • Opportunity for profit: While employees get paid for their services and can earn wage increases, he typically doesn’t stand to gain or lose from the performance of the business (layoffs and firings not withstanding). Self-employed individuals negotiate the cost of their services, can offer services to more than one payer, and manage their expenses to maximize net earnings.

If you participate in the Employment Insurance Special Benefits program, you will undergo an interview with an EI representative to determine your status as a self-employed individual. Many of the questions you must answer will relate to the points listed above.

Here to help

A1 Accounting, a Calgary accounting and bookkeeping firm, is here to assist you with your taxes and planning. We specialize in personal taxes and small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.

Fill out our contact form or give us a call at 403-226-8297.

Follow along

The Canada Revenue Agency has an active Twitter account. If you’re interested in following the account, you can the CRA at@CanRevAgency.

And don’t forget us! We’re on there, too, talking about taxes and business, especially for small businesses and entrepreneurs. Find us at @A1Acct. While you’re at it, like us on Facebook