Employer-Employee Relationships

When you contract for individual services from the federal government, you're walking a fine line between engaging an independent contractor and accidentally creating an employment relationship. Get this wrong? You're looking at payroll deductions, benefits obligations, and serious compliance headaches with the Canada Revenue Agency. The distinction matters because disguised employment relationships undermine fair labor practices and create legal exposure for both you and the contracting department.

How It Works

The Government of Canada Supply Manual sets out clear expectations around personal services contracts, emphasizing that departments must evaluate whether they're truly contracting with an independent business or simply hiring an individual who should be on payroll. Here's the thing: it's not about what you call the relationship in your contract. The CRA looks at the actual working conditions—who controls the work, who provides tools and equipment, whether the contractor can profit or suffer loss, and whether they can subcontract or hire their own people.

When PSPC or any federal department issues a contract for services, they need to structure it so the contractor operates independently. That means minimal direction on how work gets done, even if the department specifies what needs to be delivered. You provide your own workspace and tools. You invoice for completed work rather than hours worked. The contractor bears financial risk and has other clients.

In practice, departments often use professional services arrangements where specialists provide expertise the government doesn't maintain in-house—think cybersecurity consultants, policy analysts, or subject matter experts on temporary projects. Treasury Board policies require that these arrangements demonstrate genuine business relationships. A software developer brought in through a temporary help services arrangement, for instance, should be working under their own business methods, not integrated into the department's org chart like a term employee would be.

Key Considerations

• Control is the biggest red flag. If the department supervises how and when work happens, provides training, or integrates the contractor into performance management systems, you're likely in employment territory regardless of contract language.

• Economic reality matters more than paperwork. Can the contractor refuse work? Take on other clients simultaneously? Hire assistants? If the answer is no across the board, the CRA may determine this is disguised employment.

• Long-term arrangements raise scrutiny. Multi-year personal services contracts that keep renewing start looking like permanent positions that should go through proper staffing processes, potentially violating both Treasury Board directives and the spirit of merit-based hiring under the Public Service Employment Act.

• Professional corporations don't automatically solve the problem. Incorporating yourself doesn't change the fundamental relationship. Departments still need to evaluate the actual working conditions against CRA's tests for employment versus independent business.

Related Terms

Contract for Services, Temporary Help Services, Professional Services

Sources

• Government of Canada Supply Manual - Official federal procurement policy and procedures

• CRA Employee or Self-Employed Guide (RC4110) - Detailed criteria for employment status determination

• Buy and Sell - Federal government tender opportunities

If you're bidding on individual service contracts or structuring them for your department, document why the relationship qualifies as independent contracting. That documentation becomes your defense if questions arise later about employment status and associated obligations.