Independent Contractor vs. Employee in Ontario: The Legal Test Explained

Delta Law
Apr 10
2 min read

Hiring someone to help your business? Whether you're bringing on a web designer, a project manager, or a part-time assistant, it’s critical to get their classification right. Misclassifying an employee as an independent contractor can result in major tax penalties, wrongful dismissal claims, and more.

Here's how to tell the difference—and why it matters.

🧪 What’s the Legal Test?

In Ontario, and under CRA (Canada Revenue Agency) rules, there is no single factor that determines status. Instead, courts and regulators consider a multi-factor test, including:

Control: Does the business control how, when, and where the person works?
Tools & Equipment: Does the worker use their own tools?
Chance of Profit / Risk of Loss: Can the worker make a profit or suffer a loss?
Integration: Is the person integrated into your business, or are they truly independent?

The more control and integration you have, the more likely they’re an employee.

⚠️ Why Misclassification Is a Big Deal

If you treat someone like a contractor but the law sees them as an employee, you could be on the hook for:

Back pay for vacation, overtime, and public holidays
Employer CPP and EI contributions
Severance and termination pay
WSIB obligations

Even if the person signed a contract calling themselves an independent contractor, courts will look at the reality of the relationship—not just the label.