The contract doesn’t decide whether your physio associate is an independent contractor. CRA does, and it tests the label against how the relationship actually runs. If the facts say employee, the clinic is assessed for both shares of the CPP and EI it never deducted, plus a 10 percent penalty and interest.
Most associate agreements in Ontario open with a line declaring the physiotherapist an independent contractor. That line is worth less than clinic owners think. In a CPP/EI review, CRA treats the written label as a starting point, then checks whether the day-to-day working conditions back it up.
Here’s the uncomfortable part: plenty of associate arrangements wouldn’t pass that check.
The test CRA actually applies
CRA’s framework comes from its guide RC4110. Step one is intent: did the two of you mean to set up an employment relationship or a business-to-business one? Step two asks whether the facts match, using these factors:
Control. Who sets the hours and decides which patients the associate sees? An associate who builds their own caseload on their own schedule looks self-employed. One who treats the clinic’s overflow on the clinic’s timetable looks like staff.
Tools and equipment. Treatment tables, modalities, the booking system. If the clinic supplies all of it and the associate arrives with nothing to lose but their time, this factor leans employee.
Subcontracting. Can the associate send a locum in their place or hire their own help without asking you? A genuine contractor usually can.
Financial risk, investment and opportunity for profit. A real contractor can lose money, because they carry costs that don’t stop when the billings do. A percentage split with no fixed costs is weak evidence of risk, but it does create an upside a wage never does, so splits cut both ways here.
No single factor decides it. CRA reads them together and asks which picture they paint.
Their practice, your roof
The associate owns their caseload, sets their own schedule, carries their own registration and insurance, and can bring in a locum when they’re away.
Your practice, their hands
The clinic books the patients, owns the charts, sets the hours, supplies every piece of equipment and pays an amount that can never produce a loss. The only thing missing is the T4.
What a reclassification costs the clinic
When CRA decides an associate was really an employee, the clinic is assessed for the CPP contributions and EI premiums that should have been remitted all along, and the assessment initially lands on the clinic for both the employer share and the employee share. On top sits a 10 percent penalty on the amounts that weren’t deducted, rising to 20 percent where a repeat failure was made knowingly or through gross negligence, plus interest on everything.
CRA rarely stops at one person either. A finding on one associate usually gets applied to every similar arrangement in the clinic, across more than one year. And there’s a second front: an associate who’s legally an employee has employment standards rights, so vacation pay and termination entitlements can surface at the same time as the tax bill. We walk through the underlying payroll-versus-split economics in our cost comparison of a physio associate versus an employee.
Incorporating the associate doesn’t settle it
Some associates incorporate on the theory that a corporation can’t be an employee. Mostly that just moves the problem. If the relationship still looks like employment, the associate’s corporation risks being taxed as a personal services business, which strips out the small business deduction and most expense claims. On paper that’s the associate’s problem. In practice, an associate hit with that reassessment mid-contract becomes the clinic’s problem the same afternoon.
Getting certainty before CRA asks
Either side can ask CRA for a CPP/EI ruling on a specific working relationship. The deadline is June 29 of the year after the one you’re asking about, and the answer binds whether you like it or not, so take an honest look at the facts before you invite it.
For most clinics the better move is to fix the gap between the paper and the practice: give real associates real independence in the agreement and in the operation, or accept that a role you need to control that tightly is a payroll hire. Reviewing associate agreements against the CRA factors is part of what an accountant for physiotherapists should be doing before a review ever starts, alongside the clinic’s regular accounting.
Common questions
Is a percentage split safer than an hourly rate?
It helps, because pay tied to billings shows opportunity for profit and some risk. But a split associate who works set hours on clinic-booked patients with clinic equipment can still be found an employee.
Does a reclassification change the HST picture?
It removes it. An employee is paid wages, so there’s no fee split or administrative fee for HST to attach to. What appears instead is the full payroll cost load, the trade our cost comparison walks through.
Who can request a CPP/EI ruling?
The clinic or the practitioner. Each can apply without the other’s consent, and a former associate applying for EI benefits is a common way these reviews start.
Not sure your associate agreements would survive a CRA look? Send them to us and we’ll tell you where they’re exposed.