[inaudible] good morning and welcome to another episode of always up to date. I’m Denise and this is yellowy and we are co-owners of always bookkeeping. Uh, today we are going to talk about employees versus contractors. Uh, and our quote today is from Michael Gerber, who is the author of the myth. Uh, and the quote is, if your business depends on you, you don’t own a business, you have a job and it’s the worst job in the world because you’re working for a lunatic. Um, our statistic that we like so much, uh, is I’m 50% of all Canadian businesses will go out of business in the first five years. 23% of those businesses that have failed, um, the owners will list the inability to recruit and retain the right employees as a reason for their failure, making the inability to find the right team. The third common reason for a business failing, um, so, you know, we have these business owners that hire our contractor and one contractor decides that she doesn’t want to pay CPP for being self employed and calls the CRD to request a CPPI ruling with Edmonton Bookkeeping.
Uh, the CRA rules that the contractor is an actual, is actually an employee and the business owner will have to pay for the payroll remittances for all the previous years that the contractor was ruled as an employee. So we see a lot of businesses that get into that problem with Edmonton Bookkeeping. They don’t see the difference between an employee and a contractor and they just say, Oh, they’re contractors so they don’t have to pay. But there’s very specific rules and what makes you an employee and what makes you a contractor. And so, um, we’re just gonna look into that a little bit more. So, um, y’all, we, can you tell us what the difference between a contractor and an employee is?
Well, on the main level, the contractor is somebody that’s independent on a independent from your company. So they are able to, um, work for some work somewhere else, um, do a job somewhere else and um, be able to profit and gain a loss depending on, um, their own personal, uh, personal business. Um, also, um, contractors, you don’t have to withhold any CPP and EEI or any tax from their P you just paid them for the rate that they set. And then, um, and then that’s it with Edmonton Bookkeeping.
for employees, you actually hired them to work, um, for your business and you have to read whole CPP and EEI for them and they’re dependent on your suppliers and, uh, equipment from the business. Great. Yeah.
So why is it important to know that if I’ve an employee or
a contractor? Um, it’s mainly because of the payroll remittances. Again, if you have an employee, there’s going to be tax burdens for, um, having an employee, um, in your company, uh, which is CPP, EEI, and, um, sometimes we’ll use CB, right? Um, uh, so those are the stuff and you have to remit those, do use the CRA, um, either monthly or quarterly or annually based on, um, your admitting period. So it’s important to know because if you don’t admit those and you actually have an employee, they are one of the most, um, penalized out of all the tax remittances that we, we give to the government. Yeah. Yeah, I think we talked about that in another video. 20% a day. Yeah. Yeah. That’s a lot with Edmonton Bookkeeping. Yeah. Um, so what’s the best thing to do to avoid a CPP or EEI ruling? Um, well, the first thing to do is to absolutely know that if you have an employee or a contractor, um, and there’s specific factors that take into consideration or that just because you hired a contractor to work on a job doesn’t mean that the CRA sees them that way.
So you have to make sure that you have those factors, uh, to be considered whenever you hire somebody for a job. Yeah. So how can the degree of control determine whether I have an employee or a contractor? So I’m a degree of control as who, um, who has control over what? Right. So if, if you have a contractor that means they have control of, um, sometimes their schedule, you have control on what rates they wants to, they want to charge you. They have, um, control on what job they want to do. I not necessarily, um, the employer’s job to set out, um, what needs to be done on those, um, uh, sorry on those jobs. Uh, as opposed to when you have an employee where a contract has been written out or an employee contract where you set the wage, their own wage rate, what there’s schedule is going to be, what tools they need to, um, to use for that specific job, what, um, what way of doing you need those jobs for. And sometimes there’s always that, um, gray area between those two because especially when it comes to payment method, sometimes it’s agreed, uh, would both parties or, um, your way of doing the job. Sometimes it’s agreed between both parties. So that’s when it becomes, um, confusing whether you have your, uh, you have a contractor or you have an employee with Edmonton Bookkeeping. Yeah.
So if I pay for the tools and equipment, can the or still be considered as a contractor?
Um, that’s one of the factors that you want to consider. If you, if, if the contractor has their own set of tools, um, for them to do the job, it’s more likely that the CRA would deem them as contractors because they paid for the equipment they paid for, uh, the tools, uh, that they used to do the job. Um, so by doing that, if they, um, don’t want, uh, sorry, if they incur a loss or if they do gain a profit for doing the job, then it’s gonna be their own financial risk, um, as a contractor as opposed to an employee or you, if you provide all of those, um, equipments and tools, they don’t necessarily have the financial risks, um, that’s gonna be that, that they’re gonna be burdened for Edmonton Bookkeeping. Right. For, uh, for those tools and equipment. So that’s another factor. Tools and equipment. Um, if you have a, if you have a worker that you’re supplying to tools or they may be, deems an employee or as a, as your employee, right? Yeah.
Uh, so what happens if I let the worker hire an assistant?
