How do I pay freelance designers, writers, or developers?

Short Answer

Pay freelancers through a consistent contractor workflow: signed agreement, proper invoices, and tracked costs by client/project. Before you treat someone as a contractor, use CRA guidance to confirm they’re not actually an employee. If you pay fees for services, you may also have CRA reporting obligations (often via T4A) once thresholds apply. Collect their GST/HST number (if registered) and SIN or business number. Record the expense when the invoice is received, issue T4A slips for payments over $500 annually, and never deduct payroll taxes—freelancers handle their own CPP and income tax. Pay them via a bill payment service like Plooto.

The Rule / General Rule

In Canada, freelancers (independent contractors) are fundamentally different from employees. The distinction affects how you pay them, what you report to CRA, and what records you need to keep.

Paying Freelancers:

• Pay based on invoices submitted by the freelancer, not timesheets
• Do not deduct income tax, CPP, or EI from payments—freelancers are responsible for their own remittances
• The freelancer should provide their GST/HST number if registered (required if their annual revenue exceeds $30,000)
• Pay the gross invoice amount, including any GST/HST they charge, then claim the GST/HST paid as an input tax credit

Information Collection:

• Before the first payment, collect the freelancer’s legal name, address, and SIN (for unincorporated individuals) or business number (for incorporated contractors)
• Keep a copy of their invoice for your records
• If they charge GST/HST, verify their registration number is valid

T4A Reporting Requirements:

• If you pay a freelancer more than $500 in a calendar year for services, you must issue a T4A slip by February 28 of the following year.
• Report the gross amount paid (excluding GST/HST) in Box 048 “Fees for Services”.
• File the T4A Summary with CRA and provide a copy of the T4A slip to the freelancer.
• If the freelancer is incorporated, you generally do not issue a T4A (corporations report their own income). Exceptions to this include professional and management fees, commissions, etc.

CRA Classification:

• Ensure the freelancer is genuinely self-employed, not a disguised employee.
• CRA uses tests including control, ownership of tools, chance of profit/risk of loss, and integration into your business.
• Misclassification can result in back taxes, penalties, and interest.

Why It Matters

Compliance:

• Failing to issue T4A slips can result in penalties of $25 per day per slip, minimum of $100 and up to a maximum of $2,500.
• Misclassifying an employee as a contractor can trigger a CRA audit and liability for unpaid CPP, EI, and income tax.
• Proper documentation protects you if CRA questions the nature of the relationship.

GST/HST Input Tax Credits:

• When you pay GST/HST to registered freelancers, you can claim that amount back as an input tax credit.
• This reduces your net GST/HST remittance—but only if you have valid invoices with the freelancer’s registration number.
• If a freelancer should be registered but isn’t, you lose the ability to claim ITCs on their fees.

Freelancer Relationships:

• Prompt, professional payment builds trust and ensures access to top talent.
• Clear invoicing and payment terms prevent disputes about what’s owed and when.
• Freelancers appreciate agencies that handle paperwork correctly—T4A slips help them file their own taxes smoothly.

Financial Planning:

• Recording freelancer expenses on the accrual basis (when invoiced) gives you accurate monthly expense tracking.
• This helps you understand true project profitability, not just cash-basis spending.
• Proper coding of freelancer expenses by project or client enables better job costing analysis.

Best Practices

Before Engaging a Freelancer:

• Create a written agreement or contract outlining deliverables, payment terms, and intellectual property ownership.
• Collect their SIN (unincorporated) or business number (incorporated) and GST/HST registration number.
• Confirm they carry their own liability insurance if relevant to the work.

Receiving and Recording Invoices:

• Request detailed invoices that include: freelancer’s legal name, address, GST/HST number, invoice date, description of services, amount, and GST/HST charged.
• Record the invoice in your accounting system when received (accrual basis) under an appropriate expense category like “Subcontractor Fees” or “Freelance Creative Services”.
• Tag the expense to the relevant client or project for job costing purposes.

