When hiring independent contractors in your business, make sure you are familiar with what constitutes an employee vs a self-employed independent contractor. Misclassifying can be extremely costly.
This is a frequently audited area in Canada and the U.S. because employee payroll tax rates and benefits are more costly to the employer. It can be advantageous to hire an independent contractor instead of an employee.
Pour yourself a cup of tea and let's look at what you need to know.
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CRAOver the years the courts have determined that four tests need to be met to determine employment status:
Click to learn more about these tests here. |
IRSThe three categories/factors which determine whether a person is an employee or an independent:
Learn more about how these categories are interpreted by the IRS. Find the "old" checklist of 20 items the IRS takes into consideration when auditing independent contractor status. |
Canada
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U.S.
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CRA
Click here what happens if the written terms of your contract |
IRS
Click here for a checklist of what to include in your written agreement with an independent contractor. |
Think about / consider asking for a copy of their business license for your file.
CanadaPenalties 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
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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. |
Home > Hiring Self-Employed Contractors > Subcontracting in Canada
Home > IC Rules > Hiring Independent Contractors in the U.S.
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