Employee vs Contractor Cost Calculator Canada 2026
Compare the true annual cost of hiring an employee versus paying an independent contractor. This calculator includes 2026 employer CPP and CPP2, EI, Ontario EHT, WSIB, vacation pay, benefits and HST — plus a CRA misclassification risk check.
| Cost Item | Employee (T4) | Contractor (Invoice) |
|---|---|---|
| Base pay / contract amount | ||
| Employer CPP (5.95% to $74,600) | $0 | |
| Employer CPP2 (4% from $74,600 to $85,000) | $0 | |
| Employer EI (2.282% to $68,900) | $0 | |
| Vacation pay | $0 | |
| Ontario EHT (1.95%) | $0 | |
| WSIB premium | $0 | |
| Benefits | $0 | |
| Overhead | $0 | |
| HST (13%) | $0 | |
| Total annual cost | ||
| Cost per working hour | ||
| Payroll burden above base pay |
If the CRA decides your contractor is really an employee, you owe both shares of CPP and EI going back years, plus penalties and interest. Please answer honestly for the person you plan to engage.
Do you control how, when and where the person does the work (set hours, direct supervision)?
Do you supply the tools, equipment or software they use?
Will they work only for you, with no other clients?
Are they paid a fixed amount per period regardless of results (no chance of profit, no risk of loss)?
Can they not hire a helper or subcontract the work — must they do it personally?
What an Employee Really Costs in Ontario (2026)
The salary you offer is only the starting point. Every Ontario employer pays mandatory amounts on top of gross pay, and in 2026 those amounts are larger than most owners expect. Employer CPP is 5.95% of pensionable earnings between $3,500 and $74,600, to a maximum of $4,230.45. CPP2 adds another 4% on earnings between $74,600 and $85,000, to a maximum of $416.00, so the combined employer CPP maximum is $4,646.45 per employee. Employer EI is 2.282% of insurable earnings up to $68,900, to a maximum of $1,572.30. Vacation pay under the Employment Standards Act is 4% of wages, rising to 6% at five years of service. WSIB premiums average $1.23 per $100 of insurable payroll in 2026, and Employer Health Tax applies at 1.95% once your Ontario payroll exceeds the $1,000,000 exemption.
| 2026 Employer Cost | Rate | Annual Maximum Per Employee |
|---|---|---|
| CPP (employer share) | 5.95% on $3,500 to $74,600 | $4,230.45 |
| CPP2 (employer share) | 4% on $74,600 to $85,000 | $416.00 |
| EI (employer share, 1.4x employee) | 2.282% up to $68,900 | $1,572.30 |
| Vacation pay (ESA minimum) | 4% (6% after 5 years) | No cap |
| WSIB (2026 Ontario average) | $1.23 per $100 of payroll | Varies by rate class |
| Employer Health Tax | 1.95% above $1,000,000 payroll | No cap |
Add benefits, statutory holiday pay for nine Ontario public holidays, payroll processing, and equipment, and a $70,000 salary typically lands between 12% and 20% higher as a total annual cost. That is the number this calculator puts in front of you before you make an offer.
What a Contractor Really Costs
An independent contractor invoices you and handles their own CPP, income tax, and expenses. You pay no employer CPP, no EI, no EHT, no vacation pay, and in most cases no WSIB. The contractor adds 13% HST to each invoice, but if your business is an HST registrant you recover that full amount as an input tax credit, so it is a cash-flow item rather than a true cost. The exception is HST-exempt businesses such as medical practices and financial services firms, which cannot claim input tax credits — for them, the 13% is a real cost, and this calculator prices that in.
This is why a contractor quoting more than your budgeted salary can still be the cheaper option. It is also why the CRA looks closely at these arrangements: the savings only stand if the worker is genuinely in business for themselves.
The Misclassification Trap: T4 vs Contractor Under CRA Rules
The CRA does not care what your contract says — it applies a factual test based on control, ownership of tools, chance of profit and risk of loss, exclusivity, and whether the worker can subcontract. If a worker you treated as a contractor is reclassified as an employee, you are assessed both the employer and employee shares of CPP and EI for prior years, plus a 10% penalty (20% for repeated failures) and interest. The worker’s HST charged to you can also unwind badly. Our five-question risk check above mirrors the factors CRA auditors and the courts actually weigh.