Making Payments:

• Pay via Interac e-transfer, cheque, or a service like Plooto for better tracking and audit trails.
• Avoid paying cash—it creates documentation gaps and looks suspicious to CRA.
• Process payments within the agreed terms (common: Net 15 or Net 30) to maintain good freelancer relationships.
• Keep records of each payment, including date, amount, method, and reference to the invoice.

Year-End Reporting:

• By mid-January, compile a list of all freelancers paid more than $500 (excluding GST/HST) during the calendar year.
• Prepare T4A slips for unincorporated freelancers; report payments in Box 048.
• File the T4A Summary and individual slips with CRA by February 28.
• Distribute T4A copies to freelancers by the same deadline.

Avoiding Misclassification:

• Don’t dictate how or when freelancers do their work—focus on the deliverable.
• Ensure freelancers use their own equipment and tools where practical.
• Avoid long-term exclusive arrangements that resemble employment.
• Document that the freelancer works for other clients.

Examples

Basic Freelancer Payment Example

A Montreal marketing agency hires a freelance copywriter in Ontario to write blog posts. The copywriter invoices $2,000 for services plus $260 HST (13% Ontario rate for a client project). Total invoice: $2,260.

The agency records the invoice: Debit Freelance Copywriting Expense $2,000, Debit HST Paid (ITC) $260, Credit Accounts Payable $2,260.

When the agency pays via e-transfer: Debit Accounts Payable $2,260, Credit Cash $2,260.

At year-end, since the copywriter is unincorporated and received over $500, the agency issues a T4A slip showing $2,000 (the pre-HST amount) in Box 048.

Incorporated Contractor Example

A Toronto agency hires a freelance developer in BC operating through a corporation (“Dev Co. Inc.”). Dev Co. invoices $8,000 for app development work plus $400 GST (5% for BC-based work). Total: $8,400.

The agency records the invoice: Debit Development Expense $8,000, Debit GST Paid (ITC) $400, Credit Accounts Payable $8,400.

Payment is made via Plooto: Debit Accounts Payable $8,400, Credit Cash $8,400.

At year-end, no T4A is issued because the freelancer is incorporated. Dev Co. reports its own income on its corporate tax return.

Multiple Freelancers, Different Situations

A Vancouver agency uses three freelancers in a year:

• Designer (unincorporated): Paid $6,500 → Issue T4A for $6,500
• Writer (unincorporated): Paid $450 → No T4A required (under $500)
• Developer (incorporated): Paid $12,000 → No T4A required (corporation and does not meet exception)

The agency only issues one T4A slip (to the designer) and files a T4A Summary showing total contractor payments reported.

Tools

• Plooto – for paying freelancers and contractors with a clear audit trail, integrated with Xero and QuickBooks Online.
• Xero – for recording contractor invoices, tracking expenses by project, and managing accounts payable.
• QuickBooks Online – for agencies using QBO‘s contractor tracking features and 1099/T4A preparation tools.
• Dext or Hubdoc – for capturing freelancer invoices and receipts, extracting key data, and pushing to your accounting system.
• Wagepoint – for generating T4A slips at year-end if you prefer an integrated payroll/contractor platform.

Sources

• CRA – T4A slip – Information for payers
• CRA – Payments of fees for services
• CRA – RC4110: Employee or Self-Employed?
• Government of Canada – Determining the Employer/Employee Relationship – IPG-069
• BDC – The Difference Between Employees and Independent Contractors

Pro Tip

Create a simple freelancer onboarding checklist that collects SIN or business number, GST/HST registration number, and payment details before you issue the first payment. Store this information in your accounting system or a simple spreadsheet so it’s ready when T4A season arrives. Nothing’s worse than chasing down SINs from freelancers in January when they’ve moved on to other projects.

Need Help?

Paying freelancers is straightforward once you’ve got the right system, but T4A season can sneak up fast. At Back Office Stars, we help Canadian marketing agencies track contractor payments, capture invoices in Dext, and prepare T4A slips so you’re never scrambling in February. Book a call and we’ll set up a workflow that keeps your freelancer payments organized year-round.