Sole Proprietors vs Agency Employees: Working Through a PEO Agency

If you’re a remote Canadian worker considering working for a US or International company through a PEO Agency, 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.

Is it possible to work as a sole proprietor through a PEO agency?

Yes. Licensed employment 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. While it’s generally preferable to hire placement workers as agency employees since that protects them under the provincial employment standards act, those wanting sole proprietor status can be accommodated, so long as the US or international employer also approves.

What should PEO agency placement workers consider when requesting sole proprietor status?

Business Expenses: Placement workers who opt for sole proprietor status are legally considered self-employed, which means they may deduct business expenses from their income. The difference is that your self-employment is processed through an employment agency, which means that while the agency deems you as their employee, you still have a right to deduct business expenses.

Employer Costs: From the US or international employer’s perspective, there is no cost difference between hiring you as a sole proprietor or agency employee through us. The same cost burdens still apply – Canadian employer payroll taxes, our agency fees, and FX currency exchange fees.

Wages: Normally, sole proprietors are not entitled to statutory holidays or vacation pay, so we equalize this wage by adjusting the sole proprietor’s wage. As a result, the overall wage of a placement worker with sole proprietor status is the same as that of a regular agency employee.

Invoicing: Unlike regular agency employees, if you are working as a sole proprietor through a PEO agency 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.

Employment Deductions: As your PEO agency, Canadian Payroll Services deducts your portion of CPP (Canada Pension Plan) and EI (Employment Insurance) from your pay and remit it to the CRA regardless of whether you are functioning as a sole proprietor or a regular agency employee. As a sole proprietor, you can choose between requesting that we deduct and remit your personal income tax on your behalf (just like regular employees) or opt to remit your own income tax, in which case it would not be deducted from your pay.

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