Many business owners may be tempted to pay their staff as contractors, because contractors will not have source deductions withheld from their pay says Edmonton bookkeeping. However, business owners would be putting themselves at risk by doing that. The reason why it would be risky, is because if their staff did not remit source deductions to CRA themselves, it could trigger an investigation from Canada revenue agency. If they determine that a business owner should have withheld source deductions and submitted them to Canada revenue agency on their behalf, the business owner will be on the hook for paying that source deductions, not the contractor.
The reason why their responsibility will fall to the business owner, is because the business owner should have been understanding if they were contractor or employee, so that they could withhold the correct source deductions or not says Edmonton bookkeeping. Therefore, if they hire a worker, and pay them like a contractor, then that contractor does not pay the taxes correctly, then the business owner will be penalized. In addition to that, business owners take into consideration that this is one of the stiffest penalties that Canada revenue agency dishes out. The reason why, is because they view failure to pay money that is earmarked to go to the government as a misuse of government funds. And the high penalty is there to act as a deterrent for business owners to make that mistake.
If the business owner makes this mistake, and it triggers an investigation by Canada revenue agency, business owners should expect that an agent will ask that contractor a bunch of questions, in order to figure out the level of control about the business owner had over them. The more control they have, the more likely they will be considered an employee and not a contractor says Edmonton bookkeeping. Therefore, business owners need to be very aware, of the differences, that if Canada revenue agency starts investigating, they will not be held responsible.
The questions that Canada revenue agency will be asking will be in order to determine the level of control that a business owner has over that worker, and how much liability that the worker has. The more control, may end of the more likely they will be considered an employee. However, Edmonton bookkeeping says that the more liability they have, the more likely they will be considered a contractor. Therefore, business owners need to take into consideration what they expect of the worker, and how they work.
Business owners can eliminate this risk completely, by the way creating employment contracts says Edmonton bookkeeping, or by ensuring that all contractors that they hire are incorporated. By doing this, a business owner is completely eliminating their risk, and even if Canada revenue agency investigates, a business owner will not be held liable. Since the penalties that are associated with this or so significant, business owners can avoid this large negative impact on their business by ensuring there being careful that they hire their business.
Edmonton Bookkeeping | Do Contractors Need Source Deductions Withheld From Their Pay
Business owners may not realize how stiff the penalty is for not paying the source deductions correctly says Edmonton bookkeeping. In fact, it is one of the most important things that an entrepreneur does, is calculate the source of actions correctly, and then submit them to Canada revenue agency on behalf of their staff. However, if a business owner makes mistakes with this, they could end up being hit with penalties so significant it could negatively impact their business. With 29% of all business owners that fail saying that the reason why their business failed was because they ran out of money, this can significantly and negatively impacts businesses and should be avoided at all costs.
The penalty that business owners should expect, is first of all having to pay all of the source deductions that they owe for that worker, dating back to the day that they started. Therefore, if a business owner hired an employee, but paid them as a contractor, depending how many years they worked for the business owner, it could end up being a significant amount. Not only would a business owner have to pay all of the CPP and EI that they should have withheld from that person’s pay, but Edmonton bookkeeping says that a business owner also has to pay the employer portion of CPP and EI as well.
In addition to that, Edmonton bookkeeping says that there is a penalty that is issued on top of that. The penalty is 20% interest. While that sounds like a lot, much higher than a high-interest credit card. Business owners need to take into consideration that a credit card accrues their interesting yearly, while this one is accrued every day. Therefore, business owners who have this assessment may discover that one thousand dollar bill that they must pay Canada revenue agency will turn into twelve hundred dollars literally overnight. This can financially crippling business, it is very important that business owners are taking efforts to avoid having happen in their business.
When business owners are hiring staff for their business, they need to be very careful they are hiring people as employees who are classifieds employees, or very careful who they hire is a contractor. In fact, a great rule of thumb according to Edmonton bookkeeping is to have everyone be hired as an employee, unless they are incorporated. If they are incorporated, then it completely eliminates the risk on behalf of the business owner.
Teaching business owners the difference between employees and contractors can make a huge difference in their business. Not only can it help business owners avoid huge penalty that can negatively impact their business, but it can ensure that they are hiring the right people in their business, each and every time. Therefore, business owners need to be aware of the differences between the two, and make the right decision every time they go to hire someone.