HR 101: Employee or Subcontractor in BC - Know the Difference
Let’s talk about the classic small business headache: who do you hire, and how do you pay them without accidentally inviting the CRA or Employment Standards Branch over for tea?
In BC, it’s not just about what the worker calls themselves. Whether someone is an employee or a subcontractor determines taxes, benefits, and who’s responsible for what. Get it wrong, and it can get expensive —> and fast.
Employees
Employees are the people whose paychecks you control. You tell them what to do, when to show up, and how to do it. In return, you:
Withhold and remit income tax, CPP, and EI
Provide statutory benefits like vacation pay, statutory holidays, and overtime according to the Employment Standards Act (ESA)
Follow ESA rules for hours of work, breaks, leaves, and termination notice
Pros:
You know exactly what your obligations are thanks to the ESA
Their legal rights are protected, so payroll rules are clear
Cons:
You handle all the payroll, taxes, and compliance — mistakes can get expensive fast
Mistakes can also make your life a bit like a paperwork horror show
Subcontractors (Independent Contractors)
Subcontractors are the cool cousins. They do their thing on their terms. You usually pay them a fee, and they handle their own taxes, CPP, and EI. They aren’t covered by the ESA for things like vacation, statutory holidays, or overtime.
Subcontractors are supposed to be independent: you hire them for a service, they do it their way, and they handle their own taxes and benefits. Sounds simple, right? But lots of business owners make the “I can boss them around like an employee and still call them a subcontractor” mistake.
Pros:
True subcontractors manage their own taxes, CPP, EI, vacation, and breaks
You pay for a service, not a full-time employee package
Cons:
If you control how, when, and where they work, they might actually be employees in the eyes of the CRA and ESA
Misclassification can trigger CRA audits, ESA complaints, and penalties - plus awkward conversations you don’t want
Treating subcontractors like employees kills the independence that makes the relationship legal and fair
How to Decide
The CRA and ESA look at:
Control – Who decides how, when, and where the work is done?
Tools and Equipment – Do they use their own or yours?
Financial Risk – Do they carry business risk or get paid regardless?
Integration – Are they part of your business or just providing a service?
Hint: If you answer “you” to most of these questions, they’re probably an employee.
My Two Cents
It’s tempting to call everyone a subcontractor to avoid paperwork. Don’t. Misclassification can cost big, and it’s stressful to fix.
Employees are covered by the ESA, which protects their rights and sets your obligations.
Subcontractors are business owners too and the work they do reflects their reputation as much as yours. Because of that, when treated correctly, they can be just as dedicated and even deliver better outcomes than an employee who’s simply following instructions.
The key is that subcontractors provide a service on their own terms, manage their own taxes and benefits, and aren’t subject to the same control rules as employees. If you treat them like an employee but call them a subcontractor, it can create legal risk for your business.
The takeaway: know the difference, respect the relationship, and follow the rules. Employees have ESA protections; subcontractors operate independently. Doing it right keeps everyone happy, avoids penalties, and ensures the working relationship actually works - with dedication, professionalism, and no surprises.
