hiring an independent contractor in ontario
06Nov

The Benefits of Hiring a Contractor vs. an Employee

Understanding the difference between hiring a contractor and an employee is essential for businesses in Ontario. Each option has distinct legal, financial, and operational implications. This article outlines the benefits and drawbacks of both types of working relationships, helping employers make informed decisions that align with their goals and comply with Ontario employment laws.

Key Differences Between Contractors and Employees

Hiring decisions impact workplace obligations and potential liabilities.

Independent Contractors:

  • Self-employed individuals who provide services to clients.
  • Generally control how and when their work is completed.
  • Submit invoices and are responsible for their own taxes, CPP, and EI.
  • They are not entitled to benefits like vacation pay or severance under the Employment Standards Act (ESA).

Employees:

  • Work directly for an employer and are under its direction and control.
  • Are entitled to ESA protections, including minimum wage, vacation pay, public holidays, termination notice or pay, and severance.
  • Require the employer to withhold income tax, CPP, and EI contributions.

Misclassifying employees as contractors can lead to significant legal consequences, including retroactive payments, penalties, and litigation.

Christopher Achkar - Employment Lawyer

As Christopher Achkar, employment lawyer and founder of Achkar Law, explains:

“Choosing between hiring an employee or a contractor can have lasting legal and financial consequences for your business. Before making that decision, speak with a lawyer to ensure your contracts and classifications protect your organization, not expose it.” 

Update

According to Budget 2025, misclassification, often used to avoid income tax, Canada Pension Plan (CPP), and Employment Insurance (EI) contributions, denies workers key legal protections and benefits. The government also plans to increase penalties for wage theft, defined as the failure to pay workers compensation they are lawfully owed.

Benefits of Hiring an Employee

Although costlier in the short term, hiring an employee has advantages:

  • Consistency: Employees often stay with a company longer, contributing to institutional knowledge and stable operations.
  • Loyalty: Full-time employees may demonstrate more commitment and engagement.
  • Control: Employers can set work schedules, methods, and standards.

Employees are also protected under Ontario’s Employment Standards Act, 2000, which outlines basic entitlements and ensures fair treatment.

Internships in Ontario

Internships are sometimes used by organizations as a method of introducing individuals to the workplace. Under Ontario law, interns may be considered employees and entitled to ESA protections unless the internship meets strict criteria for exemption. These include being part of an approved educational program. Misclassification or failure to meet the required standards can expose employers to compliance issues and potential claims.

Legal Risks of Misclassification

Misclassifying a worker can have serious consequences:

What Employers Should Consider

When deciding whether to hire a contractor or an employee, consider:

  • The level of control over the work
  • Who provides tools and equipment
  • Whether the individual can subcontract or hire assistants
  • The degree of financial risk
  • The opportunity for profit

Always document the relationship clearly in a written agreement and regularly review the arrangement to ensure compliance.

How an Employment Lawyer Can Help

Consulting with an employment lawyer can help:

  • Determine the appropriate classification
  • Draft compliant contracts
  • Avoid potential ESA violations
  • Represent your interests in case of a dispute

Conclusion

Choosing between an employee and an independent contractor is not just a financial decision; it has legal implications that can affect your organization’s risk exposure. Whether you’re a growing business, a non-profit, or an established employer, speaking with an employment lawyer can ensure you comply with Ontario law and avoid costly missteps.

Contact Achkar Law

If you’re unsure about whether to hire a contractor or an employee, or need help with an internship or employment contract, Achkar Law can help.

Our team of experienced employment contract lawyers in Ontario is here to provide practical legal guidance. 

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©