There are some benefits to working as an independent contractor. Some workers prefer the flexibility that comes with choosing when and how they work, and they may have the opportunity to earn higher rates than employees performing similar work.
However, not everyone works as an independent contractor by choice. Many Canadians work as contractors because they cannot find permanent, full-time employment. In some situations, workers may feel they have little practical ability to decline assignments or negotiate the terms of their work.
Why Do Independent Contractors Often Get Paid More?
Independent contractors are often paid more than employees performing similar work because they generally do not receive the protections and benefits available to employees. Depending on the circumstances, independent contractors may not receive vacation pay, public holiday pay, overtime pay, termination pay, severance pay, employer-paid Canada Pension Plan contributions, Employment Insurance coverage, or other workplace benefits.
For this reason, higher compensation may reflect the fact that independent contractors are expected to cover costs and risks that would otherwise be borne by an employer.
Do Independent Contractors Receive Minimum Wage, Vacation Pay, or Holiday Pay?
In Ontario, true independent contractors are generally not entitled to the minimum employment standards contained in the Employment Standards Act, 2000 (ESA). This means that minimum wage, vacation pay, public holiday pay, overtime pay, termination pay, and severance pay protections may not apply.
However, the answer depends on whether the worker is truly an independent contractor. Some workers are incorrectly classified as independent contractors when they are actually employees or dependent contractors. In those situations, the worker may be entitled to employment-related protections and compensation.
For more information about how courts determine whether a worker is truly independent, see our guide to independent contractors.
These differences can create significant cost savings for businesses. As a result, some companies may prefer contractor relationships where they are legally available. In some industries, including parts of the gig economy, worker classification has become an important legal issue.
Classifying a worker as an independent contractor may also allow a company to argue that the worker is not entitled to notice of termination or severance pay. Whether that position is legally correct depends on the true nature of the working relationship rather than the label used in a contract.
Are Independent Contractors Really Independent?
Ontario law recognizes that some employers may attempt to classify workers as independent contractors even when the reality of the relationship is closer to employment. The Employment Standards Act, 2000 contains anti-evasion provisions that prohibit employers from treating employees as though they are not employees.
The courts have repeatedly confirmed that a written contract stating that a worker is an independent contractor is not determinative. Courts will examine the actual facts of the relationship, including the degree of control exercised by the company, ownership of tools, financial risk, opportunity for profit, and whether the worker is truly operating an independent business.
There is good reason for this approach. Employers often have greater bargaining power than workers. A worker may agree to an independent contractor agreement because they feel they have no practical alternative. For this reason, courts look beyond contractual labels and focus on the substance of the relationship.
Worker Misclassification
Workers who are incorrectly classified as independent contractors may be entitled to compensation and workplace protections that were previously denied to them. Depending on the circumstances, this may include vacation pay, public holiday pay, overtime pay, termination pay, severance pay, and other employment-related entitlements.
If you believe you may have been misclassified, it is important to obtain legal advice about your rights and options.
Learn more about Employee Misclassification in Ontario.
A version of this article was originally published in The Lawyer’s Daily on November 22, 2019. This article was updated June 5, 2026.
If you have questions about whether you are an employee, dependent contractor, or independent contractor, contact Monkhouse Law Employment Lawyers for a free 30-minute phone consultation.