Self-Employed Worker or Employee?

Source and notice

This content is an independent and unofficial reformulation of Revenu Quebec's publication in-301(2017-10).pdf. It is provided for informational purposes only and does not constitute legal, tax, or professional advice. For any decision, refer to the official document.

Who this document is for

This document is intended for workers who must determine whether they have the status of self- employed worker or employee for Quebec tax purposes. It also concerns individuals or organizations that assign work to someone, including employers, clients, producers in the artistic field, and businesses that must understand whether a working relationship gives rise to employer tax obligations. The document is aimed in particular at situations where a person's status is not obvious, for example when a worker considers themselves self-employed, but the facts may instead reveal an employment relationship.

Context and purpose

A worker's status has important tax consequences. The obligations are not the same depending on whether a person is considered a self-employed worker or an employee. The document explains the criteria used by Revenu Quebec to analyze a working relationship and determine the applicable status. It specifies that the label given by the parties is not enough on its own: even if a worker and the person assigning the work state that it is self-employment, Revenu Quebec may conclude otherwise if the facts show an employer-employee relationship. The document is part of the application of Quebec tax rules relating to

workers, employers, and contributions that may have to be paid. It also mentions that certain artists may benefit from a presumption allowing them to be considered self-employed workers in specific circumstances.

Complete and detailed information

Two possible statuses for a worker

A worker may fall under one of the following two statuses:

• self-employed worker;
• employee. This distinction is essential, because it determines the applicable tax obligations.

Definition of self-employed worker

A self-employed worker is a natural person, that is, an individual, who carries on a business for the purpose of making a profit. This business may be carried on:

• with employees;
• without employees. For the tax obligations specific to self-employed workers, the document refers to the brochure entitled Are You Self-Employed? Tax Reminder (IN-300).

General definition of self-employed worker according to the criteria in the document

A person is considered self-employed when they meet the following elements:

• they freely choose the means used to perform a contract;
• they are not placed in a subordinate relationship to their client. In other words, the self-employed worker retains real autonomy in organizing and performing the work.

General definition of employee according to the criteria in the document

A person is considered an employee when they undertake, under a written or verbal contract, to perform work:

• under the direction of an employer;
• under the control of an employer;
• for a limited period;
• in exchange for remuneration. The presence of direction or control exercised by the employer is therefore at the heart of the analysis.

The six criteria used to determine status

Status is determined using six criteria:

1. effective subordination in the work;
2. the economic or financial criterion;
3. ownership of tools;
4. integration of the work performed;
5. the specific result of the work;
6. the parties' attitude regarding their business relationship. These criteria are also discussed in interpretation bulletin Status of a Worker (RRQ. 1-1).

Note on the wording used in the document

The document states that the masculine form is used to make the text easier to read and that it applies to both women and men.

Criterion 1 - Effective subordination in the work

Effective subordination is presented as the most important criterion for distinguishing a self-employed worker from an employee.

Situation corresponding to self-employment

When a person is self-employed, their working conditions do not include subordination. As a general rule, the client does not determine:

• the worker's schedule;
• the place where the work must be performed;
• the methods of work used.

The client generally cannot prevent the worker from:

• obtaining help;
• being replaced;
• offering their services to several clients. These elements show that the worker retains control over their work organization.

Situation corresponding to employment

When a person is an employee, their working conditions include subordination to the employer. The employer exercises authority over the employee. In general, they may in particular:

• set the hiring conditions;
• set the dismissal conditions;
• determine the work schedule;
• choose the workplace;
• define the tasks to be performed;
• impose work methods;
• direct the employee's activities;
• direct, where applicable, the activities of the employee's substitutes;
• verify that the work is done;
• verify, where applicable, the work of substitutes;
• impose disciplinary measures.

Responsibility for damages and work-related expenses

In an employment relationship, it is the employer who must bear the damages that the employee may cause in the performance of their duties. In general, the employer also pays:

• expenses related to training activities;
• expenses related to skills development activities;
• expenses associated with the workplace.

Criterion 2 - Economic or financial criterion

The economic or financial criterion is used to analyze the relationship between the worker and their client or employer.

