Ontario Legislation for working with Agencies as an Employee, Incorporated or Limited Consultant

As a staffing agency, we want to make sure all our employees and Incorporated consultants know what they are entitled to. This post will break down what everyone is eligible for while working with a staffing agency according to Ontario’s Ministry of Labour.

Please note that the following only applies to consultants reporting for work in the province of Ontario.  Legislation varies according to each province. 

Employee Status:

As an employee on contract, you are subject to income tax and your portion of the Canada Pension Plan (CPP) and Employment Insurance (EI) which are deducted from each pay. The Employer Health Tax (EHT) and Workplace Safety and Insurance Board (WSIB) coverage are paid by the agency as well as the employer’s portion of your CPP and EI contributions. You will earn 4% vacation pay which can be accumulated or paid out on each pay. Employees are eligible to earn statutory holiday pay provided that certain conditions are met. The holidays covered in Ontario are New Year’s Day, Family Day (third Monday in February), Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, and Boxing Day. Ontario employees are not eligible for Easter Monday, the Civic Holiday in August, and Remembrance Day.

As an employee, you are not eligible to get paid sick leave. The previous labour law entitling employees to two days of paid personal emergency leave has been repealed.  It has been replaced with three unpaid sick leave days, three unpaid family responsibility leave days, and two unpaid bereavement leave days. 

Once a contract is completed, the employee will receive a Record of Employment (ROE) and is eligible to claim employment insurance except for certain circumstances, such as termination for cause or when the employee quits voluntarily. All regulatory filings are done by the employer and the employee will receive a T4 to file early in the new year.

For more details, please visit this link to view a summarized document of employee rights in Ontario: https://files.ontario.ca/mol-infosheet/employee-rights-temp-help-agency-2019-06-19.pdf

Incorporated or Limited company status:

As an Incorporated or Limited company, you are responsible for your company’s deductions. As you are not our employee, you are not eligible for any employee benefits from the agency. 

There are associated costs and regulations when forming a company however there are also potential tax advantages. For example, it creates the option to defer tax, split income with other shareholders, and deduct home-office space, tools and equipment. You must be sure the Canada Revenue Agency (CRA) would not consider you a Personal Service Business (PSB). CRA identifies corporations as a PSB if they provide services to another organization that an employee would normally perform.  This could include working onsite or using tools and equipment provided by the organization. To not be classified as a PSB, the company should have more than one client, own the tools and equipment necessary to provide services, operate independently from the business for which they are providing services, and have the right to hire workers and assistants. If you are classified as a PSB, you would be ineligible to claim the federal small business tax credit or deduct ordinary business expenses. 

Through the entirety of the contract, the risk belongs to the Limited company in the event CRA determines it to be a PSB.

We hope this have given you some insight on what it means to be an employee and an Incorporated or Limited company. If you have any questions, there are many online resources you can contact for more information. 

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