Introduction

This article provides information on what the Canada Revenue Agency (CRA) looks at when determining the employment status of a consultant providing services in the information technology (IT) sector.

IT consultants analyze systems requirements; develop and implement information systems, development plans, and policies and procedures; and provide advice on a wide range of information systems matters.

General information about whether a worker is an employee or is self-employed is available in Guide RC4110, Employee or Self-employed

Employment status directly affects a person's entitlement to employment insurance (EI) benefits under the Employment Insurance Act. This status can also affect how a worker is treated under other legislation such as the Canada Pension Plan and the Income Tax Act.

Employees and self-employed workers have different responsibilities, benefits, and entitlements. It is important for employees and self-employed workers, as well as for their employers and payers, to be aware of the differences. For more information, see Responsibilities, benefits and entitlements for employees and self-employed workers.

Employer responsibilities

All employers are required by law to deduct CPP contributions and EI premiums from most amounts they pay to their employees. Employers must remit these amounts to the CRA along with their share of CPP contributions and EI premiums.

For more information on employer responsibilities and obligations, go to our Payroll page.

How to decide if an IT consultant is an employee or a self-employed worker

The CRA looks at the facts of the working relationship between the payer and the IT consultant. This article will tell you about facts related to IT consultants and the indicators that can help you decide whether a consultant is an employee or a self-employed worker.

Neutral or inconclusive facts

Some facts about the working relationship of IT consultants may be considered to be neutral or inconclusive. Neutral or inconclusive facts are facts that support the conclusion that a person is an employee just as much as they support the conclusion that the person is a self-employed worker.

The following are examples of facts that may be considered neutral:

• The assigned project, mandate, or deliverable is part of a large project, and the planning for the whole project is not entirely up to the IT consultant, although a certain amount of planning may be done by the consultant for their part of the project.
• The IT consultant is part of a team and follows the work schedule of the team to ensure the presence of all of the team members at the same time. The nature of the work makes this necessary.
• The contracts between the parties include confidentiality or assignment of intellectual property clauses.
• The IT consultant provides services for one payer at a time.
• The payer agrees to reimburse the IT consultant for amounts that were expressly negotiated as part of the mandate.
• For security reasons and because the nature of the work makes this necessary:
  • The IT consultant must provide their services at the payer’s place of business.
  • The IT consultant must follow a certain work schedule. Time sheets may be used to track project costs.
  • The payer provides all of the work tools required, because the work has to be done on the payer’s secure equipment.
  • The IT consultant does not have any staff or subcontractors, because this is not allowed by the payer.

The above facts are considered to be neutral when it is established that they are present because of the nature of the work and not because the payer controls how the worker does the work or has the right to this control.

Example

The payer requires the IT consultant to provide their services at the payer’s place of business using the payer’s secure equipment in a secure location. The payer may also require that the IT consultant work as part of a team, follow a certain work schedule, and complete time sheets to track project costs. These facts would be considered neutral when the nature of the work dictates that these working conditions are necessary. Although these conditions of employment are usually indicators of control, they would be considered neutral in this situation. The IT consultant would have agreed to these conditions before accepting the contract, knowing that these are the requirements of the job.

Is the IT consultant an employee?

Generally, an employee is hired to perform specific duties under the direction and control of the person or company who hired them. Even though IT consultants need little or no specific direction in their daily activities due to their expertise and specialized training (their skills and expertise often exceed those of the payer), the payer may have control by way of their influence over the worker. Under the terms and conditions of employment, an employee is not normally in a position to make a profit or suffer a loss. An employee is not perceived as operating their own business, but rather as being an integral part of the payer's business. An employee may be entitled to benefits, be paid for vacation time, or be covered by a collective agreement.

The following indicators can help you determine if an IT consultant is an employee. This is not a complete list, and not all of these indicators will be present in every situation. Consider all facts related to the working relationship.

Indicators that the worker is an employee

The payer:

• has the right to redirect and assign new tasks, projects, or priorities as needed
• sets out the procedures to follow in performing tasks and the methods to use
• requires that the IT consultant get approval before taking certain actions
• has the right to assign the IT consultant to specific projects and specific work locations and direct them on how the work has to be done and the period of time to complete the work
• requires that the IT consultant provide services at the payer’s place of business to allow the payer to monitor or provide direction as to how the work is done
• assigns the IT consultant to work in specific locations where their mandatory presence is required
• requires that the IT consultant respect certain conditions of employment or rules of conduct or behaviour as described in the example below
• can take disciplinary actions if the rules of conduct or behaviour are not respected
• requires that the IT consultant ask permission to be absent or to take vacation
• requires that the IT consultant devote their full time and attention to the payer’s business (exclusive service). The IT consultant is an integral part of the payer’s business
• reimburses the IT consultant for any expenses relating to the payer’s business
• decides where the IT consultant must buy or get supplies and services
• provides benefits to the IT consultant, such as:
  • paid vacation
  • sick days
  • bereavement leave
  • other types of paid leave
  • medical/dental insurance
  • a pension plan

Some of the above facts may be considered to be neutral or inconclusive when it is established that they are present because of the nature of the work, for example, security issues.

Example of an employee

The payer requires the IT consultant to provide their services at the payer’s place of business (or other location where their mandatory presence is required) using some of the payer’s equipment. The payer may also require that the IT consultant work as part of a team, follow a certain work schedule, be available at certain times, ask permission to be absent or to take vacation, and have their hours monitored through the use of time sheets or a punch clock. The payer may require that the IT consultant work at the same time and in the same location as the payer’s employees. These facts would support the conclusion that the worker is an employee. When looking at the total relationship of the parties, it is reasonable to conclude that the payer monitors, directs, or controls or has the right to monitor, direct, or control how the worker does the work (whether the payer exercises this right or not).

