A Guide to Sole Proprietors and Employees for Workers
If you’re a remote Canadian worker considering working for a US or global company through a PEO, you might be confused as to whether you’re officially an employee of the agency or if you’re functioning as a self-employed sole proprietor.
Can a Sole Proprietor Work Through a PEO?
Yes. Agencies like Canadian Payroll Services are allowed to employ placement workers as sole proprietors when all parties are compliant with the relevant CRA rules and regulations. The difference is that as a sole proprietor you cannot have an employee-employer relationship with your client or with your PEO.
Sole Proprietors or Employees: What’s Better for You and Your Team?
There are obvious and subtle differences between employees and sole proprietors. Employees work for, and are directed by, one employer under an open ended employment agreement. Their CPP, EI and income tax contributions are handled alongside their payroll. And most importantly, they are protected by a number of employment standards and laws which dictate minimum wage, hours of work, vacation, dismissal and more.
In contrast, sole proprietors are self-employed individuals who may have many clients. Rather than an employment agreement, they have a business to business service contract.
Whether your team should be hired as employees or sole proprietors ultimately comes down to the nature of the work. Is it a contract with a clear start and finish or ongoing employment? Will you closely direct this team or will they be able to independently fulfill their contractual obligations?
Placement workers who qualify for sole proprietor status are legally considered self-employed, which means they may deduct business expenses from their income. When using a PEO, your self-employment income may be processed through an agency but it is still self-employment income.
If you are working as a sole proprietor through a PEO like Canadian Payroll Services, you are required to invoice us before we can pay you. You’ll also need to include GST/HST (federal and/or provincial sales taxes) on your invoice. Sole proprietors who make over $30,000 CAD per year from their business are required to have a GST/HST number and remit those GST/HST payments to the Canada Revenue Agency on a regular basis.
Even though you’re operating as a sole proprietor, Canadian Payroll Services can deduct your portion of CPP and EI contributions from your pay and remit it to the CRA. Should you opt to have your CPP and EI deductions handled by us, we will issue you a T4 at year end to simplify your tax filing.