The reason why business owners need to be very careful about hiring employees and contractors in their business says Edmonton bookkeeping is so that they can end up paying source deductions correctly. In fact, improperly pay source deductions are the highest penalties that Canada revenue agency hands out. The reason why, is because the government views it as mishandling government funds if source deductions are not paid in full, or on time. Therefore, business owners who want to avoid stiff penalties should be aware of how to ensure that any contractors that they hire are considered contractors and not employees.
The amount of control the business owner has over that worker generally helps Canada revenue agency determine if they are an employee or contractor. For example, Edmonton bookkeeping says that in employee works directly for the business, and has the business owner dictate their wage, when they get wage increases, and typically have a set schedule. On the other hand, employees also do not pay their own expenses, not responsible for any of the bills of the business, do not buy their own supplies and materials and also do not own any of the tools that they used to do the job. This all speaks to high level of control, and that is what considers them employees in the eyes of the Canada revenue agency.
Contractors on the other hand have a lot more freedom, starting with the amount they get paid. They dictate to the business owner how much they are going to charged to get the job done, and issue a business owner an invoice for that. Also, contractors typically do not have any set schedule, being allowed to arrive on the jobsite and leave whenever they want, that will allow them to take on different jobs for different companies at the same time. Contractors are also able to hire staff to help them get the job done, and not only do they take care of their own expenses, they buy their own supplies and materials, and own their own tools. Ultimately, they have the ability to either profit or lose money as a contractor.
If a business owner hires a contractor, and does not withhold source deductions that they remit to Canada revenue agency on their behalf, responsibility will fall under the contractor to do that themselves. However, Edmonton bookkeeping says that the contractor who does not remit source inductions at tax time to Canada revenue agency will often trigger an investigation. Canada revenue agency will investigate whether or not that contractor should have paid the source deductions or if the responsibility was the business owner. They will ask the business owner and the contractor series of questions to determine the level of control says Edmonton bookkeeping.
If a business owner receives a ruling that says that the contractor should have been considered an employee, the business owner will not only be expected to pay the source deductions that they have owed since that contractor was first hired. They also will get charged a 20% interest penalty that is accrued on a daily basis.
Edmonton Bookkeeping | Contractors Versus Employees
It is very important that business owners are very careful when hiring contractors for their business says Edmonton bookkeeping. Because if they hire a contractor that is later deemed an employee, a business owner could be hit with huge penalties in addition to being expected to pay all of the source deductions that they should have remitted since the start of their employment. This can be a big problem, since 29% of all failed entrepreneurs say that the reason their business failed was because they ran out of money. They can simply avoid this, but either are being very clear when they hire a contractor.
One of the ways that a business owner can ensure that when they hire a contractor, there eliminating the risk associated with improperly paid source deductions is by drafting up an employment contract. They can create a contract that will outline not just the employment terms, that can define things such as who owns the tools, can they take on other work, they have to adhere to a set schedule or can they come and go as they please. Ultimately, by outlining all of the specific employment terms of the contractor can help improve the business owners case in case Canada revenue agency investigates.
Another way that business owners can completely eliminate the risk to their business, is if the contractors that they hire are incorporated. Edmonton bookkeeping says that this is 1 Surefire Way that can help business owners completely eliminate this risk from their business. Because once a contractor is incorporated, they have a different set of tax requirements with Canada revenue agency themselves, and if they end up not paying source deductions correctly, that will full to the responsibility of them and their corporation.
Business owners who have already made this error, and currently have contractors that they suspect would be deemed as employees are not out of luck however. There are things that they can do to ensure that they are eliminating their risk. One of the simplest ways, is simply to ask all contractors to get incorporated. Many of them may not want to incur the additional cost, but if they know that the alternatives to get hired on as an employee, and then have source deductions being withheld from their paycheck might encourage them to get incorporated. The other thing that business owners can do, is to simply hire them on as employees, and then start withholding the correct source deductions.
Ultimately, business owners need to understand that even though they have been getting away with this for years, they probably will get away with it forever, and the longer they have had a contractor that should have been considered an employee, the more they are going to eventually have to pay when Canada revenue agency discovers this. Therefore, business owners should work immediately to eliminate this risk if they have the situation already in their business. And if they do not, by getting educated so that they do not make this mistake in the future.