EOR vs Contractor Model: Complete Comparison

Should you hire Canadian workers as employees through an EOR or as independent contractors? This comparison covers legal, tax, and compliance differences to help you make the right choice.

Quick Comparison

Key differences at a glance

Factor EOR (Employee) Independent Contractor
Legal Relationship Employee-employer Client-contractor
Tax Withholding Automatic (T4) Contractor responsible (T4A)
CPP/EI Contributions Required (employer matches) Contractor pays own CPP
Benefits Can provide benefits Contractor provides own
Control & Direction You control work Contractor controls work
Compliance Risk Low (EOR handles) High (misclassification risk)
Termination Notice/severance required Contract terms apply
Best For Ongoing work, team integration Project-based, specialized skills

Detailed Comparison

In-depth analysis of each approach

Legal Classification

EOR (Employee)

  • Clear employee-employer relationship
  • Legally compliant classification
  • No misclassification risk
  • Protected by employment standards
  • Entitled to statutory benefits

Independent Contractor

  • Business-to-business relationship
  • Must meet strict criteria
  • High misclassification risk
  • Not protected by employment standards
  • No statutory benefits entitlement

Warning: Misclassifying an employee as a contractor can result in significant penalties, back taxes, and legal issues. Source: Canada Revenue Agency

Tax Implications

EOR (Employee)

  • Automatic tax withholding
  • T4 slip issued annually
  • CPP contributions (employer matches)
  • EI contributions (employer pays 1.4x)
  • No tax surprises for worker

Independent Contractor

  • No tax withholding (T4A if over $500)
  • Contractor files own taxes
  • Contractor pays own CPP
  • No EI contributions
  • Contractor responsible for GST/HST

Source: CRA Payroll Information

Control & Work Relationship

EOR (Employee)

  • You control when, where, how work is done
  • Can set work hours and schedule
  • Can provide equipment and tools
  • Can require specific work methods
  • Full integration into your team

Independent Contractor

  • Contractor controls work methods
  • Contractor sets own schedule
  • Contractor provides own equipment
  • Limited control over how work is done
  • Less team integration

Key Factor: The level of control you exercise is a primary factor in determining employee vs. contractor status. Too much control can trigger reclassification.

Compliance & Risk

EOR (Employee)

  • EOR handles all compliance
  • No misclassification risk
  • EOR assumes compliance liability
  • Automatic compliance with laws
  • Protected from penalties

Independent Contractor

  • You must ensure proper classification
  • High misclassification risk
  • You assume all liability
  • Must verify contractor status
  • Penalties for misclassification

Penalties: Misclassification can result in back taxes, penalties, interest charges, and legal fees. CRA can audit and reclassify workers retroactively.

Cost Comparison

EOR (Employee)

  • Salary + employer contributions
  • CPP: 5.95% up to $66,600
  • EI: 2.21% up to $60,300 (employer pays 1.4x)
  • EOR service fee: $499-$1,500/month
  • Benefits (optional)

Independent Contractor

  • Contractor rate (typically higher)
  • No employer contributions
  • No CPP/EI contributions
  • No service fees
  • May charge GST/HST

Note: While contractors may appear cheaper initially, misclassification risks and lack of control can result in higher long-term costs.

Termination & Severance

EOR (Employee)

  • Notice period required (varies by province)
  • Severance pay may be required
  • Record of Employment (ROE) issued
  • Protected by employment standards
  • EOR handles termination compliance

Independent Contractor

  • Contract terms govern termination
  • No severance required
  • No ROE required
  • Not protected by employment standards
  • You handle contract termination

Source: Federal Employment Standards

When to Choose Each Option

Decision factors to consider

Choose EOR (Employee) If:

  • You need ongoing, regular work
  • You want to control how work is done
  • You need team integration and collaboration
  • You want to minimize compliance risk
  • You need workers to use your equipment/tools
  • You want to set work schedules and hours
  • You need long-term commitment
  • You want to provide benefits

Choose Contractor If:

  • Work is project-based or temporary
  • Contractor has specialized expertise
  • Contractor works for multiple clients
  • Contractor provides own equipment
  • Contractor sets own schedule
  • Work is clearly defined and deliverable-based
  • Contractor has own business structure
  • You want minimal ongoing commitment

Key Statistics

Data-driven insights

Misclassification Risk

High

Contractor Model

vs. Zero risk with EOR

Employer Contributions

Required

EOR (Employee)

vs. None for contractors

Control Level

Full Control

EOR (Employee)

vs. Limited for contractors

Compliance Burden

EOR Handles

Low Risk

vs. You handle for contractors

Need Help Deciding?

Our team can help you determine the best employment model for your specific situation and ensure compliance with Canadian employment law.

Get a Free Consultation

Or email us at marc@infradevconsulting.com