Know the Difference: Employees vs Independent Contractors

What to know about the types of employment classifications, whether you’re hiring or are looking for a position.

Employees and contractors are two different employment statuses. An employee operates primarily under a business while a contractor is an additional outside hire. Keep reading to learn more about the responsibilities and expectations that distinguish the two roles from each other.  

Employee 

An employee operates under a contract of service provided to them by the business they work for. The business determines the employee’s hours, compensation and duties, among other things. The business is also responsible for providing the tools and materials required for the employee to complete their duties. Businesses can suspend, dismiss, or discipline employees for poor performance based on the terms outlined in their contracts. Employees cannot subcontract portions of their duties over to others. In Ontario, employees are protected by employment laws as described in the Employment Standards Act (ESA).   

ESA

The ESA is an extensive document that covers several aspects of employment such as benefit plans, leave conditions and employment termination. This act lays out the basic standards for protecting the rights of employees working in Ontario. It was most recently updated in June 2024.     

The Government of Ontario’s ESA guide outlines some of the ESA’s rules. The guide discusses topics such as minimum wage, public holidays and severance pay, explaining them in plain language for easier understanding. 

Employees cannot be penalized by their employer(s) in any way for attempting to exercise their rights as laid out in the ESA. Employers who punish their workers for exercising their rights may be required to compensate the employee appropriately or pay a penalty. Employees also cannot willingly waive or give up their employment rights, even if they have signed an agreement with their employer to do so.  

Contractor 

Independent contractors also work under contracts, but these are typically provided by the contractor instead of by the business. Contractors are considered independent business owners and generally have more freedom over their work compared to wage-earning or salaried employees. Contractors usually have more control over their work hours and responsibilities and are free to subcontract some of their duties to others. They also often have more bargaining power in terms of certain work conditions. This greater freedom also means that contractors have fewer protections as the ESA does not cover them.  

Contractors are often required to provide their own tools and equipment to complete their work. In addition, businesses are not obligated to provide contractors with some of the benefits that a wage-earning or salaried employee would receive, such as overtime and vacation pay.   

Determining status 

In the case of a dispute, courts will determine an individual’s employment status by evaluating the work relationship between the employer and worker. The relationship is considered in its totality, which includes the moment the worker was hired up to the time the dispute occurred.  

Two main factors in determining employment status are a worker’s amount of freedom and responsibility. Generally, less freedom and responsibility mean that a worker is an employee, whereas more freedom and responsibility mean a worker is a contractor. For example, an individual who has set their own working hours, delegates what they need to do day-to-day and brings their own equipment is likely a contractor.  

It does not matter whether the worker’s initial contract of service states their status. The actual work relationship between worker and employer always holds more weight. This prevents workers from being exploited by a throwaway term in a contract. An employer might treat a worker like a salaried employee but refuse to give them benefits and vacation pay because their contract says they are an independent contractor. In this case, the worker should be protected as an employee under the ESA, and they have the right to argue for appropriate compensation.  

Employees and contractors serve distinct purposes within businesses. It’s, important to know which role to look out for when hiring. Make sure to find out which role is right for the job at hand. Read through the ESA to learn more about the employee-employer work relationship.