Employer-Employee Relationship

When you contract for services with the federal government, the line between hiring a contractor and creating an employment relationship matters more than you might think. Get it wrong, and you're exposed to significant legal liabilities under Canadian labor and tax laws. The distinction hinges on control: how much direction you exert over how the work gets done versus what gets delivered.

How It Works

Here's the thing: the Canada Revenue Agency doesn't care what you call someone in a contract. They look at the reality of the working relationship. If your department is dictating work hours, providing equipment, controlling how tasks are performed, and integrating someone into your organizational structure, you've likely created an employment relationship—regardless of what the paperwork says. This triggers obligations under the Canada Labour Code, CPP contributions, EI premiums, and vacation entitlements that weren't budgeted for in your contract value.

The Government of Canada Supply Manual addresses this by emphasizing that contracts must maintain a clear independent contractor relationship. When PSPC or individual departments like DND procure professional services, they need to ensure the Statement of Work focuses on deliverables and outcomes rather than prescriptive methods. You're buying a result. Not renting a person.

In practice, this shapes everything from how you write your SOW to how project managers interact with contractors on-site. If you're bringing in IT contractors through SSC or professional services through Treasury Board vehicles, your project leads can't treat them like staff—they shouldn't be attending all-staff meetings, using government email addresses, or receiving performance reviews the way employees do. The contractor's firm maintains control over their work methods, schedules, and tools. You just get to accept or reject the deliverables.

Key Considerations

• The "integration test" catches people off guard: If someone works exclusively for your department for months, uses your systems and processes, and reports daily to your managers, courts may determine they're actually an employee regardless of contract language.

• Multiple factors matter simultaneously: No single element determines the relationship. CRA examines control, ownership of tools, financial risk, opportunity for profit, and whether the contractor can subcontract work. You need most of these factors pointing toward independence.

• Provincial variations add complexity: While federal procurement follows Treasury Board rules, different provincial labor standards may apply depending on where work is performed. This creates additional compliance layers for contracts executed outside the National Capital Region.

• Documentation protects you—but only if it reflects reality: A well-drafted contract stating the person is independent won't save you if email records show you were micromanaging their daily tasks and treating them like subordinates.

Related Terms

Statement of Work, Professional Services, Contract Administration

Sources

• CRA RC4110: Employee or Self-Employed? - Official CRA guidance on determining worker status

• Government of Canada Supply Manual - Federal procurement policy and procedures

The safest approach? Write contracts that clearly define outcomes and deliverables, then resist the temptation to manage how contractors achieve them. Your procurement team and legal services can help structure arrangements that get the work done without creating unintended employment obligations.