Business owners may not understand the risk that they are putting their business at if they are hiring employees as contractors says Edmonton bookkeeping. Ultimately, the biggest difference between the two two a business owner comes down to a question of employees get source deductions withheld from their paychecks, and remitted to Canada revenue agency. Contractors do not. Therefore, if entrepreneurs think that they are going to be able to save themselves some money by not having to pay source deductions by hiring an employee as a contractor, they may not understand the massive risk that they are putting their business that.
Ultimately, CRA views this type of violation as the most serious one that any business owner can have. The reason why, is because ultimately, Canada revenue agency views source that actions as government money that is being held in trust. By failure to pass that money on properly, means that entrepreneurs are using that trust fund money to fund their own corporation, or to pay themselves. That abusive government money is considered the worst thing that a business owner can do.
The penalties that are associated with this type of violation is the largest that Canada revenue agency hands out. Not only do entrepreneurs have to pay the source deductions for every hour that the employee has worked since the very first time that they started working for the business owner. But they also have to play the employer portion of CPP and EI as well as says Edmonton bookkeeping. In addition to that, an entrepreneur will then be assessed a penalty of having to pay interest on that entire amount to the tune of 20% every day. That means every day that an entrepreneur has not paid that amount in full, they will get assessed a 20% on that entire amount. This will have a thousand dollar amounts that they owe literally turn into twelve hundred dollars overnight.
Many entrepreneurs fail in business because they run out of money, making it the second most common reason why businesses fail says Edmonton bookkeeping. By making this mistake in their business, and be assessed penalties can be one of those ways that entrepreneurs run out of money. Therefore, it is very important that business owners avoid this situation at all costs, because if they are assessed this type of penalty, they may not recover.
Ultimately, business owners need to understand the difference between employee and contractor, so that they never make that mistake in their business. If they are assessed by Canada revenue agency as making this mistake, entrepreneurs can appeal within ninety days, however it can be very difficult to convince Canada revenue agency auditor that the person that was hired was actually intended to be a contractor. Therefore, an entrepreneur’s best defence is ensuring that this never happens in their business, and they are very clear who is ploy is and who contractor is, so that they can pay the appropriate source deductions and never run into problems.
Edmonton Bookkeeping | Risks Associated With Hiring An Unincorporated Contractor
Many business owners may not understand the type of risk that there putting their business and if they have hired a contractor, who would more likely be deemed an employee by Canada revenue agency says Edmonton bookkeeping. Ultimately, what makes an employee an employee and a contractor contractor comes down to the amount of control that a business owner has over that person. When an entrepreneur hires an employee, they are responsible for withholding the source deductions from their paycheck, and then permitting it to Canada revenue agency on their behalf. Contractors on the other hand do not have source deductions taken off of their pay, and are responsible themselves for remitting payment to the government. Unfortunately, if the contractor does not remit source deductions properly, they ultimately are not the ones that are going to be held accountable, it is the business owner.
A business owner may argue to Canada revenue agency that since they never withheld the source inductions from the contractors pay, that the contractor needs to pay the source deductions. However, Edmonton bookkeeping says that that defence is not going to hold up, simply because it is the entrepreneurs responsibility to withhold that amount. And while they may ask the contractor to please remit source deductions so that the entrepreneur will not get in trouble. Ultimately, the contractor most likely did not pay the source sections in the first place because they could not or did not want to. And ultimately, they have no legal obligation to either. The responsibility falls on the entire shoulders of the business owner.
Therefore, entrepreneurs need to be very clear and very specific when they are hiring someone if they are going to be an employee or contractor. They may wish to drop an employment contract regardless of what category they fall into, so that they can be very clear. This may save them in case of Canada revenue agency assessing them and correctly.
Also, a business owner needs to understand that the more control that they have over that person will go towards having them deemed an employee by Canada revenue agency. Therefore, if an entrepreneur owns their tools, pays all the bills, buys all the materials and supplies, and expects that person to show up on time to a job every single day, and stay until a specific time, Canada revenue agency will most likely deem them to be an employee.
One way that entrepreneurs can completely eliminate this problem is to ensure that all contractors that they hire are incorporated. By ensuring this, Edmonton bookkeeping says that business owners can completely eliminate this risk, and never have to worry about assessed this penalty ever again. If an entrepreneur is currently in this situation, and they do not know how to fix it. They can simply ask their employee should be considered a contractor to incorporate. They might even dangle a carrot and say that they will get a raise if they incorporate, to encourage them to incorporate, so that a business owner is not at risk any longer.