Top 5 Signs Your 'Contractor' Is Actually an Employee—and How Misclassifying Could Put Your Company at Risk

Hiring independent contractors can be a great way to bring in expertise without the overhead of a full-time employee. But what if that contractor is actually an employee in disguise? The Canada Revenue Agency (CRA) has been cracking down on misclassification, and getting it wrong can cost you—big time. 

Here are five red flags that your contractor might actually be an employee: 

1. You Control How They Work 

If you’re telling them when, where, and how to do their job—down to approving time off—chances are, they’re an employee. Contractors should have autonomy over their work process. 

2. They Rely on You for Income 

If your "contractor" only works for you and doesn’t have other clients, that’s a strong sign of an employment relationship. True contractors run their own businesses and take on multiple clients. 

3. You Provide Their Tools and Equipment 

A contractor should be bringing their own laptop, tools, or workspace. If you’re footing the bill for everything they need to do their job, they may not be a contractor at all. 

4. They’re Embedded in Your Business 

Do they have a company email? Are they on your org chart? Attending team meetings and holiday parties? If they walk, talk, and act like an employee, the CRA might decide they are one. 

5. The Relationship is Long-Term 

Independent contractors are typically hired for specific projects. If your contractor has been working with you for years and is a key part of operations, they might actually be an employee in the CRA’s eyes. 

The Cost of Getting It Wrong 

Misclassification isn’t just a technicality—it can be an expensive mistake. If the CRA determines your contractor is actually an employee, you could be on the hook for: 

✅ Penalties of 10-20% on unpaid income tax, EI, and CPP premiums—plus interest  

✅ Workers’ compensation premiums, fines, and interest  

✅ Both employer and employee portions of CPP contributions  

✅ Unpaid wages like overtime, vacation pay, and parental leave  

✅ Wrongful dismissal claims if you terminate the contract 

These costs add up fast and can put small businesses at serious financial risk. 

Not Sure Where Your Business Stands? 

Misclassification is a gray area, and the consequences aren’t worth the gamble. If you’re unsure whether your contractors are truly independent, let’s talk. A&A Consulting can help you assess your workforce, ensure compliance, and protect your business from costly penalties. 

🔹 Reach out today to get expert guidance on worker classification! 

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