--- title: "Subcontractor vs Employee for Trades: T5018, T4A and the Test" url: https://www.everstonecpa.com/blog/subcontractor-vs-employee-cra description: "The factors the CRA weighs on whether a worker is a subcontractor or employee, how a reclassification is assessed, and what the payer owes. Check yours." type: guide updated: 2026-10-04 summary: "The CRA decides employee versus self-employed by looking at the real working relationship, not the label. It weighs control over how the work is done, who owns the tools and equipment, whether the worker can subcontract or hire helpers, and their chance of profit or risk of loss — alongside the parties’ intent." faq_count: 7 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Subcontractor or Employee? CRA Tests for Construction Construction & trades # Subcontractor or employee? *CRA’s tests for construction businesses* By EverStone CPA · Reviewed August 2026 · 9 min read In construction and the trades, “he’s a sub, not an employee” is one of the costliest assumptions to get wrong. Status is decided not by a label or an invoice but by the working relationship, using tests the CRA (and the courts) apply consistently. Get it wrong and the bill for missed [source deductions](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/remitting-source-deductions.html) can land on you, not the worker. This guide explains how the CRA weighs the question and how to keep your classifications defensible. **Quick answer:** The CRA decides employee versus self-employed by looking at the real working relationship, not the label. It weighs control over how the work is done, who owns the tools and equipment, whether the worker can subcontract or hire helpers, and their chance of profit or risk of loss — alongside the parties’ intent. Misclassifying an employee as a subcontractor can leave your business liable for unremitted CPP and EI plus interest, so it is worth getting right before the work starts. The five factors the CRA weighs. How the CRA weighs the relationship | Factor | Points to employee | Points to self-employed | | Control over how & when work is done | Payer directs the work | Worker sets their own methods | | Tools & equipment | Payer provides | Worker provides and maintains | | Ability to subcontract or hire helpers | No | Yes | | Chance of profit / risk of loss | None | Real financial risk and profit potential | | Integration | Integral part of the payer’s business | Runs their own business | | Reporting slip | T4 | [T5018](https://www.everstonecpa.com/glossary#t5018) (construction) or their own invoice | **On this page**[Why classification matters](#s-why-classification-matters)[The factors the CRA weighs](#s-the-factors-the-cra-weighs)[Intent and written contracts](#s-intent-and-written-contracts)[T5018, T4A or T4 which slip?](#s-t5018-t4a-or-t4-which-slip)[Fixing a misclassification](#s-fixing-a-misclassification)[The bottom line](#s-the-bottom-line)[Frequently asked questions](#s-frequently-asked-questions)[Unsure how to classify your crew?](#s-unsure-how-to-classify-your-crew) ## Why subcontractor or employee is the question that matters When you pay an **employee**, you withhold and remit source deductions — income tax, Canada Pension Plan contributions and Employment Insurance premiums — plus the employer’s share. A genuine **subcontractor** handles their own taxes and CPP. That is why misclassification is costly: if the CRA rules a “subcontractor” was really an employee, your business can be assessed for the [CPP contributions](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp.html) and EI premiums that should have been withheld, often both portions, plus interest and potential penalties. The worker keeps what they were paid; the shortfall is yours. ## The factors the CRA weighs There is no single deciding factor and no points formula. The CRA looks at the whole relationship through several lenses: The same test decides fee-split arrangements in [group therapy and counselling practices](https://www.everstonecpa.com/accountant-for-counsellors-bc). - **Control** — who decides how, when and where the work is done? The relevant question is the payer’s *right* to control the work, not whether they use it. Detailed direction and set hours point toward employment; a worker who sets their own methods points toward self-employment. - **Tools and equipment**, a worker who supplies their own significant tools, equipment and workspace, and bears the cost of maintaining them, looks self-employed. Being provided everything points to employment. - **Ability to subcontract or hire helpers**, a genuine business can hire its own people or subcontract the job out. A worker who must do the work personally looks more like an employee. - **Chance of profit and risk of loss** — can the worker actually profit or lose money based on how they run the work? Real financial risk — quoting fixed prices, covering their own costs, redoing defective work at their own expense — signals a business relationship. - **Integration** — is the worker running their own business, or are they an integral part of yours? Someone who works only for you, under your brand, indefinitely, is harder to call independent. No one factor wins on its own; the CRA weighs them together to see whose business the work really belongs to. **Running payroll for a team?** EverStone runs your pay, remits source deductions on schedule, and files the ROEs and T4s, with payroll part of monthly bookkeeping from $325 a month. See [our payroll service](https://www.everstonecpa.com/payroll-services-canada), or [get a payroll quote](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form) ## Intent and written contracts The CRA also considers the **common intention** of both parties. A written contract stating a self-employed arrangement helps, but only if day-to-day reality matches it. If the work is performed like employment — your control, your tools, your schedule, no real risk to the worker, a “subcontractor agreement” will not change the answer. The strongest position is a written agreement that accurately describes how the work is done. ## T5018, T4A or T4, which slip? Once the relationship is clear, the reporting follows. Employees get a **T4**, with source deductions remitted through payroll. Construction businesses that pay subcontractors for construction services generally report those payments on a **T5018** information return. A **T4A** covers certain other payments. Because the slip depends on the classification, the employee-versus-self-employed question always comes first — our guide to [T5018 reporting for construction contractors](https://www.everstonecpa.com/blog/t5018-subcontractor-reporting-construction) covers the mechanics once you have it settled. The wider service for incorporated trades is on the contractor accounting page. ## Fixing a misclassification If you suspect misclassification, correct it proactively rather than wait for a review: move the worker onto payroll going forward, correct prior remittances and update the paperwork to match reality. If you are genuinely unsure, the CRA offers a ruling process on worker status, and a CPA who works with [contractors