Say you’ve got a framer who’s been with you for three years.
He invoices you every two weeks. No deductions, no T4, no vacation pay. He calls himself a sub, you call him a sub, and he’s even got a business name on his invoices.
He also works your hours, on your sites, with your nail guns, and he hasn’t worked for anyone else since he started. Is he a subcontractor?
CRA would probably say no. And the bill for that answer lands on you, not him.
Why does it matter whether a worker is an employee or a subcontractor?
Because the two get taxed, insured and reported completely differently, and the payer carries the risk.
An employee gets CPP contributions, EI premiums and income tax deducted from every cheque, and you pay the employer’s share on top. You issue a T4 at year end and a Record of Employment when they leave.
A self-employed worker invoices you. They pay both halves of their own CPP when they file their return, and CRA says “self-employed workers do not pay EI premiums unless they opt into the EI program for access to EI special benefits.” If you’re in construction, you report what you paid them on a T5018 slip instead of a T4.
Here’s the part that matters. CRA says an employer who fails to deduct the required CPP contributions or EI premiums “must pay both the employer’s share and the employee’s share of any contributions and premiums owing,” plus penalties and interest.
Both shares. Not just yours.
The worker loses too. Employment status, in CRA’s words, “directly affects a person’s entitlement to employment insurance (EI) benefits.” A framer who was really an employee for three years has no EI to fall back on when the work dries up in December.
How does CRA decide?
CRA uses a two-step approach for contracts formed outside Quebec.
Step one is intent. CRA looks at what you and the worker intended when you set up the arrangement. In its words, “you can find the parties’ intentions by reading the written contract, if any,” and by looking at how you both described the deal.
Step two is the working relationship. CRA then checks whether the facts match the intent. Its rule is blunt: “the employment status they choose must reflect their working relationship.” If you both intended a subcontract but the day-to-day looks like a job, the facts win.
That second step runs on six factors. None of them decides the question alone.
What do the six factors look like on a job site?
Control. CRA defines control as “the ability, authority, or right of a payer to exercise control over a worker.” The question is whether you have the right to direct the work, not whether you use it.
Setting start times, assigning tasks hour by hour and supervising the method points to employment. Handing over a scope and a deadline and letting them figure out the how points the other way.
Tools and equipment. CRA says to “consider if the worker owns and provides tools and equipment to accomplish the work.” A sub who shows up with their own truck, compressor and saws has skin in the game. A worker who runs your gear doesn’t.
Subcontracting or hiring assistants. Can the worker send someone else, or bring on a helper at their own cost? A real business can. An employee can’t.
Financial risk. CRA looks at “the degree of financial risk taken by the worker.” Unreimbursed expenses, fixed costs that run whether or not there’s work, and being on the hook if the job isn’t finished all count.
Investment and management. Has the worker put money into their business, and do they make decisions that affect whether they make or lose money? That’s a business. Someone whose only decision is whether to show up is an employee.
Opportunity for profit. CRA asks “whether the worker can realize a profit or incur a loss.” A sub who quotes a fixed price makes more by working efficiently and loses money if they blow the estimate. Someone paid by the hour with no expenses can’t lose.
Run the framer through that list. Your hours, your sites, your tools, no helpers, no expenses, hourly pay, no other clients. Six for six on the employee side.
Does a written contract settle it?
No. It helps, but it’s step one, not the whole test.
CRA lists written contracts among the factors it considers, and it reads the contract to find intent. But intent only holds if the facts back it up. A contract that says “independent contractor” on top of a relationship that runs like employment is a piece of paper, not a defence.
Honestly, this is the mistake we see most. Owners think the invoice and the business name are the protection. They’re the starting point.
What does WorkSafeBC say?
WorkSafeBC makes its own call, and it’s worth knowing because BC contractors deal with both.
WorkSafeBC’s rule is that contractors “would be your workers if they do not operate as an independent business.” Its examples of someone who’s likely your worker: “The contractor supplies only labour,” “The contractor supplies labour and minor materials such as nails, drywall tape, or putty,” and “The contractor works regular hours for you on an ongoing basis.”
Its examples of an independent business: “The contractor has multiple contracts with different clients,” “The contractor advertises and provides services to the public,” and “The contractor provides their own major equipment.”
Same framer, same answer. And if a sub is your worker in WorkSafeBC’s eyes, their pay belongs in your assessable payroll. For the subs who are genuinely independent, you still want a clearance letter before and after the work, so their unpaid premiums can’t become yours.
What happens if CRA reclassifies a worker?
You pay. Both the employer’s share and the employee’s share of the CPP and EI that should have been deducted, plus penalties and interest.
Multiply that by three years and a crew of four, and it’s not a rounding error. It’s the kind of bill that shows up right when cash is tightest.
How do you get a ruling from CRA?
If you’re not sure, ask. A CPP/EI ruling is an official decision from CRA on whether a worker is an employee or self-employed, and whether the work is pensionable, insurable or both.
Either side can ask. As a payer, sign in to My Business Account and pick “Request a CPP/EI Ruling” under Payroll. Or write a letter or fill out Form CPT1 and mail it to the CPP/EI Rulings Division at your tax services office.
There’s a deadline. CRA says “a payer or worker can ask for a ruling by June 29 of the year after the year the question relates to.” So for work done in 2026, you’ve got until June 29, 2027.
Ask before the relationship is three years old, not after.
What should your books do about it?
Two files, two sets of habits.
For every real subcontractor: a file with their legal name, address, GST or HST number, WorkSafeBC account number and the clearance letters you pulled. Their invoices get coded to subcontractor costs on the job. At year end, their total goes on a T5018 slip if more than half your income comes from construction.
For every employee: payroll. Deductions on every pay, remittances to CRA on time, a T4 at year end, and a Record of Employment when they’re laid off.
The mistake is the hybrid. A sub who’s really a worker ends up in neither system properly, and that’s what an auditor finds first.
Want help sorting your crew out?
Trades and construction is our specialty at MBC Canada. The Clean Books Year includes payroll, so your employees are paid, deducted and remitted properly, and your real subs get their T5018 slips at year end. One dedicated bookkeeper on our own team, the same person all year.
Have a look at what we do for contractors, or book a free 30-minute call and bring the crew list. We’ll tell you who belongs where.
