If entrepreneurs hire employees, but them independent contractors, they may run into problems with Canada revenue agency says Edmonton bookkeeping. The reason why, is because contractors do not have CPP and EI being deducted from their check, while employees do. The risk with hiring a contractor who is actually an employee, is that a business owner will not be withholding the taxes, and remitting them to Canada revenue agency. If they are not paying source that actions themselves to Canada revenue agency, they may come after the business owner, because they should be remitting source that actions on their behalf.
The biggest problem when this happens, is when an entrepreneur is unclear on whether the person who is hired to do the job is employee or contractor. Edmonton bookkeeping says that this ultimately comes down to the difference between the two, and that difference is typically does the business owner have control over that person or not? Employees work directly for the business, they typically have a set schedule, and they do not use their own tools, and do not pay for their own expenses. They are also not responsible for any bills, notes that the price that they are going to get paid from the business owner, and will have all taxes withheld from paycheck.
Contractors on the other hand are completely independent, and that lack of control often speaks to if they are a contractor or employee. They are able to take on different jobs for different organizations, will set their own schedule and their own hours, they typically take care of their own expenses, usually own their own tools, and have the ability to profit or lose money. They typically tell entrepreneur how much they are going to charged to do the job, and they will submit an invoice. Business owners will not withhold any taxes off of the amount of money that they pay a contractor.
By understanding clearly the difference between an employee and a contractor, can help an entrepreneur understand who gets source deductions withheld and then remitted to CRA and who does not. Edmonton bookkeeping says that if entrepreneurs have hired a contractor that Canada revenue agency leader deems employee not only will they be hit with a penalty of 20% interest per day on the amount that they owe, the amount that they owe will be all source deductions since the first day the person was hired. This can end up being very high, and can be very devastating financially to a business. Therefore, it is very important that entrepreneurs avoid this scenario at all costs.
Business owners should be very clear on who is an employee and who is a contractor the matter who they are hiring in their business. An employment contract can help an entrepreneur prove who is who in case of any questions from the Canada revenue agency. By being very clear early on in their business, whenever they make a hiring decision, can help an entrepreneur avoid paying any penalties in their business.
Edmonton Bookkeeping | Employees Versus Contractors
One problem that entrepreneurs may face if they have accidentally hired an employee as a contractor says Edmonton bookkeeping is a stiff penalties from Canada revenue agency. These are the absolute highest penalties that Canada revenue agency hands out to business owners, because they see it as mishandling and misuse of government funds. Therefore, entrepreneurs need to be very clear on the difference between who an employee is, and who a contractor is so that they can avoid problems for their business.
Edmonton bookkeeping says that while this is the steepest penalty that Canada revenue agency hands out, the penalty is 20% interest per day on the amount that they owe. The amount that they owe is all of the source that actions that they should have remitted since the first day that the contractor now deemed employee was hired. This could be several years. Therefore, the longer that employee has been working for the business owner, the higher the penalties could be. All source deductions that they owe not just the employee portion of CPP and EI says Edmonton bookkeeping, but the employer portion as well. All that plus 20% interest for all of the amount owed every day that an entrepreneur has to pay it, can equal a significant amount of money.
Business owners may try to claim that the employee should pay for the source deductions, since they did not actually withhold the money properly from the employee. However, Edmonton bookkeeping says that Canada revenue agency does not care, because the responsibility fell onto the business owner to withhold the money correctly from the employee. Therefore, an entrepreneur may ask their employee to pay back all source deductions, but there is no legal obligation for them to do so.
A business owner should be very clear on who is an employee and who is a contractor, so that they can avoid having their contractor be assessed as an employee. Ultimately, it comes down to how much control does the business owner have over that person. The more control they have, the more likely they are going to be deemed an employee. For example, if they have to abide by a specific schedule, cannot choose how much they are going to get paid, and will pay any of their own bills, they are most likely going to be considered an employee.
Another way that entrepreneurs can avoid this problem altogether, is by ensuring that any contractor that they hire in their business is incorporated. Edmonton bookkeeper says that by verifying that any contractor that they hire is incorporated is one way to completely minimize ever being assessed by Canada revenue agency as hiring a contractor as an employee. Therefore, is owners may want to make this practice in their business, so that they are never assessed with this penalty. By doing that, business owners can avoid this extremely stiff penalty, that may put their business in jeopardy.