The reason why it is important for entrepreneurs to be very clear on the differences between employees and contractors according to Edmonton bookkeeping is because that affects source deductions. In fact, employees of businesses will have source deductions withheld from their paychecks, and contractors will not. However, business owners need to be very careful on who is classified as a contractor and whose classified is an employee. The reason why, is so that business owners can ensure that whoever is not getting source deductions taken off their paycheck will never be mistaken as an employee.
If a business owner is not clear on the definition of what makes a contractor contractor and what makes an employee an employee, they could end up hiring an employee, but calling them a contractor. The risk in this according to Edmonton bookkeeping is that if they pay an employee like a contractor, that means they will not be taking the source deductions off their paycheck. Ultimately, at the end of the year, CRA might see that the contractor has not paid their source deductions, and do an investigation. If they deem a contractor should actually be an employee, that means a business owner will be responsible for paying all of the source deductions that should have been paid.
Not only does that mean a business owner has to pay all of the employer and employee CPP and EI for the past year, but Canada revenue agency will require the business owner to pay all of the amount owing since that contractor was first hired. Depending on how long that time. Has been, can end up equaling a significant amount of money for the business owner. In addition to that says Edmonton bookkeeping of business owner will then also be assessed penalties on top of that amount.
The penalties that business owners can look forward to is a 20% interest rate, and that interest is being accrued per day. Therefore, if a business owner already owes significant amount of money, the penalties will just compound the problem and it can be very difficult for business owners to dig themselves out from. The reason why the penalties are so stiff says Edmonton bookkeeping is to act as a deterrent. If business owners are fearful of the penalties, they will ensure they are very aware of the difference between contractors and employees so that they do not make that mistake.
In addition to understanding the difference between employees and contractors, business owners also need to ensure that they are calculating the correct amount of source deductions to withhold and then remit to Canada revenue agency. They also need to understand that the source deductions are due at Canada revenue agency on the fifteenth of the month in the month following the payroll.
By understanding the difference between employees and contractors can help business owners avoid incurring penalties for improper source deductions remittances. This is very important, especially since 29% of all failed business owners say that the reason why they failed is because they ran out of money. Helping business owners avoid this fate can help them stay in business longer.
Edmonton Bookkeeping | Learning About Contractors And Employees
It is very important for business owners to understand the difference between employees and contractors when they start hiring staff says Edmonton bookkeeping. The reason why, is because a business owner may think they are hiring a contractor, but they would actually be classified as an employee by Canada revenue agency. The biggest difference in the way they get paid is the fact that employees get source deductions withheld from their paychecks and contractors do not. Therefore, in order for business owners to avoid making this mistake, they need to understand what makes a worker contractor and what makes them an employee.
The first thing that business owners need to understand when they are hiring an employee, is that the level of control that a business owner has over that person speaks to the likelihood of them being considered an employee. For example, Edmonton bookkeeping says that employees will work for us that way that is the business owner specifies, and it is up to the business owner when they get a wage increase. Also, a business owner will be setting the employees schedule, requiring them to be at work at a set time, work a specific number of hours, and leave at a set time as well. However, something for business owners to take into consideration is that employees themselves will not pay for any of the businesses bills, they will not buy their own supplies and materials, and will not have any risk to lose money while working. All of these things will make a person be deemed an employee.
Contractors on the other hand have a lot more freedom, will having a lot more risk as well. The first way that they are different says Edmonton bookkeeping is that contractors set the amount that they charge either per hour, or per job. And they will issue an invoice to the business owner to get paid. They also do not have a set time that they must be on-site, and can come and go as they like. Because of that, they may take on other jobs for different companies, and even hire staff to be able to help them meet the deadline. They also will typically by their own supplies and materials, pay their own bills and own their own tools. However, they have the ability to either profit from a job or lose money on the job, and that risk is one of the differentiating factors.
When business owners understand the difference between employees and contractors, they will be able to specify that at the time of hiring. When they do this, they should be able to significantly avoid the problem of paying an employee as a contractor. By doing this, entrepreneurs can ensure that they will never be assessed penalties by Canada revenue agency for improper source deductions payments.