For tax purposes the distinction between an employee and an independent contractor is important for the following reasons:

• The deductibility of expenses is considerably more restricted for employees. Self-employed individuals may take more deductions.

• Employers must remit income tax, EI payments, and CPP payments to the CRA for employees only.

Non-tax implications for independent contractors include:

• Ineligibility for EI benefits, holidays, employer-paid or other non-cash benefits;

• Potential liability issues that arise with independent contracts;

• Inability to collect severance pay; and

• Lack of job security, as well as increased economic risk.

The traditional tests of employee versus independent contractor are:

• Control test;

• Integration and organization test;

• Economic reality test (this is a part of the entrepreneur test – ownership of tools and risk of profit/loss); and

• Specific results test (this is part of the risk of profit/loss elements of the entrepreneur test).