How to Hire and Pay Subcontractors in Canada: Contracts, Insurance and Tax Basics
How Canadian contractors can hire subcontractors safely: contractor vs employee, insurance, WCB clearance, written agreements and paying on time.
This is general information, not legal or tax advice. Rules on employment status, workers' compensation and holdbacks vary by province, so confirm with your accountant and your provincial board. Here are the practical basics for contractors who bring in other trades.
Subcontractor or employee?
The Canada Revenue Agency looks at the real working relationship: who controls how and when the work is done, who supplies tools, whether the person can hire helpers, and whether they take financial risk. Calling someone a subcontractor does not make them one. Misclassification can lead to back payroll deductions, EI and CPP assessments and penalties.
Before you hire
- Proof of liability insurance: ask for a certificate and be named as additional insured where possible.
- Workers' compensation clearance: in many provinces you can be liable if a sub is not registered. Ask for a clearance certificate.
- Licences and certifications: especially for electrical, gas and plumbing work.
- GST/HST registration: so you can claim input tax credits where eligible.
- References and past work: call two previous customers.
Put it in writing
A subcontract should cover scope, price, schedule, payment terms, change orders, insurance, warranty on their work and how defects are fixed. It does not need to be long, but it must exist. Use the same change-order discipline you use with clients: our change order guide explains how.
Paying subs
- Pay on the agreed schedule. Reliable payment is how you keep good subs.
- Check holdback rules in your province, since some require withholding a percentage until completion.
- Track payments by job so you know your true margin.
- Issue year-end slips where required, such as T5018 for construction subcontractor payments in many cases.
Price subs into your quote
Sub costs should carry markup for coordination, risk and your warranty on the whole job. Include them as clear line items in the quote, which quoting software for general contractors handles together with materials and labour. See also markup vs margin.