Is the IT consultant a self-employed worker?

A self-employed worker carries on their own business. The self-employed worker enters into a contract for service (business relationship) with their payer. The payer and worker may sign a written agreement or contract that either one may terminate with short notice.

For more information on the responsibilities of self-employed workers, go to Business taxes or Small businesses and self-employed income.

In this relationship, the self-employed IT consultant agrees to produce a given result and is not under the direction or control of the payer or person to whom they provide the service.

The following indicators can help you determine if an IT consultant is self-employed. This is not a complete list, and not all of these indicators will be present in every situation. Consider all facts related to the working relationship.

Indicators that the worker is self-employed

Generally, an IT consultant is considered to be self-employed if the employee indicators listed above are not present and the IT consultant:

• is engaged to work on an identifiable project and the payer does not normally redirect or reassign work. However, the IT consultant may choose to perform services unrelated to their main role as a way of marketing their skills
• under the terms and conditions of the contract, is responsible for any penalties or costs resulting from late delivery of the deliverable, as well as incomplete or poor quality work that may have to be redone by the IT consultant (errors or cost overruns), and may have liability insurance
• may have disability insurance to cover fixed business costs in case of disability
• provides the work tools, such as a computer or laptop, software, and office or technical manuals, and assumes the costs associated with maintaining and repairing these tools
• has the freedom to make decisions that affect their ability to make a profit (such as receiving extra remuneration for completion of projects or achievement milestones) or suffer a loss (such as deciding on the type of work tools to buy or the type of training courses to take)
• can negotiate the rate of pay when the contract is signed and at each contract renewal
• can reject projects
• may be subject to the payer’s quality controls, which could be put in place to monitor the end result of the IT consultant’s services or the deliverable
• is not allowed to attend social and recreational activities available to the employees of the payer
• is not entitled to social benefits or employee programs offered to the payer’s employees
• has several mandates with various payers or may perform services for the same payer for an extended period of time, as long as the consultant has several clearly defined mandates
• has a business presence

The self-employed IT consultant has a business presence if they:

• advertise their services for hire online or in newspapers, trade journals, magazines, or periodicals
• have a presence on the Internet
• have pre-printed invoices, letterhead, business cards, or are listed in the telephone/business directory
• use their own invoices rather than invoices provided by the payer
• are a member of a professional association of independent consultants
• participate in business development activities
• maintain an office or staff or both, and may provide services from that office—this could be at a commercial site or at their home
• have a separate telephone line, voicemail, fax line, or bank account for their business
• have an Internet domain name or corporate email service
• keep books and records
• have a business licence, as required by law or applicable regulations
• are registered as a business with government departments or agencies for things like the goods and services tax (GST)/harmonized sales tax (HST)/, Quebec sales tax (QST), or business name registration

Some of the above facts may be considered to be neutral or inconclusive when it is established that they are present because of the nature of the work, for example, security issues.

Example of a self-employed worker

The payer may require the IT consultant to perform their services at the payer’s place of business using the payer’s secure equipment in a secure location or perform their services from their own offices. The payer may also require that the IT consultant work as part of a team, follow a certain work schedule, and complete time sheets. The IT consultant does not have to follow any rules of conduct, but receives instructions from the payer to ensure that the work is done according to the payer’s requirements.

The IT consultant may perform services as part of a major project for this payer that extends for a long period of time. However, the IT consultant has several clearly defined mandates. The IT consultant is liable to pay business expenses, such as insurance and training. These facts could be considered to support the conclusion of a self-employed worker if the nature of the work dictates that these working conditions are necessary and that when looking at the total relationship of the parties it is clear that the payer does not monitor, direct, control, or have the right to monitor, direct, or control how the IT consultant does the work. The IT consultant is not integrated into the operating framework of the payer’s business.

Can an IT consultant be classified as an employee and a self-employed worker?

No matter which classification the worker falls under, they cannot be considered both an employee and a self-employed worker under one contract or agreement. Each case must be reviewed on its own merits. It is however possible for a worker to be considered an employee under a contract or agreement, while at the same time being considered a self-employed worker under another contract or agreement.

Related topic

An IT consultant may be placed in employment by a placement/employment agency.

For information on what the Canada Revenue Agency looks at when determining the employment status of placement/employment agency workers under the Canada Pension Plan and the Employment Insurance Act, see Placement/employment agencies.

Corporations

In general, for purposes of the Canada Pension Plan and the Employment Insurance Act, where a worker operates through their own corporation and that corporation enters into a contractual arrangement to provide services to another party, the other party will not normally be seen as being the worker’s employer. This does not mean that the worker is self-employed. The worker, in most cases, would be an employee of their own corporation.

Personal services business

A personal services business (PSB) is a business that a corporation carries on to provide services to another entity (such as a person or a partnership) that an officer or employee of that entity would usually perform. Instead, an individual performs the services for the corporation. That individual is called an incorporated employee.

If your corporation is considered a PSB for purposes of the Income Tax Act, go to Corporation income tax for more information on the tax implications and the reporting requirements.

How to request a ruling

If an IT consultant or payer is not sure of the IT consultant’s employment status, either can ask the CRA for a ruling to have the status determined. More information on the ruling process is available in How to get a ruling for Canada Pension Plan and employment insurance purposes.

For information on the possible implications of a CPP/EI ruling, go to Have you received a CPP/EI ruling?

For more information

To get more information, call the CRA’s business enquiries line at 1-800-959-5525.

Legislative references

• Paragraph 5(1)(a) Employment Insurance Act
• Paragraph 6(1)(a) Canada Pension Plan