Situation corresponding to self-employment

A person who is self-employed may make profits, but may also incur losses. They bear the operating expenses of their own business themselves. The document gives the following examples:

• meal expenses;
• travel expenses;
• lodging expenses. Financial risk is therefore one of the elements indicating a self-employed work situation.

Situation corresponding to employment

An employee does not bear the operating expenses of the business. These expenses are the employer's responsibility. The employee does not bear any financial risk linked to the business's losses. The business's losses therefore have no direct impact on their remuneration. The document also indicates that the employee benefits in particular from:

• annual vacations;
• paid leave;
• fringe benefits.

Criterion 3 - Ownership of tools

Ownership of tools is another element used to assess the worker's status. The term tools refers to everything necessary for the work, including:

• articles;
• instruments;
• equipment;
• materials.

Situation corresponding to self-employment

A self-employed worker normally provides their own tools. They also bear the costs related to their use.

Situation corresponding to employment

An employee usually works with tools belonging to the employer. The employer covers the costs of using these tools, including:

• financing costs;
• operating costs;
• repair costs.

Criterion 4 - Integration of the work performed

The integration criterion must be analyzed from the worker's point of view.

Situation corresponding to self-employment

If the services provided to a business are not part of its usual activities, this indicates a self-employed situation. The document gives the example of an external consultant. In this context, the worker may offer services to several clients.

Situation corresponding to employment

If the work performed is an integral part of a business's activities, there is probably an employer-employee relationship. The document gives two examples of situations where a person may be considered an employee:

• they sell the products of a business and the sale is part of that business's activities;
• their main income comes from work performed for a single employer.

Criterion 5 - Specific result of the work

This criterion concerns the object of the relationship: a specific task to be performed or a personal availability over a period of time.

Situation corresponding to self-employment

A person is self-employed when the person assigning the work retains their services to carry out a specific task and leaves them the choice of the means to achieve the desired result.

In this case, the business relationship ends when the desired result is achieved.

Situation corresponding to employment

A person is rather an employee when they personally place themselves at the service of an employer for a certain period of time.

Criterion 6 - Parties' attitude regarding their business relationship

This criterion concerns the agreement between the worker and the client or employer regarding the working conditions. Several facts may be taken into account, including:

• payment of the contribution to the Commission des normes, de l'equite, de la sante et de la securite du travail (CNESST) in relation to the salary paid to the worker;
• the overall analysis of the employment contract;
• the terms provided for renewing the contract;
• the worker's access to the employer's group insurance;
• the payment of severance pay. These elements are not presented as the only possible factors, but as examples of facts that may shed light on the true nature of the relationship.

Importance of correctly determining status

A worker may consider themselves self-employed, or be treated as such by the person assigning the work, while still being considered an employee according to Revenu Quebec's criteria. The document also emphasizes that some employees may be encouraged by their employer to adopt self-employed status. However, the agreement of both parties is not enough for Revenu Quebec to recognize this status. During an audit, Revenu Quebec may analyze the worker's actual situation and conclude that a person presented as self-employed is instead an employee. In such a case, the employer must pay the contributions that should have been paid.

Equivalent publication in English

The document indicates that an English version exists under the title Employee or Self-Employed Person? (IN-301-V).

Document reference

The publication bears the reference IN-301 (2017-10). The document also includes the mention 2017-08 in its administrative information section. Another administrative mention visible in the extracted text indicates 2012-05, presumably linked to an earlier version or element of the document.

Special cases and exceptions

Special case of artists

The document provides special treatment for certain artists.

Artist working under a contract of employment

When an artist performs their art under a contract of employment, the employer is subject to the same tax obligations as those applicable to any person who hires an employee under Quebec tax legislation.

Presumption allowing a person to be considered self-employed

An artist may nevertheless invoke a presumption in order to be considered self-employed if the following two conditions are met during the same year:

• they entered into several engagements with one or more producers;
• they work in one of the artistic production fields covered by the Act respecting the professional status and conditions of engagement of performing, recording and film artists.

