Anyone who has a job is a worker, but not all workers are employees. You may be an employee, an independent contractor or a dependent contractor. The type of worker you are affects your legal rights, including if your work ends.
Sometimes it’s not always clear which type of worker you are. You can figure out if you are an employee, independent contractor, or dependent contractor by looking at certain factors.
Need to know | Types of workers | The legal test | Risks of wrongly categorizing a worker | Take action
Need to know
- Workers can be employees, independent contractors or dependent contractors.
- Your legal rights and responsibilities depend on what type of worker you are.
- How your contract or employer categorizes you does not determine what type of worker you are.
- There is a test with five factors that can help you determine what kind of worker you are.
- There are risks to an employer for categorizing a worker as the wrong type.
Types of workers
There are three types of workers: employees, independent contractors and dependent contractors.
Employees
Employees receive wages from an employer for the work they perform. Employees must be loyal to their employer by always working in the employer’s best interests and not competing with their employer.
If you are an employee, you have a right to:
- employment standards, including minimum wage, general holidays, vacations, overtime and termination notice
- workers’ compensation benefits if injured at work
- be part of a union
You also have responsibilities. You must pay income taxes on the money you earn and also give some money to the Canada Pension Plan and Employment Insurance. Your employer takes this money out of your pay cheque and sends it to the government for you. Your employer may also offer additional benefits, such as health benefits, sick leave and pension plans. An employer does not need to offer these benefits, but if they do, they can require you to pay all or part of the cost.
If you are an employee, you cannot deduct work-related expenses on your annual income tax return.
Independent contractors
Independent contractors are self-employed workers. They do not have an employer and may do work for one or more organizations at the same time.
They have different rights under employment laws than employees, including not being entitled to minimum employment standards.
As an independent contractor, you:
- may be able to get workers’ compensation benefits or you may need to buy your own insurance in case you get hurt on the job
- must calculate and remit your own income tax, Canada Pension Plan and Employment Insurance payments to the government
- must pay for your own health benefits and retirement plan if you choose
- can claim most reasonable business expenses as deductions on your annual income tax return
Dependent contractors
Dependent contractors are workers with rights somewhere between employees and independent contractors. It can be difficult to determine if a worker is a dependent contractor, an employee or an independent contractor.
You must look at the whole relationship. For example, usually dependent contractors work for only one employer. Their business may heavily depend on the employer’s business. The length and permanency of the relationship is also relevant.
As a dependent contractor, you may be:
- eligible for workers’ compensation benefits if injured at work
- entitled to termination notice if your contract ends without just cause
The legal test
Your job title or how your contract describes your role does not always reflect the type of worker you are. The law looks at the nature of the relationship between you and the organization you’re working for. If it seems like you are working like an employee, the law will consider you an employee, not a contractor.
The courts created a test to figure out if a worker is an employee, independent contractor or dependent contractor. There are five factors to consider together when making a decision.
You, your employer or a decision-maker can use this test. For example:
- You may use the test to understand what type of worker you are to make sure your employer is meeting their legal obligations towards you.
- Your employer may use the test to help properly categorize you as a worker to make sure they are meeting their legal obligations.
- A government program or agency may use the test to decide if you are eligible for employment benefits or what taxes you owe.
- A court or tribunal may use the test to decide on a dispute between you and your employer, including when the relationship ends.
Control over work
This factor considers how much control the employer has over the worker, such as what tasks they do, when they work and where they fit in the organization.
Usually, the more control an employer has, the more likely the worker is an employee.
An employer doesn’t have to actually exert their control over the worker. The fact that the control exists and could be used is strong evidence to show an employer-employee relationship.
An employer can tell an independent contractor when to finish their work and what work to do, but they can’t dictate how the work is done.
For example, signs that a worker is likely an employee are:
- The employer directs and controls the worker’s work times, including how the work is done.
- The employer sets out an order or sequence for the worker to perform assigned tasks.
- The employer specifies the worker’s work hours.
- The worker must work at the employer’s place of business.
- The worker must do the work themselves.
- The worker performs tasks that are normally (or previously were) performed by an employee of the employer.
- The employer tells the worker what to do and watches to make sure they are doing it right. They also give feedback, check their work and can punish them if needed.
- The employer can terminate the worker’s employment without liability if the worker does not perform.
