A business owner who hires a contractor that should be considered an employee could be making a huge mistake says Edmonton bookkeeping. The reason why, is because contractors will not have source deductions withheld from their pay. If they do not pay the source deductions themselves, Canada revenue agency may open up an investigation. If this is the case, they will be determining if that contractor should actually be considered an employer or not. If they are considered an employee, then it puts the business owner at risk for having to pay not just the outstanding source deductions, but penalties as well.
In order to avoid this scenario, and ending up with financial hardship trying to pay not just the source deductions, but a penalty as well, business owners can be very careful about how they are hiring people for their business. Ultimately, but makes an employee an employee is the amount of control over them that a business owner has. Typically, Edmonton bookkeeping says that employees must adhere to a lot of rules of the business owner has for them. The have to show up to work on time, or cassette number of hours and have to stay until a set period of time. Also, the business owner will be responsible for paying all of the bills, and by all of the supplies and materials for the job, and own the tools that the employee is using.
Contractors on the other hand have a lot more freedom, being able to dictate their own hours, their rate that the are going to charge the business owner for getting the job done, and can hire their own staff to help them with the job if they like. Also, Edmonton bookkeeping says that contractors shoulder a lot of the risk for the job that their working on, by standing to either make a profit or make a loss. If a business owner does not charge enough to cover their time, and the supplies that they must by, that risk is going to help them be determined a contractor. Employees on the other hand will not shoulder any risk at all.
Business owners who are concerned about ensuring that the people that they hire are classified correctly, can be helped by drafting up an employment contract. This way, they can define any parameters necessary, so that a contractor can be deemed a contractor, even if the business owner owns the tools for example. By drafting up an employment contract can help business owners be covered in case of an investigation by Canada revenue agency.
Business owners can also ensure that any contractor that they hire is incorporated. By doing this, all risk factors are completely eliminated, and they will never be assessed an employee by Canada revenue agency. But how effective this is in eliminating risk, business owners should ensure that all contractors that they hire are incorporated. Even if the employee has been hired already, a business owner can ask them to incorporate, and completely eliminate that risk factor.
Edmonton Bookkeeping | Is Paying Employees Like Contractors Risk
Business owners may be making a huge mistake if they hire an employee as a contractor says Edmonton bookkeeping. This may look attractive, since business owner will not have to withhold source deductions, and remit them to Canada revenue agency. This is a lot of work that a business owner can eliminate. However, if the contractor should actually be considered an employee, a business owner is taking on a huge risk unnecessarily. The penalties for hiring a contractor that should be considered employee are some of the stiffest that Canada revenue agency hands out. Business owners can be significantly negatively affected if the end up being assessed this, then having to pay the penalties. 29% of all business owners that failed said that they failed because they ran out of money in their business. Therefore, avoiding this penalty can help them avoid running out of money unnecessarily.
The penalty that a business owner should expect to pay if Canada revenue agency assesses contractor should be deemed an employee is quite stiff. Not only does the business owner have to pay all of the employee source deductions that should have been withheld including CPP and EI. But an employer also needs to pay the employer portion of CPP and EI as well. A business owner might believe that they can ask the employee to pay Canada revenue agency the source deductions, since the business owner did not withhold them in the first place. However, responsibility falls to the business owner, not the employee. They owe all of the source deductions from the very first they that the person was hired. Therefore, if this is several years, they will all the source of actions for that amount of time.
In addition to owing all of the source deductions since the first day that person was hired. Edmonton bookkeeping says that business owners also will be assessed a 20% interest penalty on top of that. However, this interest will be accrued on a daily basis. Therefore, if the business owner owes a thousand dollars, overnight that amount will turn to twelve hundred dollars. This can be extremely difficult for business owner to dig themselves out of, especially if they owe a lot of source deductions in the first place.
Business owners who are assessed this, may put their business in jeopardy. By not being able to pay this, they may run the risk of having to go out of business, because they are unable to pay the penalties. Therefore, business owners should ensure that they are not making this mistake in their business. By being very clear on who an employee is, and who a contractor is and paying them accordingly can help them avoid this penalty. Whether that means they are creating an employment contract, or just ensuring that all contractors are incorporated can help a business owner completely avoid this scenario in their business completely.