Anonymised, illustrative composite. An Ontario general contractor compiling its annual T5018 filing noticed nine “subcontractors” who looked nothing like subcontractors on paper — and moved them onto payroll before anyone outside the company asked why.
At a glance
A general contractor had, for years, paid nine site workers — supervisors and long-tenured labourers — as subcontractors: invoiced weekly, reported on T5018 information returns, no source deductions withheld. The arrangement had never been questioned, because nothing about it looked unusual next to the firm’s genuine trade subcontractors, who bid work, brought their own crews and tools, and invoiced by the job.
Compiling the T5018 filing for the year, the bookkeeper flagged a pattern: unlike the firm’s project-based subs, these nine had invoiced the identical amount every single pay period for years, worked exclusively for this one GC, used company trucks and tools, and took daily direction on what to do and when — the same pattern, every period, for every one of them. That pattern prompted a look at how Ontario actually draws the line. Ontario courts weigh five factors: control over when, where and how the work is performed; who supplies tools and equipment; chance of profit and risk of loss; how integrated the work is to the core business; and exclusivity to one payer. On every one of the five, the nine looked like employees.
The nine individuals in question had been engaged for an average of 4.2 years each, invoicing on the same schedule as the firm’s biweekly payroll runs, at flat day rates with no bidding, no independent equipment and no ability to profit from working faster or lose money on a bad estimate — the hallmark “chance of profit, risk of loss” factor that points toward employment when it is absent. Reclassifying all nine took the firm’s biweekly payroll headcount from 14 employees to 23.
The exposure the firm was trying to get ahead of is spelled out on the same page: if CRA determines a worker should have been treated as an employee, “it will assess the employer for unremitted CPP, EI, and income tax withholdings — plus interest and penalties,” and separately the employer may owe ESA entitlements retroactively, including “vacation pay (accruing from the first day), statutory holidays, overtime, notice of termination, and possibly severance.” A CRA-initiated finding runs backward across however many years it reaches; a firm that reclassifies proactively only takes on the obligation going forward.
All nine were moved to payroll effective the next pay period: T4s instead of year-end T5018 totals, source deductions withheld and remitted, and vacation pay beginning to accrue from that first payroll date rather than being calculated back across years of prior invoices. The firm stopped issuing T5018 slips for these nine going forward, since T5018 reporting applies to payments made in the course of construction activities to a genuine business relationship, not to what had, in substance, become a payroll relationship.
For how the same reconciliation work catches a missing subcontractor going the other direction, see a T5018 filing that caught a gap instead of an overlap. For the classification question in isolation, see the dependent-contractor category and when a payment gets a T5018 versus a T4A.
The firm traded a known, budgetable increase in ongoing payroll cost — CPP, EI and withholding obligations on nine additional workers, going forward — for what would otherwise have been an open-ended retroactive exposure had CRA or an ESA complaint reached the same conclusion first: years of unremitted employer premiums plus interest and penalties, on top of retroactive vacation pay and other ESA entitlements the nine had been accruing without anyone tracking it. The size of that exposure grows with every additional year the misclassification continues; catching it internally stopped the clock at 4.2 years instead of letting it run.
The tell is a subcontractor whose invoice never varies: same amount, same schedule as payroll, indefinitely. A genuine subcontractor’s invoice moves with the job — it goes up on a bigger scope, down on a smaller one, and reflects the sub’s own pricing decisions. An invoice that behaves exactly like a paycheque, issued by someone using your trucks and taking your daily direction, is worth running through the classification factors before anyone outside the company does it first.
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