Compliance and Reporting for Payments to Subcontractors


Compliance and Reporting for Payments to Subcontractors

There are several compliance issues to be aware of to avoid additional costs that you as the business owner could be liable for.

A subcontractor is a person or another business that provides goods and or services to another. Examples:

• Individual has a janitorial business and provides part time janitorial services to several customers.

• Marketing firm providing Internet services to multiple clients.

• Landscaping services provided to several different customers.

Independent Contractor or Employee?

It is very important to establish the legal relationship of hiring someone as there are significant cost differences for the employer.

• Employees generally work part time or full time for one business. The employees receive their pay with deductions for income tax, Canada Pension Plan (CPP) and Unemployment Insurance (UI). The employer also pays an additional portion of CPP and UI as well as Workers Compensation. The business issues T4 slips for the earnings and deductions.

• Subcontractors (also called “independent contractors”) generally work for several different customers or clients. A person who is an independent contractor is self-employed. Typically, an independent contractor sends an invoice to the customer for services provided. There are no deductions for income tax, CPP or UI.

Employment Standards Act

In BC, The Employment Standards Act applies to employees including part-time, temporary or full-time. The Act does not apply to independent contractors.

An employer cannot arbitrarily deem a person to be an independent contractor even if the worker agrees.

Thus, it is very important to determine if the person being hired is an employee or an independent contractor. If this is not done correctly, you as the employer could be liable for failure to make payroll deductions as well as workers compensation costs.

Consult the Employment Standards Branch Province of BC website if you have any questions.

Regarding workers compensation is also important to determine if they are employees or contractors as the employer would be required to pay premiums for their WorkSafeBC coverage. Refer to the WorkSafeBC website for additional information.

CRA Reporting for Independent Contractors

The Canada Revenue Agency (CRA) has reporting requirements:

• T4A – this form is used to report the payments to a subcontractor for the previous calendar year. The T4As and the T4A Summary need to be filed with the CRA before the end of February. I.e. The 2018 payments to independent contractors would be reported by the end of February 2019.

• T5018 – this form is used to report what you paid to an independent contractor for construction services during the previous calendar year. I.e. The 2018 payments to construction subcontractors would be reported by the end of February 2019.

Don’t hesitate to contact us if you have any questions.

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