A worker is an employee or a contractor because of how the relationship actually works, not because of what the invoice says. Ontario’s Employment Standards Act has one test, CPP and EI have another, and in Ontario construction the WSIB has its own coverage rules on top. AI can assemble and stress-test the evidence; it cannot make the determination, and neither can the label on the agreement.
Key takeaways
This is the question that generates the most confident wrong answers on a job site. “He has a business number.” “She asked to be paid as a sub.” “We signed a contractor agreement.” None of those decides it. What decides it is the substance of the working relationship, assessed after the fact, by whichever body is asking — and they do not all ask the same question.
What follows is a summary of published rules to help you see the shape of the problem. It is not legal or tax advice, and the determination in a specific case belongs to a professional who has seen the arrangement.
Who is asking, and what they want to know
Employment standards — is this person entitled to minimum wage, overtime, public holidays, vacation pay and notice? Provincial ministry, provincial test.
CPP and EI — is this employment pensionable and insurable, so that contributions and premiums are payable? Federal statutes, ruling available from the Canada Revenue Agency.
Workers’ compensation — who must be covered and who must register? Provincial board; in Ontario construction the rules are broader than most people expect.
The uncomfortable implication: you can be right for one purpose and wrong for another. Consistency across the three is a design goal, not a guarantee.
Ontario states the prohibition plainly: under the Employment Standards Act, employers are not allowed to treat employees covered by the Act as if they are not employees, and an employment standards officer can issue a notice of contravention that results in a penalty, a prosecution, or both.
The same guidance sets out what points towards an employee. The work is an important part of the business; the business decides what the individual does, how much they are paid, and where and when the work is performed; the business provides the tools, equipment or materials; the individual cannot subcontract their work to someone else; and the business has the right to suspend, dismiss or otherwise discipline them.
And what points towards an independent contractor: the business can end the contract for services but cannot discipline the individual; the individual has the opportunity to make a profit and the risk of losing money on the work; and the individual determines how, when or where the work is done. Ontario’s own advice, in its own words, is that if you are still unsure, talk to a lawyer.
Read those two lists against a typical trades arrangement and the tension is obvious. A “subcontractor” who shows up at seven because you told him to, uses your compressor, cannot send his cousin instead, and is paid a flat weekly amount regardless of how the job goes, has none of the contractor indicators and most of the employee ones.
The federal statutes define the categories directly. Section 5(1)(a) of the Employment Insurance Act defines insurable employment as employment in Canada under any express or implied contract of service or apprenticeship, written or oral, whether earnings are calculated by time or by the piece. Section 6(1) of the Canada Pension Plan defines pensionable employment as employment in Canada that is not excepted employment.
The phrase doing the work is contract of service — a contract to serve — as distinct from a contract for services, which is what a genuine independent business has. The exclusions are worth knowing too: EI section 5(2) excludes, among others, employment of a person by a corporation if the person controls more than 40% of the voting shares, and employment where the employer and employee are not dealing at arm’s length, subject to the deeming rule in 5(3) where the Minister is satisfied the arrangement is substantially similar to an arm’s-length one.
Our sister firm sets out how the test is applied in practice in the CRA employee or contractor test in Ontario and employee versus independent contractor classification.
This is the most underused mechanism in the whole area. Section 90(1) of the Employment Insurance Act lets an employer, an employee, a person claiming to be either, or the Commission request a ruling from an authorised Canada Revenue Agency officer on whether an employment is insurable, how long it lasts, the amount of insurable earnings, hours, whether a premium is payable and who the employer is. Section 26.1(1) of the Canada Pension Plan provides the equivalent for pensionable employment.
Both carry the same timing rule: a request by anyone other than the Commission or the Minister of Employment and Social Development must be made before 30 June of the year following the year the question relates to. If you have an arrangement you are genuinely unsure about, that deadline is the practical reason to resolve it in the year rather than at the next audit.
Construction is treated differently from most industries, and this catches owner-operators in particular. The WSIB explains that expanded compulsory coverage in construction means people who own or run a business in construction, with or without employees, must have coverage and need to register, with some exceptions — naming independent operators, sole proprietors, some partners in a partnership and some executive officers who work in construction. The same page states that you have 10 calendar days from the day you hire your first employee to register.
The corollary for anyone hiring subtrades is the clearance certificate: the mechanism by which you confirm a subcontractor’s account is in good standing before you pay them. Keeping clearances current across a dozen subtrades is genuinely tedious, and genuinely automatable.
Misclassification is not a paperwork error that gets corrected going forward. Depending on which body reaches it first, the exposure can include unremitted CPP contributions and EI premiums with interest and penalties, unpaid employment standards entitlements, workers’ compensation premiums, and the common-law consequences when the relationship ends. Our sister firm sets out the consequences of misclassifying workers in Ontario.
There is also a records dimension. Payments to subtrades in construction carry their own annual information return under section 238 of the Income Tax Regulations, and what a T4A slip is and when it applies is a separate question again from whether the person was an employee.
Never at the determination. The determination is a legal conclusion with penalties attached, and no model should be positioned to make it. But almost everything that feeds the determination is document work:
Assembling the file. For each worker: the agreement, invoices issued, whether they invoice anyone else, insurance certificates, WSIB clearance status, who supplies tools and vehicles, how they are paid and how often, and whether they can send a substitute. A model can gather and structure that from the documents you already hold.
Spotting incoherence. The useful output is not a verdict but a contradiction: an agreement that describes an independent business alongside twelve months of identical Friday payments, a “subcontractor” on your equipment insurance, a contractor invoice with no HST when the volume suggests registration. Each flag is a question for a professional, not an answer.
Keeping the compliance items current. Clearance certificates, certificates of insurance and licence expiries all have dates, and dates are what automation is for.
Drafting, not deciding. A structured questionnaire, a summary of the arrangement for your accountant or lawyer, a covering note for a ruling request. Drafting saves the hour; the sign-off stays human.
The following is illustrative — a composite of how the workflow is usually assembled, not a measured result.
A residential builder has nine people on the books and eleven “subs” who work almost exclusively for him. The office runs a quarterly review: for each of the eleven, the system pulls the signed agreement, the last four invoices, the current WSIB clearance status, the insurance certificate expiry, and a one-line summary of how payment is calculated. Three flags come back — two whose invoices are identical every week to the dollar, and one whose clearance lapsed in March.
Nothing is decided by the software. The clearance gets chased that afternoon. The two identical-invoice cases go to the builder’s accountant with the file attached, and one of them ends up as a ruling request filed before the 30 June deadline. The builder’s exposure did not change because a model read the invoices; it changed because someone looked at the two arrangements that did not add up, six months before anyone else did.
No. Neither party can contract out of the statutory categories by agreement, which is why Ontario frames misclassification as something an employer is prohibited from doing rather than something the parties can choose. A mutual preference is context, not a determination.
It is one indicator among many, and on its own a weak one. Registration is about supplying taxable services above a threshold; it says nothing about control, tools, substitution or risk of loss — the things the employment standards test and the contract-of-service analysis actually turn on.
Changing the arrangement prospectively is sensible and is usually part of the answer, but it does not by itself resolve prior periods, and both the CPP and EI ruling mechanisms are tied to the year in question. This is the point to involve an accountant and, where the amounts are meaningful, a lawyer.
The federal CPP and EI analysis is national. Employment standards and workers’ compensation are provincial, and both the tests and the construction-specific coverage rules vary — the Ontario position described here is Ontario’s. Check your own province’s standards branch and compensation board before applying any of it elsewhere.
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