The biggest reason why entrepreneurs need to be very aware of the differences between contractors and employees according to Edmonton bookkeeping is how they pay taxes. Employees must have source with deductions withheld from their paychecks, and then the entrepreneur is required to remit them on their behalf to Canada revenue agency. Contractors on the other hand, are considered their own business, and do not have source deductions withheld from their pay, because they should be remitting that to Canada revenue agency themselves. However, if a contractor does not do this, it may trigger an investigation by Canada revenue agency. The auditors will be looking to see if that contractor should be considered an employee. And if so, the entrepreneur will then be on the hook for all of the source deductions that they should have remitted.
Therefore it is extremely important that entrepreneurs are very clear on who is an employee and who is a contractor when they are hiring staff for their business. The biggest thing that business owners need to understand, is that contractors are considered their own business, and have a significant amount of freedoms when it comes to the job. Because of that freedom, they also hold the liability in their business, to either profit or lose money on each job. For example, they will set their own place, and give the business owner and invoice for their services. If they decide to increase their prices, a business owner has no say in that. They also are able to typically show up to the jobsite whenever they want, work as many hours as they want, and even hire their own staff to handle the job on their behalf.
Business owners need to understand that even though they have all of those freedoms, Edmonton bookkeeping says that they will have a different amount of liabilities as well. Using their own money to before their own supplies and materials, bills, and they own their own tools. Because of that ability to pay for things themselves, they can either profit or not from each job. That risk ultimately means that Canada revenue agency is more likely to classify this type of worker as a contractor.
On the other hand, employees have a lot more restrictions in place says Edmonton bookkeeping. For example, they will have a set wage, and it is up to the business owner if it increases. They also have a set schedule, and is expected to show up to work on time, work certain over hours, and leave it a specific time. However, this lack of control themselves also translates into absolutely no risk. They do not for any of their own bills, they do not buy their own supplies, and because of that, will always take money home.
Understanding the difference between employees and contractors is very important, in order to ensure that a business owner is what holding and remitting source deductions to Canada revenue agency accurately. If any business owner is unsure of the status of each of the people that they fired, they should look at the amount of control that they have over that person to make that determination.
Edmonton Bookkeeping | Hiring Contractors Versus Employees
Business owners should be very aware of the terms of the employment of each person they hire in their business says Edmonton bookkeeping. The reason why, is because the differences between employees and contractors mean that business owners have to withhold a different amount of source deductions, and remit them to Canada revenue agency. However, business owners can also ensure that they are protecting themselves if they intend to hire contractor, to ensure that they will not ever be assessed with hiring an employee by accident.
One of the first things that a business owner can do, is regardless of who they are hiring whether it is an employee or contractor, is that they draft up an employment contract. By being very clear on employment terms, that can help business owner defined the hours worked, rate of pay, who is responsible for which bills, who owns the tools, to name a few. By outlining all of these specifications, entrepreneurs can ensure that they are making it very clear, so that the business owner and the contractor understands exactly the terms are of their employment. This may become necessary if Canada revenue agency decides to investigate. In a business owner has this document, they will greatly reduce their risk.
Another thing that business owners can do to ensure that they will never be assessed by Canada revenue agency is hiring and points that would contractor is to ensure that all contractors that they hire are incorporated. Simply by doing this, says Edmonton bookkeeping, business owners can eliminate all of their risk, and never have Canada revenue agency investigate whether they fired an employee or contractor for their business.
Business owners may be wondering what they should do if they already have people hired, and now they realize that they should be employees, or they should be contractors. When the first things that Edmonton bookkeeping recommends, is that letting contractors know that they need to get incorporated, or else they will start having source deductions taken from their pay. It will either be important enough for a contractor to do, or it will not, and a business owner can look for placement, ideally someone who is also incorporated.
Something else that an entrepreneur can do, is to simply tell the contractor that they will be hired on staff, and start taking source deductions off their pay. If they do not agree, then a business owner can make the decision to keep them, or to find someone else who will be willing to agree to their terms.
It can be very confusing, especially to entrepreneurs who are fairly new in their business. However, once business owners understand the difference between employees and contractors, they can avoid making the mistake of hiring them. This way, they can always ensure that they are remitting source deductions correctly, and will never incur penalties because they may be doing it incorrectly.