Effect of the presumption for a Canadian resident artist

When a Canadian resident artist expressly indicates to a producer that they are invoking this presumption, the producer has no tax obligations toward them as an employer.

Interpretation bulletins mentioned for artists

The document mentions two interpretation bulletins related to the tax status of artists:

• Tax Obligations of a Person Who Employs an Artist Working in One of the Artistic Production Fields Covered by the Act respecting the professional status and conditions of engagement of performing, recording and film artists (IMP. 1015-5);
• Tax Status of an Artist Working in One of the Artistic Production Fields Covered by the Act respecting the professional status and conditions of engagement of performing, recording and film artists (IMP. 80-3).

Possible difference with other departments or organizations

The document specifies that the criteria used by Revenu Quebec may differ from those applied by other departments or organizations. It also specifies that Revenu Quebec is not bound by decisions rendered by other government bodies when those decisions concern a worker's status under laws other than those administered by Revenu Quebec.

Limitation of the publication's content

The document states that the publication is provided for informational purposes only. It specifies that the information it contains does not constitute a legal interpretation :

• of the Taxation Act;
• nor of any other law.

Steps and procedures

In the event of disagreement about status

When an employer and a worker do not agree on the applicable status, a request for a decision may be submitted to Revenu Quebec. The document mentions two forms to use:

• Request for a Decision Concerning the Determination of Employee or Self-Employed Worker Status (RR-65);
• Questionnaire for the Determination of Employee or Self-Employed Worker Status (RR-65.A).

Federal guide mentioned

The document indicates that the Canada Revenue Agency also makes the following guide available to employers and workers:

• Employee or Self-Employed? (RC4110).

Related documents mentioned

The document also refers to the following publications and bulletins:

• Are You Self-Employed? Tax Reminder (IN-300);
• Status of a Worker (RRQ. 1-1);
• Tax Obligations of a Person Who Employs an Artist Working in One of the Artistic Production Fields Covered by the Act respecting the professional status and conditions of engagement of performing, recording and film artists (IMP. 1015-5);
• Tax Status of an Artist Working in One of the Artistic Production Fields Covered by the Act respecting the professional status and conditions of engagement of performing, recording and film artists (IMP. 80-3);
• Employee or Self-Employed? (RC4110);
• Employee or Self-Employed Person? (IN-301-V), English version of the publication.

Important warnings

• The status indicated by the parties does not by itself determine the actual tax status.
• The fact that a worker wishes to be considered self-employed, or that the person who assigns the work considers them as such, does not guarantee that Revenu Quebec will accept this classification.
• The mutual consent of an employer and a worker to convert an employment relationship into self-employment is not sufficient if the facts do not match the applicable criteria.
• During an audit, Revenu Quebec may reclassify a self-employed worker as an employee.
• If a reclassification as an employee occurs, the employer must pay the contributions that should have been remitted.
• Effective subordination is the central criterion of the analysis.
• Revenu Quebec's criteria may be different from those used by other departments or organizations.
• Revenu Quebec is not required to follow decisions rendered by other government bodies when those decisions concern laws other than those it administers.
• The publication does not constitute a legal interpretation of the Taxation Act or of any other law.
• The extracted pages of the document contain contact information and administrative details; these are not reproduced here in accordance with the processing instructions.

Summary

The document explains how to distinguish a self-employed worker from an employee for Quebec tax purposes. Status depends on the real facts, and not only on the agreement or preference of the parties. The most important criterion is effective subordination: the more a

person is directed, controlled, and integrated into an employer's organization, the more they resemble an employee. The other criteria concern financial risk, ownership of tools, integration of the work into the business's activities, the nature of the expected result, and the conditions agreed between the parties. A self-employed worker carries on a business for profit, generally chooses their own methods, bears their own expenses, and may face a risk of loss. An employee works under an employer's authority, without direct financial risk, with working conditions and often benefits associated with employment. Certain artists may be presumed to be self-employed if they meet the prescribed conditions and expressly indicate this to the producer. In the event of disagreement, the RR-65 and RR-65.A forms may be used to request a decision on status.