Is the worker an employee of Company A or a self-employed contractor?

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Interpretation Letter 09-0043, June 2009

We refer to your correspondence regarding whether a certain worker is considered an employee or a self-employed contractor of Company A for Employer Health Tax (EHT) purposes.

The information provided by you through our discussion and copy of employment contract, is as follows:

  • Company A receives commissions as an exclusive marketing agent for several XXXX selling their products through XXXX.
  • The worker in question was appointed as Marketing Administrator (MA) to fill in for an employee on maternity leave for 55 weeks commencing XXXX.
  • The position was located in Company A's head office in XXXX, and reported to the Communications Director.
  • The predetermined compensation amount was paid every two weeks, plus GST.
  • Either party could terminate the contract with two weeks notice with no further claims against the other party.
  • The worker was not eligible to participate in Company A's benefit program.
  • The worker was reimbursed for all authorized travelling and other out-of-pocket expenses incurred in connection with duties of employment.
  • The worker was required to comply with all policies included in Company A's Employee Handbook.
  • The contract requires the worker not to be employed or engaged in any other capacity without prior permission by Company A.
  • The worker did not work for Company A before or after this contract term.
  • The worker signed binding contracts to participate in XXXX shows on behalf of Company A after receiving approval from her supervisor.
  • The amount paid to the worker was included for EHT purposes.

Your answers to the written questionnaire provided the following additional information:

  • Company A was responsible for planning the work and for deciding how the worker should carry out the work.
  • Company A set standards and objectives to be met by the worker.
  • The worker was subject to supervision.
  • Company A provided training to the worker.
  • No written reports were required from the worker.
  • The worker was included in Company A's liability insurance for all staff.
  • The worker was not required to perform the services personally (this was clarified to mean that she received assistance to set up shows, etc.).
  • The choice of assistants was subject to Company A's consent.
  • The assistants were paid by Company A.
  • The work is carried out at an establishment that is under Company A's supervision.
  • None of the work was carried out at the worker's home.
  • The worker had an office at her disposal at Company A's establishment.
  • Company A set the work schedule, verified the worker's times of arrival and departure and verified the number of hours worked.
  • There was a commitment of exclusivity to Company A by the worker.
  • The worker was not required to seek Company A's consent if the worker wished to work for another principal (although this is contradicted by the employment contract).
  • The worker was not required to pay any expenses while carrying out the work.
  • The worker was not obliged to pay union dues.
  • The worker was remunerated by cheque after submitting an invoice including GST.
  • The worker was not paid overtime.
  • Company A did not provide the worker with equipment, tools or materials.

All employers are required to pay EHT on the total Ontario remuneration paid to their employees.

Although the terms "employer" and "employee" are defined in the EHT Act, the Act does not define the circumstances under which an "employer-employee relationship" exists. The nature of the relationship distinguishes an employee from a self-employed contractor.

A contract of service, or employer-employee relationship, likely exists if the employer:

  • decides where, when, and how the work is to be done
  • establishes the employee's working hours
  • determines the salary amount
  • supervises the employee's activities, and
  • assesses the quality of the employee's work.

Thus, an employer-employee relationship generally exists when a worker agrees to work for an employer on a full-time or part-time basis for a specified or indeterminate time period in return for wages or a salary. The employer has the right to decide where, when and how the work is to be done.

A contract for service, or business relationship, generally exists when a worker agrees to complete specific work for a payer in return for payment. The self-employed worker is not normally required to perform the services personally.

In addition to the above general guidelines, in order to determine whether the MA is an employee or a self-employed contractor, further reference must be made to common law principles based on precedents set by court decisions. The terms and conditions of the worker's employment are examined and analyzed as they relate to the following four factors: (a) control (b) ownership of tools (c) chance of profit/risk of loss and (d) integration. It is important to note that one factor alone is not conclusive in the determination. Analysis of the common law principles as applied to the MA's relationship with Company A is summarized below.


In an employer-employee relationship the employer controls, directly or indirectly, the way the work is done and the work methods used. The degree of control exercised by the employer may vary depending on the type of work to be done and the employee's experience and skill. Generally, the payer exercises control if he has the right to hire or fire, determines the wage or salary to be paid, and decides on the time, place, and manner in which the work is to be done.

According to the employment contract as well as the answers to the questionnaire, Company A controlled how, where and when the MA's work had to be performed, provided training to the worker, and had the right to discontinue the contract with two weeks notice. The MA was required to devote herself exclusively to Company A's business and not be employed or engaged in any other capacity without the prior permission of Company A. However, the MA was not required to file written reports to Company A.

These test results favour an employer-employee relationship.

Ownership of Tools

In an employer-employee relationship, the employer generally supplies the equipment and tools required by the employee. In addition, the employer covers the following costs related to their use: repairs, insurance, transport, rental, and operation.

According to the employment contract, Company A reimbursed the MA for all authorized travelling and other out-of-pocket expenses incurred in connection with her duties of employment. However, per our discussion, there were no tools and equipment required for this position.

This test is inconclusive.

Chance of Profit/Risk of Loss

In an employer-employee relationship, the employer alone assumes the risk of loss. The employer also generally covers operating costs which may include office expenses, employee wages and benefits, insurance premiums, and delivery and shipping costs. The employee does not assume any financial risk and is entitled to her full salary or wages regardless of the financial health of the business.

While the MA did not receive any fringe benefits and was not paid for vacation, she was not required to make any investment or outlay of capital and was paid a set salary amount over the 55-week period.

This test supports an employer-employee relationship.


The integration test examines whether the tasks performed by an individual form an integral part of the business (employer-employee), as opposed to merely being an accessory to the business (independent contractor). The test is applied from the perspective of the employee and the question which is addressed is "Whose business is it?".

The MA did not appear to be operating a business separate and distinct from that of Company A. She performed the tasks related to the day-to-day and long term operation of Company A previously carried out by the employee who was away on maternity leave. During the 55-week period, she worked for Company A on a regular basis and was remunerated accordingly. The temporary position is essentially not different from that of the permanent employment position she was filling in for.

This test supports an employer-employee relationship.

Overall, the application of the common law tests favours an employer-employee relationship.

Based on the information provided, it is our opinion that the MA was an employee of Company A during the term of her assignment. Therefore, Company A was required to include her remuneration for EHT purposes. As you have indicated that her salary was included in the total Ontario remuneration amounts reported for years XXXX and XXXX, no adjustments are required to be made. Please note, we have not reviewed the amounts reported in preparing this interpretation and as such these are subject to normal verification procedures.

This interpretation is based on the information provided by you and is applicable to Company A only. If it should be determined that the information provided is incorrect or incomplete, this interpretation will not be binding.

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