Canada contractor vs employee: Which is better?
Most entrepreneurs can’t scale alone, especially in creative industries like digital marketing, film, and design. Clients pile on and projects add up — next thing you know, time slips by faster than ice cream melts on a hot summer day. So, you need some support! The question is: How do I choose between a contractor vs employee?
Sure, a freelancer sounds flexible and stress-free. But an employee gives you undivided attention for entire business days. Each worker relationship offers unique benefits and drawbacks for Canadian business owners. It’s tricky to navigate long-winded CRA requirements and definitions and still pick the best option for your business.
Here at Creative Clan, we’re certified experts (CPA, tyvm) with the CRA’s regulations. We love consulting clients about compliance and business fit when picking the right workers. Let’s look at the details, pros, and cons of contractor and employee relationships below.
Table of contents
- Contractor vs. employee Canada: What’s the difference?
- Advantages and disadvantages of hiring Canada employee vs contractor
- How to decide between contractor vs. employee in Canada
- Making the best decision for your business
Contractors and employees might conduct the same work tasks for a business owner, but each has a different relationship with the business. Below is a definition of each.
Definition of an independent contractor
An independent contractor (AKA a self-employed worker) enters a contract for service with a business. They work on their own terms — for the most part.
Here’s what distinguishes a contractor from an employee, according to the CRA:
- Independence: Contractors decide when and how they work, who to subcontract work to, and which clients to take on.
So, can you ask a contractor to be available for instant communications between 9 to 5? That’s dangerously close to employee territory.
- Equipment and tools: Contractors usually pay for their own work equipment, unless otherwise specified in a business contract. They’re also on the hook for any insurance and maintenance that comes with it.
Broken laptop? That’s on the contractor.
- Support: Contractors can subcontract and enlist support for their work, without needing the business owner’s consent. Now, some contracts negotiate this, especially when confidential or politically sensitive information is involved.
What if you don’t like a contractor’s video editor? You can ask the contractor to fire them or improve the quality — but there’s no guarantee.
- Profit and risk: Contractors can profit off your business relationship. They might subcontract your work to another worker and make a return on it. However, they pay for the privilege with added risk.
Is it fair for a contractor to profit from your work? It doesn’t really matter — you can’t do much about it if they’re meeting contractual obligations.
Definition of an employee
An employee enters a contract of service with a business. They’re given a wage or salary and must work under the employer’s terms.
Here’s how the same factors above look for an employee:
- Independence: Employees must work during set work hours and under process parameters determined by the employer. If not, they risk breaching their contract.
Can your employee demand approval to work 5pm-12am instead of your working hours of 9am to 5pm? They can ask, but you don’t have to oblige.
- Tools: Employers must provide the tools and equipment that an employee needs to carry out their work.
What if my employee’s video recorder malfunctions during a job? Time to start browsing for a replacement online. You, the business owner, must replace it.
- Support: Employees can’t hire someone else to do their job. Employees must personally complete their assigned work tasks, unless otherwise negotiated with their employer.
Can my employee send their cousin Joe when they’re craving a spa day? Don’t worry — you don’t have to accept Joe as a replacement.
- Profit and risk: Employee’s can’t turn a profit on your work. Understandably, they don’t experience any risk working for you.
What if my employee hires a similar-skilled yet lower-waged worker in India to conduct their work duties? That’s grounds for dismissal.
These are a few prominent distinguishers for employees and contractors. For more detailed information, check out the CRA’s webpage.
Related Reading: What is a business plan?
Advantages and disadvantages of hiring Canadian employee vs contractor
A contractor might be a nightmare for one employer and a godsend to another. It depends on your working style, business needs, budget, and even personality. Let’s check out the pros and cons below.
Pros and cons of hiring contractors
|Contractor pros||Contractor cons|
|No commitment: You can cease a business relationship based on your gut or budget needs, and tweak your staffing goals along the way.||The one who got away: Contractors can stop doing work for you whenever they like. You might need to shell out more dough to keep them around.|
|Liable: Contractors are on the hook financially if they don’t meet work obligations.||Limited control: You can’t decide how, where, when, and with whom a contract works.|
|Fewer expenses: You don’t have to cover equipment, insurance, vacation pay, stat holidays, maintenance, CPP, EI, or worker’s comp.||Competition: Your contracts can protect confidential business info, but you can’t stop a contractor from working for your competitors.|
|Easily onboarded: No need to train contractors for months before they can complete a job.||Not as responsive: Contractors don’t owe you hours per day, so they’re not as at your beck and call as an employee would be.|
Pros and cons of hiring employees
|Employee pros||Employee cons|
|Creative control: If you like things done a certain way, you have control over an employee’s work setting, hours, and processes.||Risk: You take on more risks with employees. If they don’t perform well, you’re financially responsible, not them.|
|Long-term work: Have a film schedule stretching to next year? Employees are likely to stick it out for the long run.||Expensive: You’re on the hook for equipment, online tools, vacation, stat holiday pay, CPP, EI, and worker’s comp.|
|Management potential: You can’t ask contractors to manage on your behalf — but you can ask employees to, which helps you scale and become more efficient.||Less enthusiasm: Employees are generally less engaged than contractors, according to Forbes.|
|Responsive: Contractors can work for any number of clients at once, stretching their time thin. Employees are on the clock for you all day.||Extensive onboarding: You’ll need to train most employees and teach them about their role, organizational structure, and more, which can take months.|
How to decide between contractor vs. employee in Canada
Are you scrounging potential investor pockets for capital? You might not have the stability to hire employees just yet.
“If you’re just starting your business, contractors might be a better fit than employees because they are more flexible and require less commitment,” says Jonathan Burns, President of Back Office Stars, a Canadian online bookkeeping company.
Now, some employers might feel uneasy about the contractor’s freedom here. But less commitment doesn’t equal lower work quality. In fact, some entrepreneurs cite better quality from contractors because employees can get complacent.
“I love hiring contractors because of the relationship we can develop,” says Kim Free, owner of STGP digital marketing agency. “They get more freedom and autonomy, and I can hire contractors across the country, allowing me more access to skilled designers and marketers.”
Contractors must deliver what you contract them for. If they don’t, you’re well within your rights to request revisions, adjustments, and even terminate the contract. Plus, you have fewer tax obligations to worry about, and a smaller upfront investment in terms of onboarding and training.
“The paperwork is a lot easier with contractors,” continues Kim. “There’s no need to calculate and remit employment tax, vacation, etc.”
Consider hiring a contractor if you:
- Just started your business
- Need short-term work
- Have unpredictable business needs and goals
- Can’t predict cash flow
- Prefer a more autonomous worker
But if this isn’t your first rodeo? Maybe you know what you want, and you can handle more commitment.
“If your cash flow and business needs are predictable, you will get more value from an employee,” says Jonathan. “You can ask them to own more and to manage others, which is key to scaling your business.”
But commitment demands your time and funds.
“One tricky aspect of hiring employees is the need to provide all the tools of the job (laptops, phones, online tools, etc),” says Kim. “I find this especially challenging when working remotely.”
Consider hiring an employee if you:
- Own an established business
- Have predictable income and a generous budget
- Require long-term work
- Are able to invest time into onboarding and training
Making the best decision for your business
Contractors and employees both have the potential to improve and scale your business. But picking the right fit at the right time makes all the difference.
Still need help with choosing between contractor vs employee? We’d be happy to consult with you! Contact us at Creative Clan for a free consultation.