Many business owners may have lots of questions for Canada revenue agency when they start hiring staff for their business says Edmonton bookkeeping. One of the biggest questions is should they hire employees or contractors in their business? Ultimately, the answer does not make a big difference, however entrepreneurs need to understand that they should be very clear on what the role is, if it is an employee or contractor that they are hiring. The reason why they need to be very specific, is because if they hire an employee, but pay them like a contractor they are putting their business at risk of penalties from CRA.
Ultimately, business owners need to be aware of the differences between employees and contractors and how they get paid. Specifically says Edmonton bookkeeping in relation to source deductions. Employees have source seductions withheld from their paycheck, and remitted to Canada revenue agency on their behalf. Contractors on the other hand do not have the pay that they get have source deductions withheld from that. But, a contractor is required to claim all of their source deductions on their personal tax return. However, if a contractor does not remit source deductions, CRA may investigate. And if they investigate and find that the contractor should more likely be considered an employee, the business owner is still on the hook for paying the source deductions.
With how steep the penalty is for that, Edmonton bookkeeping says that business owners should understand the difference, or ensure that they are being very clear when they hire a person, what they fall under, so that a business owner can protect themselves. The first way that a business owner can do that, is by creating an employment contract. This outlines several things including rate of pay, if there is a set schedule, who pays the bills, who owns the equipment, just to name a few. By outlining all of the specifications when it comes to the terms of employment, can help not only protect the business owner but the employee or contractor as well. Therefore, if Canada revenue agency has any questions, the contract should clear it up.
The second thing that a business owner can do that will completely eliminate any risk from their side, would be ensuring that all contractors that business owners hire are incorporated. Once a contractor is incorporated, their corporation shoulders the liability, and a business owner will never be on the hook for their source deductions. As a corporation, the year end process is quite a bit different, and their accountant will ensure that they are paying source that actions adequately.
With how important it is to not make mistakes when it comes to paying source that actions, business owners need to be very careful that they are hiring employees, but if they hire contractors, to create an employment contract or ensure that they hire incorporated contractors so that they can eliminate any problems. By doing this, business owners will never have to worry about being assessed having to pay back taxes, and penalties.
Edmonton Bookkeeping | Should Entrepreneurs Hire Contractors Or Employees
Many business owners may be tempted to hire contractors for their business, because there is a lot more liabilities when it comes to employees says Edmonton bookkeeping. In addition to that, but if it entrepreneur hires an employee, they will also be required to withhold and remit source deductions on their behalf. In order to avoid this, many business owners think that they can simply hire staff as contractors, and not have to worry about liability, or source deductions.
Unfortunately, Edmonton bookkeeping says that simply by labelling someone is a contractor does not necessarily make it so. According to Canada revenue agency, there are differences between employees and contractors, and how they work. If a business owner is caught not remitting source deductions on the half of a so-called contractor, they may launch an investigation. This investigation will be to determine if that staff member should be considered an employee or if they are in fact a contractor. If they are an employee, an entrepreneur will owe all of the back taxes since that employee was first hired. And in addition to that, Edmonton bookkeeping cautions that there is also very stiff penalty on top of that.
The difference between an employee and a contractor is basically the level of control that an entrepreneur has over that person. For example, employees will work for us that way, that the business owner controls, and determines when it is raised. Employees also have a set schedule, and must be at work for a predetermined amount of time. They also will have to work on whichever jobs the business owner specifies, and get the job done according to the business owner specifications. Employees also have absolutely no risk, because they do not pay for any expenses, they do not buy it supplies or material, and they do not own their own tools.
Contractors on the other hand says Edmonton bookkeeping will have a lot more freedom, from being able to show up on the jobsite whenever they want, leave whenever they want, hire staff to help do jobs for them but they also have a lot of liability as well. By setting their own rate of pay, and paying their own bills and supplies, they have the risk of either profiting or losing money on their job. Therefore, the more risk that someone has, the more likely Canada revenue agency will deem them as a contractor.
When a business owner is ready to hire staff for their business, they should look at the definition between employee and contractor, and make the decision on what type of worker is going to work best for them. If employee is going to be more suitable, that a business owner should ensure that that is how they are hiring them and that is how they are paying them. By not adhering to this, can put a business owner at risk.