and construction businesses](https://www.everstonecpa.com/contractor-accountant) can assess your arrangements before they become a problem. Before the next crew member starts, it is worth being deliberate about the document you hand them. [Employment contract vs contractor agreement](https://www.everstonecpa.com/blog/employment-contract-vs-contractor-agreement) covers what belongs in each — tools, subcontracting rights, insurance, GST/HST, and why a template that only recites “independent contractor” adds almost nothing. ## The bottom line Subcontractor or employee is a question of substance, not labels. Map each of your workers against control, tools, the ability to subcontract, chance of profit and integration; make sure your contracts describe what actually happens; and report on the right slip. Do that and your classifications hold up — leave it to a handshake and an invoice, and a single CRA review can turn years of “subs” into an assessment. Sources - [Canada Revenue Agency — Employee or self-employed?](https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-employment-insurance-ei-rulings/employee-self-employed.html) - [Canada Revenue Agency — T5018 Statement of Contract Payments](https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t5018.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Worker classification turns on your specific facts — please [speak with a CPA](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form) before acting on anything here. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form) Working through this locally? We advise owners on it as an [Abbotsford small business accountant](https://www.everstonecpa.com/accountant-abbotsford). The same classification question decides which cross-border regime applies when the worker is a non-resident: Regulation 102 for employees, or [Regulation 105 withholding](https://www.everstonecpa.com/blog/non-resident-withholding-regulation-105) for everyone else. ### Keep reading [Accountant in Surrey →](https://www.everstonecpa.com/accountant-surrey) [T5018 reporting for contractors →](https://www.everstonecpa.com/blog/t5018-subcontractor-reporting-construction) [Accounting for contractors →](https://www.everstonecpa.com/contractor-accountant) Common questions ## Frequently asked questions **Is my worker a subcontractor or an employee?** The working relationship decides it, not the label on the invoice. The CRA weighs how much control you have over how and when the work is done, who supplies the tools and equipment, whether the worker can subcontract or hire helpers, and whether they have a real chance of profit or risk of loss. A worker who runs their own business, sets their own methods and stands to profit or lose is more likely [self-employed](https://www.everstonecpa.com/self-employed-tax-return); one integrated into your operations under your direction looks like an employee. **What happens if the CRA reclassifies my subcontractor as an employee?** If the CRA decides a worker was really an employee, you can become liable for the CPP contributions and EI premiums that should have been withheld and remitted — often both the employer and employee portions — plus interest and possible penalties. That is why the classification matters before the work starts, not after a review. **Do I issue a T5018, T4A or T4 for construction subcontractors?** In construction, payments to subcontractors for construction services are generally reported on a T5018. A T4 is for employees, and a T4A covers certain other kinds of payments. Which slip applies follows from the working relationship and the type of payment, so getting the employee-vs-self-employed question right comes first. **Can a written contract make someone a subcontractor?** A written agreement stating a self-employed intent carries weight but does not settle the matter. If the day-to-day reality looks like employment, the label will not override it. What helps is a clear contract that matches how the work is really done. **Who ends up paying if CRA reclassifies my sub as an employee?** Your business does. CRA can assess the CPP contributions and EI premiums that should have been withheld, frequently including both the employee and the employer portions, plus interest and possible penalties. The worker keeps what they were paid; the shortfall lands on the payer. That asymmetry is why classification is worth settling before the work starts. **What should I do if I think I have already misclassified someone?** Correct it proactively rather than waiting to be found in a review. Depending on the situation that can mean moving the worker onto payroll going forward, correcting prior remittances, and updating the paperwork so it matches reality. CRA also offers a ruling process where the status is genuinely unclear, and using it costs far less than an assessment. **Does it matter that the worker has a business number and invoices me?** A business number helps, but it does not decide the question. Invoicing, a business number and a written agreement all point toward self-employment, and CRA does weigh the parties’ common intention. The day-to-day reality still governs: if you control the work, supply the tools and set the schedule while the worker carries no real risk, the paperwork will not change the answer. ## Unsure how to classify your crew? We help Surrey and Fraser Valley construction businesses get worker classification, T5018s and payroll right. Send an enquiry to a CPA. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask it free through [the quick-question form](https://www.everstonecpa.com/quick-question) and a CPA replies by email within one business day. For something that needs a proper look, a one-off **Advice Call** is a paid 45-minute session with a Chartered Professional Accountant: $225 plus GST, booked by email with a secure payment link. It is credited against your first invoice if you become a client within 60 days. Looking for an accountant to take this on rather than an answer? [Send an enquiry](https://www.everstonecpa.com/book-online?service=payroll#enquiry-form). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…We switched to him last year for both our personal and small-business taxes — responsive, knowledgeable and quick.” Heather Powers · Google review **Run your own numbers with the free calculators:** [GST/HST calculator](https://www.everstonecpa.com/gst-hst-calculator) · [test whether incorporating pays](https://www.everstonecpa.com/incorporation-calculator) · [verify your payroll deductions](https://www.everstonecpa.com/payroll-deduction-calculator) [← Statutory holiday pay: who qualifies, how it is calculated, and where payroll goes wrong](https://www.everstonecpa.com/blog/statutory-holiday-pay-canada-employers) [Form T1135: who has to file the Foreign Income Verification Statement →](https://www.everstonecpa.com/blog/t1135-foreign-income-verification-canada) More on this subject: [everything for trades and construction](https://www.everstonecpa.com/contractor-accounting-hub). --- Source: https://www.everstonecpa.com/blog/subcontractor-vs-employee-cra Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online