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A contract that says “independent contractor” doesn’t make you one. The CRA looks at who controls the work, who owns the tools, who can profit or lose, and how deeply you’re built into the payer’s business. A wrong label can leave the payer owing both halves of CPP, EI premiums and tax. A $50 an hour contract that nets $88,000 is worth about $84,320 of salary.
What tests does the CRA use to decide?
The CRA says the facts of the whole working relationship decide employment status, and it checks several factors instead of one. It starts with what both sides intended, including any written contract, though the real working conditions have to match the paper. Then it looks at control, tools and equipment, chance of profit and risk of loss, and how integrated you are.
- Control: does the payer have the right to direct the work and how it’s done, even if it rarely uses that right? Self-employed people usually choose when, where and for whom they work.
- Tools: a real investment in equipment, plus paying for repairs, insurance and upkeep, points to self-employment.
- Profit and loss: setting your own prices, managing costs and being able to lose money suggest a business. A flat hourly rate with expenses reimbursed looks more like a job.
- Helpers: sending a replacement, or hiring assistants you pay yourself, suggests a business.
- Integration: continuity, loyalty, security and subordination point toward employment.
No single factor wins. Someone who works for one company only, at its office, on its schedule and with its laptop, looks like an employee. Someone with several clients, their own equipment, their own insurance and the right to turn work down looks like a business. Quebec uses a different test based on the Civil Code. The CRA’s guide is Canada Revenue Agency: RC4110, Employee or self-employed?
What does a $50 an hour contractor give up or gain versus a salary?
A $50 an hour contractor doesn’t automatically beat a salary, and sometimes ends up behind. Assume Ontario and 47 billed weeks of 40 hours (1,880 hours), which is $94,000 of revenue. After $6,000 of business costs, net income is $88,000. This is the site’s estimate for 2026, using only basic credits plus the CPP and EI credits.
| 2026 estimate, Ontario | Contractor (net $88,000) | Employee ($88,000 salary) |
|---|---|---|
| Income tax | $15,487 | $16,441 |
| CPP and EI | $9,293 (both CPP halves, no EI) | $5,770 (employee half of CPP, plus EI) |
| Take-home | $63,220 | $65,790 |
On the same $88,000, the employee takes home $2,570 more, and also gets EI cover, an employer CPP half paid on top, and usually paid vacation. A salary of about $84,320 leaves you with the same $63,220 as the contract, so the $94,000 billed is worth roughly an $84,320 salary before time off or benefits. To break even, the contractor needs a higher rate, and more again for unpaid holidays or sick days. The upside is deductions. A home office, a vehicle used for work and equipment can all reduce net income. See independent contractor taxes in Canada, our self-employed tax calculator and the contractor rate to salary calculator.
What happens if the label is wrong?
If a worker is treated as a contractor but is really an employee, the payer can be assessed for the CPP contributions and EI premiums it should have withheld, plus penalties and interest. The CRA says an employer who fails to deduct must pay both the employer and employee shares. Income tax withholding is part of that exposure, and the bill can land years later.
The worker feels it too. A real employee treated as self-employed pays both halves of CPP, gets no regular EI coverage, and may have claimed expenses an employee can’t. A signed form doesn’t fix any of this, since employment status follows the facts. For the payer’s side, see our guide on hiring employees vs contractors.
How do I ask the CRA for a ruling?
A worker, a payer or an authorized representative can ask the CRA for a CPP/EI ruling. The routes are the Request a CPP/EI Ruling option in My Account or My Business Account, a representative using Represent a Client, or Form CPT1 mailed to your tax services office. A letter also works.
Mind the deadline. The request has to arrive by June 29 of the year after the year in question, so a ruling on 2026 work must be requested by June 29, 2027. For 2025 work that window closed on June 29, 2026. A ruling or payroll assessment can be appealed within 90 days of notice. The CRA page doesn’t say how long a ruling takes, so ask before you’re deep into a contract, not after the money is spent.
What can I do before I sign a contract?
Make the paperwork match the real arrangement, and make the real arrangement look like a business. Invoice by the project or at an hourly rate instead of clocking in. Use your own computer and software, carry your own liability insurance, work for more than one client where you can, and keep the right to send a replacement. A contract that hands the payer day-to-day direction over your hours defeats the point.
If you’re unsure, ask. The CRA’s page on Canada Revenue Agency: Form CPT1, request for a CPP/EI ruling explains who can file. Either side can, and asking early costs far less than arguing an assessment later.
When does contracting make more sense than a salary?
Contracting tends to suit short projects, specialist skills, several clients at once, and work where you really do control the how and when. It suits people who want the deductions, can sit through quiet months, and have savings or a partner’s pay behind them. A salary suits people who want steady cash flow, paid time off and EI cover. If the main reason for the contract is that the payer wants to dodge payroll costs, expect the CRA to look closely.
Where does this information come from?
Tests, consequences and the ruling process come from the CRA publication RC4110 and the CRA Form CPT1 page; the $50 an hour comparison uses this site’s own estimate engine for 2026. Checked in October 2026. This is an independent information site: we provide no services, we do not represent the CRA or any organization, and we do not guarantee that anything here is accurate or current. We accept no liability for decisions based on it. Check the official source before you rely on it. See the full disclaimer.
Frequently asked questions
Is working for just one client a problem?
Not by itself, though it sharpens the CRA's questions about control and integration. If you set your own hours, supply your own tools and carry your own risk, one client can still be a genuine business. Keep invoices that show it.
Does a signed contractor agreement protect the payer?
Not on its own. The CRA treats the written contract as evidence of intent and then checks whether the actual working conditions match. If the facts look like employment, the CRA can treat the worker as an employee despite the paper.
Can I appeal a CRA ruling?
Yes. A ruling or payroll assessment can be appealed within 90 days of notification, so mark the date when the letter arrives. Keep your contract, invoices and emails, since they show how the work was really done.
Do contractors get EI?
Generally no regular EI, since self-employed people don't pay EI premiums. Some can register for EI special benefits such as sickness, maternity and parental, which means paying premiums. Decide that before you need the benefit.
Is the test different in Quebec?
Yes. In Quebec the CRA applies the Civil Code of Quebec, looking at how the work is carried out, the pay and whether there is a relationship of subordination. A non-competition clause is one indicator it names.