One costly mistake that many entrepreneurs can make in their business according to Edmonton bookkeeping is hire a contractor that should actually be classified as an employee. The reason why this is a problem, is because contractors do not have taxes being withheld from their pay, and employees do. If the contractor does not pay their source deductions themselves at the end of the year, Canada revenue agency may investigate, and if they should actually be classified as employees instead of contractors, the business owner may be penalized.
The penalties that business owners can face for this is the highest penalty that Canada revenue agency hands out. The reason why, is because the government views not properly paying source inductions as the most severe defence that a business owner can make. The reason why says Edmonton bookkeeping, is because business owners are collecting the taxes on behalf of the government, and that is government money being held in trust. By not paying it appropriately to the government on time, is seen as an misuse of government funds. If a business owner then uses the money to either fund their corporation and pay bills, or to pay themselves, then the government sees that as using government money to fund a private corporation.
The penalties that business owners will face are having to pay back all of the source deductions that they owe from the very first day that the contractor was hired. Therefore, the longer a contractor has worked for a business, the higher the penalties will be. Even if an entrepreneur did not withhold taxes from the contractor in the first place, they still would be expected to pay it back. Business owners may try to get the contractor to pay the source deductions, but the burden ultimately lies with the business owner. On top of having to pay all the source deductions that were owed, business owners will also have to pay 20% in interest on the entire amount, and that is per day. That means that if the business owner owes Canada revenue agency a thousand dollars, that will be twelve hundred dollars overnight.
The way that business owners can avoid the situation happening, is by ensuring that the contractors that they hire are actually contractors, and not employees. How to determine this according to Edmonton bookkeeping is to figure out the level of control that the business owner has over that person. For example, does the business owner dictate how much they are going to pay that person, and are they expected to keep regimented schedule? Other things to take into consideration include does the contractor have to pay their own bills, by their own materials and supplies and they own their own tools?
By understanding the difference between an employee and a contractor can help a business owner figure out if they should be withholding source inductions from their pay, or not. If a business owner has already made this mistake, they should fix it immediately, so that they do not end up being assessed penalties by Canada revenue agency which may negatively impact their financial situation.
Edmonton Bookkeeping | Have You Hired An Employee Or Contractor
May be very tempting for business owners to hire staff and call them contractors, because they will not have to pay contractors source deductions says Edmonton bookkeeping. However, if an entrepreneur hires contractor that should have been considered an employee, they are taking a huge risk. If Canada revenue agency does not assessment, and find that there are contractors that should be considered employees, the business owner will be penalized. Since 29% of all entrepreneurs who fail fail because they ran out of money, this is one way that business owners can avoid having to pay money in their business, and use the money to actually fund their business.
Ultimately, what makes an employee an employee and a contractor a contractor, is the level of control that the business owner has over that person. Employees will have their wages dictated by the employer, and be expected to keep a schedule. Also, employees will have no risk associated with their job. They will not have to pay any of the bills of the business, or any bills associated with doing their job. Contractors on the other hand says Edmonton bookkeeping have a lot more freedom and a lot more risk.
If a contractor is allowed to hire staff to help them with the job, if the invoice a business owner, and have the ability to change the amount of money that they get paid for a job, that will help a person be considered a contractor. If they pay their own bills, by their own supplies and materials and own their own tools, that is also considered more of a contractor. Ultimately, the contractor has the ability to make a profit or have a loss with the job. By figuring out who should be considered an employee and who should be considered a contractor can help entrepreneurs understand who should have source deductions withheld from their pay and who should not.
If an entrepreneur has made this mistake, and Canada revenue agency does not assessment and finds that they have hired an employee rather than a contractor, business owners can expect to first be assessed staff to pay all of the source deductions that they should have been withholding from that employee’s paycheck since the first day that they are hired. Not only the employee portion must get paid, but also the employer portion as well. In addition to that, they will also have to pay a 20% interest penalty, for every day that they are late in paying that amount.
Business owners can end up having to pay a huge amount of money if they make this mistake, so they should be very clear unemployment terms, and outline a contract if necessary that finds the nature of the relationship. By doing this, business owners can ensure that they are keeping themselves safe, and ensuring that they are very clear on who is an employee has a contractor in their business.