Hiring Independent Contractors
Canada versus U.S.

CRA

Over the years the courts have determined that four tests need to be met to determine employment status:

1. the control test;
2. the integration test;
3. the economic reality test; and
4. the specific results rest.

Learn More >> CRA Classification Rules

IRS

The three categories/factors which determine whether a person is an employee or an independent:

1. behavioral control;
2. financial control; and
3. relationship of the parties.

Learn More >> IRS Classification Rules. Find the "old" checklist of 20 items the IRS takes into consideration when auditing independent contractor status.

Canada
Threshold over $500

• T4A slip to subcontractor services deadline February 28
• T5018 to construction subcontractors deadline February 28
• T4A Summary to CRA deadline February 28
• T4A-NR to cross border contractors deadline February 28
• Form 1009NEC US citizen contractors in Canada deadline January 31
  

Click here to determine whether you need to issue a T4A slip or a T5018 slip.

T5018 construction services examples: construction of buildings, roads, and bridge.

T4A subcontractor business services
examples: bookkeeper, accountant, lawyer, janitor. DO NOT REPORT personal services such as hair salon service or dental work.

U.S.
Threshold over $600

• Form W-9 keep on file upon hiring
• Form 4699 request contractor signature before or when issuing 1099NEC
  
• Form 1099NEC Copy B deadline to contractor January 31
• Form 945 required if you want to send 1099NEC by eMail
  
• Form 1096 deadline to IRS January 31
• Form W-8 (and 1099NEC) for foreign contractors
  

Click here to learn who should receive a 1099-NEC. Learn the two general rules.

Note: Prior to 2020, a 1099-MISC was used instead of 1099-NEC.

CRA

Click here for what happens if the written terms of your contract contradicts oral testimony and source documents.

IRS

Click here for a checklist of what to include in your written agreement with an independent contractor.

Canada

Penalties of 10% on income tax, CPP and EI which are not withheld on the first failure to withhold, with the penalty potentially increasing to 20% for
repeated offenses, as well as non-deductible interest on the amounts owing.

Both the employee and the employer’s portion of CPP and EI plus penalties and interest.

Late filing penalties on the failure to file T4 Statement of EI forms.

U.S.

Click here for the penalties if the IRS determines you have misclassified a worker. The penalties are different for intentional vs. unintentional misclassification when hiring independent contractors.

Learn about the IRS Voluntary Classification Settlement Program.