Signs that a worker is likely an independent contractor are:
- The worker mostly works on their own.
- The worker follows their own pattern of work.
- The worker chooses their own work times.
- The employer hires the worker for a specific task or job, and the relationship between the worker and employer ends once the task or job is complete.
- The worker can accept or refuse work from other employers.
- The worker can hire workers or subcontract their work to others.
- The employer cannot terminate the worker without liability as long as they perform the work described in the contract.
Ownership of tools
This factor looks at who owns the tools to complete the work, including who gets to keep them and who pays to replace them.
“Tools” means everything from space and supplies to furniture, phones, computers and vehicles.
Generally, if a worker uses the employer’s tools, they’re more likely to be an employee. A worker is more likely to be an independent contractor if they use their own tools in their work.
An employer can require their employees to use their own tools. It is important to look at the relationship as a whole. Workers who own their own tools and work exclusively (or almost exclusively) for one employer may still be employees under the law.
Chance of profit or risk of loss
This factor looks at whether the worker is in business to make a profit and is at risk of losing money.
Usually, employees earn wages and do not incur business profits or losses.
For example, signs that a worker is likely an employee are:
- The employer is liable for the worker’s negligence in doing their work or if the worker does not complete their work.
- The employer risks losing money if something goes wrong.
Signs that a worker is likely a contractor are:
- The worker risks losing money if the cost of doing a job is more than the price charged for it.
- The worker’s income is the difference between the price charged for work and the cost of providing the work.
- The worker is financially invested in the business, over and above providing labour.
- The worker is liable for their own negligence in doing their work or if they do not complete their work.
Integration into business
This factor looks at whether the worker’s work is part of the business’ everyday work or separate from it.
Integration is from the point of view of the worker, not the employer. A worker employed as part of the business and integral to the business may be an employee. An independent contractor’s work is usually separate from the business’ core work.
For example, a chef is integral to a restaurant’s business and is likely to be an employee. The work of an interior designer for the restaurant may not be integral and they may be an independent contractor.
Workers that integrate an employer’s activities into their own business are more likely independent contractors. This is because the worker is not dependent on the employer’s business. They act on their own behalf, and the work is separate from the employer’s business.
On the other hand, workers that integrate their own activities into the employer’s business are likely employees. This is because the worker is acting for their employer and relies on them.
Payment
This factor looks at how the employer pays the worker.
For example, signs that a worker is likely an employee are:
- The worker receives regular payments at set intervals, such as bi-weekly or monthly.
- The worker receives payments even if customers are not satisfied or do not pay.
- The employer pays for the worker’s travel and other work expenses.
- The employer provides benefits to the worker, such as health benefits or sick leave.
- The employer trains the worker about the employer’s business.
- The employer pays the worker as an individual.
Signs that a worker is likely a contractor are:
- The worker submits an invoice to the employer to receive payment.
- The worker may not receive pay if the employer is unhappy with their work.
- The worker pays their own work expenses, including for travel.
- The worker does not receive any benefits from the employer.
- The employer pays the worker as a corporation or registered business name.
Human rights and health and safety laws
Human rights as well as health and safety laws apply to all types of workers. There are provincial and federal laws for each. Follow the federal laws if you work in a federally regulated industry. All other workers must follow the provincial laws.
Learn more about health and safety laws on our Workplace health and safety page.
Learn more about human rights issues at work on the Alberta Human Rights Commission’s website.
Risks of wrongly categorizing a worker
There can be risks to an employer for categorizing a worker as the wrong type.
For example, it is common for an employer to treat a worker like an independent contractor when the worker is an employee. In this case, the consequences for the employer can include:
- having to provide termination pay or pay in lieu of notice if they terminate the worker
- owing the worker more pay to meet the minimum employment standards such as overtime, vacation and general holidays
- facing penalties for not following minimum employment standards
- having to deduct and remit income taxes as well as Canada Pension Plan and Employment Insurance payments on behalf of the worker. In some cases, the employer may also have to pay penalties and interest for not doing this.
Take action
- Learn more from CPLEA about minimum employment standards for employees
- For provincially regulated workplaces, file a complaint with Alberta’s Employment Standards Office
- For federally regulated workplaces, file a complaint with the Canada Labour Program
- Contact the Canada Revenue Agency with questions
- Get help with issues at work from the Workers’ Resource Centre
Reviewed: May 2024