If the person will be incorporated and works mainly for you, there is a second trap: personal services business (PSB) status. A PSB loses the small business deduction, pays corporate tax at 33.5% in Ontario with almost no deductions, and creates painful reassessments for the contractor. Structuring the engagement properly at the start costs far less than defending it later.
Employee or Contractor: Which Should You Choose?
| Factor | Employee (T4) | Contractor (Invoice) |
|---|---|---|
| Payroll cost above base pay | Typically 12% to 20% extra | 0% (HST recoverable for registrants) |
| Commitment and termination | ESA notice, severance exposure | Ends per contract terms |
| Control over the work | Full direction of how and when | Results only — controlling the “how” creates risk |
| Loyalty and availability | Dedicated capacity | Competes with their other clients |
| Admin burden | Payroll, T4s, remittances, WSIB, ROEs | Approve invoices, issue T4A if applicable |
| CRA exposure | Low if remittances are on time | High if the relationship looks like employment |
What This Calculator Does Not Model
Results are estimates for planning. The calculator does not model statutory holiday pay line by line, WSIB insurable earnings ceilings, severance and termination cost, overtime, employer pension plans beyond the benefits percentage you enter, or provinces outside Ontario. If your payroll is near the $1,000,000 EHT exemption, or your WSIB class rate differs from the average, the real numbers move. Please treat the output as a starting point and have us confirm the figures before you commit to a hire.
Frequently Asked Questions
Common questions Ontario employers ask us before hiring an employee or engaging a contractor.
How much more does an employee cost than their salary in Ontario?
For 2026, plan on roughly 12% to 20% above gross salary once employer CPP and CPP2, EI, vacation pay, WSIB and benefits are included. A $70,000 salary typically becomes a total annual cost in the low-to-mid $80,000s. The calculator above gives you the exact figure for your inputs.
Is a contractor cheaper than an employee?
Often yes on pure cost, because you avoid employer CPP, EI, EHT, WSIB and vacation pay. But a contractor usually charges a higher rate to cover their own CPP and downtime, and the arrangement must genuinely be independent. If the CRA reclassifies the relationship, back CPP, EI, penalties and interest erase the savings.
Do I have to pay the HST a contractor charges?
Yes, a registered contractor must charge 13% HST in Ontario. If your business is an HST registrant, you recover it fully as an input tax credit, so it is not a true cost. HST-exempt businesses such as medical clinics cannot recover it, which makes contractors effectively 13% more expensive for them.
What happens if the CRA says my contractor is really an employee?
You are assessed both shares of CPP and EI for up to three years (longer if there is misrepresentation), plus a 10% penalty and interest. You may also face ESA claims for vacation and termination pay. This is one of the most common and most expensive payroll audits we resolve for small businesses.
Does hiring an incorporated contractor remove the risk?
No. Incorporation does not settle the classification question. If the incorporated worker would otherwise be your employee, their corporation can be taxed as a personal services business at 33.5% in Ontario, and your arrangement can still attract CRA attention. The working relationship, not the paperwork, decides the outcome.
Do I issue a T4 or a T4A?
Employees receive a T4 with source deductions remitted through the year. Contractors providing services may be reported on a T4A (and construction subcontractors on a T5018). Getting these slips right is part of keeping the contractor position defensible.
Do I need WSIB coverage for contractors?
It depends on your industry and whether the contractor carries their own WSIB account or clearance certificate. In construction, coverage is mandatory in most cases and you should collect a clearance before paying any subcontractor. We can review your specific situation.
Can I switch someone from contractor to employee later?
Yes, and moving a long-term full-time contractor onto payroll is often the safest fix for a risky arrangement. It needs a clean transition: final invoices, a proper offer letter, payroll setup and remittances from day one. We handle this changeover for clients regularly.
Related Calculators and Guides
More free tools and guides for Ontario employers and business owners.
Not Sure Which Way to Go? Ask a CPA Before You Commit
We help Ontario businesses structure hires the right way — payroll setup, contractor agreements that hold up, and clean fixes for arrangements that would not survive a CRA review. Please book a consultation and bring your numbers from the calculator above.
This calculator provides estimates based on published 2026 federal and Ontario rates. Calculations are simplified and do not constitute tax, legal or accounting advice. Please confirm your specific situation with a licensed CPA before acting.