Mmm. That gives them control of what, how they want to get the job done. Right. So if you hired an independent contractor and they, for some reason they kept due to job and they’re able to hire an assessed, then that’s, um, that would be a, um, a, a bigger chance that the tra would be, would deem them as a contractor because they see the control again without Edmonton Bookkeeping. And, um, the ability to have like, uh, to gain profit or have lost base on who they hire because that’s that again, that’s their expense. Um, if they hire an assistant and not necessarily yours. So that makes them a a lot more independent and non arms length, uh, from your business. Yeah.
So how can financial risk determine if the worker is considered a contractor?
Again, um, if, if that, or if that, if the worker has the ability to incur laws from doing the job, then they could be considered, uh, a contractor because they will have their own expenses and they will not get reimbursed as opposed to an employee. You were, you, um, let’s say they bought something, you need to reimburse them because it’s part of your business and it’s gonna be your expense and not necessarily theirs. Um, yeah. So, uh, that’s another, um, thing or another factor that they consider whether you have an employee or a contractor is if, if they can, um, if they have a financial risk on the job they do. Um, and again, if you’re not the only, um, if you’re not the only customer that they have and they can potentially get a, a loss from another employee, uh, another, not employer but another customer, then, then that deems them as independent from your corporation and a little bit, um, more likely to be deemed as a contractor.
Yeah. Um, so how does the opportunity of profit healthy with all your contractor determination? Again, it’s, it’s the same thing as a financial risk. Um, if, if they’re, if they gain a profit on what they did for you, that means they put in the expenses to, to get those, um, to get the job from you. And they’re going to be deemed as independent from your business and not necessarily an employee with Edmonton Bookkeeping. The employee, you wouldn’t get any, any profit from, from hiring you because they get a paycheck. So, um, that’s, that’s another thing that is considered when they’re judging towards the employee, uh, or a contractor’s scenario. Yeah.
So those are all things that we talked about, like the degree of control. Um, who buys the tools and equipment, who owns those tools, equipments, um, you know, whether the employee or contract can hire an assistant. Um, you know, the financial risk and the opportunity for profit. Those are all things that the CRA is going to look at to determine whether you have a contractor or an employee without Edmonton Bookkeeping. So we would strongly suggest that you make sure those are very clear when you hire someone, you know, have an employment agreement agreement or have a contractor agreement saying specifically who owns these tools? Do you need to use your own tools or are we going to supply you the tools? You know, is there a chance that you’re going to make a profit from this job or you know, we’re going to pay you this much. And that’s it.
You know, we want you to have those really laid out clearly so that, um, you know, if you have a CPV or EEI ruling from the CRA, you have it very clear what, what those are. Cause the w the worst case scenario, the CRA is going to determine it to be a, an employee when you’ve been paying them as a contractor. And like you said earlier, you’re going to have to go back and pay all of those source deductions that you haven’t been paying, which is a huge expense because you haven’t been deducting them off the and the way you paycheck. And so you’re responsible for those, not only the employer portion, but now you’re responsible for the employee portion as well. Yeah. And um, you know, the PO, you don’t, you can ask the employee, but they are not required to pay those because your duty to, to take off of their check.
And so once your responsibility, you’re liable for those. Yeah. So y’all way, what happens when, um, when I receive a CPP or E E I really from the CRA. So normally they’d asks you a questions to, uh, a quick, sorry. They’ll give you a questionnaire. Um, trying to identify those factors in a different way. Um, for example, they’re gonna ask, ah, they’re going to test controls, uh, just to see who sets the rate or if, um, if they need your approval to do a certain job, cause that again, that that determines the control. If there they are allowed to hire an assistant if the who owns tools and equipment. So those are the stuff that they, they want to look at. And normally they would interview the employer, the employee or the worker first before they go to you. So they would have the idea of, um, what’s, um, what the situation is before you get there.
So it’s very important that you, um, you’ll isolate and make sure, um, that the CRA, the employee and you are, um, or sorry, the, you, uh, the CRA is receiving the same information from you and the employee. And sometimes it gets ugly because the, uh, from our story, it’s going to be a contractor that would wanna wish that they would be demon employee because they’re sick of paying the CPA when you’re the only one that they’re working for. Right. So they have, um, they have the, that huge advantage, but if you set it out and say, okay, like this is, uh, we are the only customer at the moment, but she is, she, she is allowed to, to, um, to work somewhere else and uh, do the same, uh, services to other people or we never provided her tools to begin with and we, she sets her own schedule.
Those are the stuff that could help you, uh, determine that they are a contractor and help you with the CRA to rule, uh, on your behalf that you haven’t had a contractor. Yeah. Yeah. So what happens if I don’t agree with the decision the CRA has made? Can I, um, file an appeal? Yeah, absolutely. So if you don’t, um, uh, well you, you don’t want to be on that position, but if it happens, worst case scenario, you do have 90 days after they notified you. Um, and uh, yeah you need Edmonton Bookkeeping, so you do have 90 days and set up an appeal and, um, I believe that they will, uh, open another file and, um, I do another ruling to see, um, what’s your angle, uh, your angle as on what you do agree on what you don’t agree, um, based on the ruling was given to you the first time. Yeah. So I think that’s all the questions we have today. Um, I hope you guys like our, um, our videos. Uh, if you do, please click like and subscribe. If you have some information that you want or sorry, a subject that you want us to talk about. Uh, please comment down below and we’ll see you guys next time on our next episode. For always up to date.