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The tax gap between employees vs contractors comes down to payroll. Hire employees and you take tax, CPP and EI off their pay, send it in, and add your own CPP and EI on top. Hire contractors and none of that is your job. The catch is that the CRA decides which one a worker is, not the contract you both signed.
What changes for you when it’s an employee?
An employee puts you on the hook for payroll. You hold back tax and the worker’s CPP and EI, and you pay the employer side yourself. On a $60,000 salary in Ontario, our calculator puts the employer’s extra at about $4,731 a year ($3,362 of CPP and $1,369 of EI). So the real cost is $64,731 before any other payroll levy, such as workers’ compensation premiums, which the tool doesn’t include.
The worker, for their part, takes home about $47,340 from that $60,000 after income tax, CPP and EI.
You can test your own figures with the payroll remittance calculator, which adds the employer share, and the take-home pay calculator for the worker’s side.
| $60,000 in Ontario | Employee | Contractor (net business income) |
|---|---|---|
| Income tax | $8,320 withheld | $7,879 paid by the worker |
| CPP | $3,362 from the worker, $3,362 from you | $6,724, both halves paid by the worker |
| EI | $978 from the worker, $1,369 from you | Not included in the estimate |
| Left with the worker | $47,340 | $45,397 |
| Extra cost to the payer | $4,731 | None |
How does the CRA tell employees from contractors?
There’s no single test. The CRA looks at the whole relationship, and outside Quebec it works through six factors: control, tools and equipment, the freedom to hire helpers, financial risk, investment and management responsibility and the chance of profit. The CRA is specific about control.
It is the right of the payer to exercise control that is relevant, not whether the payer actually exercises this right.
Employee or Self-employed, canada.ca
In Quebec the test is different and has three steps: the parties’ intent, whether the relationship fits the Civil Code’s description of work, pay and subordination, and a comparison of that intent with the real working conditions.
In practice, someone who works set hours at your site, uses your laptop, can’t send a substitute, and gets paid the same each month looks like an employee, whatever the invoice says. Someone who sets their own hours, uses their own tools, carries the risk of a bad job and works for several clients looks like a business.
Picture two people at a Calgary coffee shop. Aiden pours the lattes on a schedule the owner sets, with the owner’s machines, so he’s an employee. Mei builds the shop’s website, picks her own hours, uses her own computer and also builds sites for a dentist and a dog groomer, so she runs a business. Same owner, two very different answers.
Is paying someone on an invoice enough to make them a contractor?
No. This is the most common mistake, and it’s a costly one.
Calling someone self-employed doesn’t change what they are. If the CRA decides later that the person was an employee, the CRA says the payer has to pay both the employer’s share and the employee’s share of contributions and premiums owing, plus penalties and interest. That’s the bill for the years in question, and it can land all at once.
Want certainty? You can ask. Either the worker or the payer can request a ruling, either through a CRA online account or on Form CPT1, and the CRA sets the request window at June 29 of the year after the year the question relates to. The CRA’s page on how to request a CPP/EI ruling explains who can ask and how. Rulings take time, so don’t count on one for an urgent hire.
Which is cheaper, and is cheaper the right question?
On paper the contractor costs you less, since you skip the $4,731 above. But the worker pays both halves of CPP, and in the table they keep $1,943 less than an employee on the same $60,000 (before business expenses, and with EI left out of the contractor column). So a fair contractor rate usually sits above a salary equivalent. The self-employed tax calculator shows what a contractor keeps at any rate.
And if the work is ongoing, in your office, on your schedule, the lower bill may not be real at all, because the classification can be reversed.
Some contractors must also charge GST/HST, depending on their sales, and then you’ll see the tax on the invoice. The GST/HST calculator splits it out.
What does the worker give up as a contractor?
A contractor usually has no employer paying half their CPP and no EI premiums coming off each cheque. Self-employed people can choose to pay EI premiums voluntarily, but that’s a decision they make themselves, not something you arrange. There’s no paid-vacation line either, so a contractor who takes a month off simply isn’t paid for it. That’s why a fair rate has to cover more than the hours worked.
Mistakes to avoid when you hire
Paying cash and skipping the paperwork is the big one. Another is treating one worker as a contractor for years with a fixed schedule, then being surprised by a reassessment. A third is assuming a written contract protects you. It helps show intent, but the CRA weighs how things work day to day.
Before you start, write down for each person who controls the hours, who supplies the tools, who can send a substitute and who bears the loss. If most answers point at you, run payroll.
Where we got these figures
The employee example uses our payroll engine, which follows 2026 CPP, EI and federal and Ontario tax rules, and the contractor example uses our self-employed engine. The factors, the ruling process and the payer’s liability come from the CRA‘s employee or self-employed guidance, read in 2026. The calculators are estimates, so your actual payroll figures can differ.
Frequently asked questions
Do I pay CPP and EI for a contractor?
No. A true contractor handles their own CPP, and you don't withhold or remit anything. The risk is that the CRA treats the worker as an employee.
What happens if I misclassify a worker?
The CRA says the payer must pay the employer's and the employee's share of contributions and premiums owing, plus penalties and interest.
Can I get the CRA to decide?
Yes. A worker or a payer can request a ruling online or on Form CPT1, by June 29 of the year after the year the question relates to.
Does a signed contractor agreement settle it?
No. It shows what you both intended, but the CRA looks at the actual working relationship.
What does an employee add to my cost?
On a $60,000 salary in Ontario our calculator shows about $4,731 a year of employer CPP and EI, before other payroll levies.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST