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If entrepreneurs think that the only difference between employees and contractors is that contractors do not have source deductions withheld from their pay, Edmonton bookkeeping says they may be making a huge mistake. In fact, there is difference between the two according to Canada revenue agency. If an entrepreneur hires an employee, but is paying them like a contractor they could be assessed not only all of the source deductions that should have withheld from their pay. But they also will be assessed penalties as well. This can negatively impact the business, and even cause them to run out of money in their business as these are some of the stiffest penalties that Canada revenue agency hands out. Since 29% of all failed businesses fail because they run out of money, by avoiding being assessed this penalty, can help entrepreneurs be more likely to succeed.

The difference between an employee and a contractor ultimately comes down to how much control the business owner has over that person. An employee for example, works directly for the business, and has a set schedule. They do not pay any of their own expenses, and not responsible for any bills of the business. They also likely are not allowed to take other jobs or work for other employers while working for the business owner says Edmonton bookkeeping. They also typically will not own any of the tools that they are using, as they are using the business owners tools. They also will not have the ability to lose money by working for the business owner. The business owner shoulders all of the risk associated with their business.

Contractors on the other hand, do not work directly for the business, they issue an invoice to the business owner based on the rates that they have come up with. They also are able to come and go from the jobsite as they see fit, are allowed to hire their own staff to help with the job, pay their own expenses, own their own tools and essentially stand to profit or not from the business that they conduct.

A contractor will be expected to do their income tax with Canada revenue agency, and pay all of the source deductions that they owe. However, if the contractor does not do this, there may be an investigation by Canada revenue agency. The purpose of this investigation will to figure out if they should actually be considered an employee or if they are truly a contractor. Canada revenue agency will ask not only the business owner, but that contractor themselves a series questions that are aimed at figuring out the amount of control that a business owner has over that person.

Edmonton bookkeeping says that if Canada revenue agency deems them as an employee and not a contractor, a business owner will not only have to pay all of the source deductions that they owe, since the first day that the employee worked for them. But they also will be assessed a 20% interest penalty on top that.

Edmonton Bookkeeping | The Difference Between Contractors And Employees

A business owner shoulders a significant risk if they hire an employee, but pay them as a contractor says Edmonton bookkeeping. Ultimately, paying them as contractor boils down to not withholding the source deductions on their behalf and passing them on to Canada revenue agency. If the contractor does not pay the source deductions themselves, the responsibility falls onto the business owner themselves to pay the source deductions, even if they did not withhold the money from the beginning.

Canada revenue agency hands out the largest penalties for this issue, as they see it as one of the most serious of fences says Edmonton bookkeeping. The reason why, is because source deductions are literally considered government money being held in trust. By not submitting the source deductions to Canada revenue agency and the correct amount, or on time is considered a misuse of government money. Even worse, is if a business owner then uses that money to pay bills in their business, or pay themselves a salary, that is considered using government money to fund a private corporation. Therefore, the highest penalties that a business owner will see headed out from Canada revenue agency will be for this reason. They want to make the penalty be a deterrent for anyone is thinking of doing this in their business.

The business owner will be expected to pay the CPP and EI that they should have remitted to Canada revenue agency since the first state of that person’s employment. The longer they have been employed with that entrepreneur, the higher this amount is going to be. Edmonton bookkeeping says that business owners need to also understand that it is not just the employee portion, but it is the employer portion that they owe as well. Even if the business owner did not withhold those taxes in the first place, they still are owed that amount of money. They also cannot expect the employee to pay that amount, because the responsibility falls to the business owner.

In addition to paying all of the source that actions that they owe, business owners will also get assessed a penalty of 20% interest on that entire amount. Edmonton bookkeeping says the most important part about that that business owners need to realize, is that they have to pay that interest that is accrue on a daily basis. This can end up adding up very quickly, and can be extremely hard for business owner to dig themselves out from. Many business owners have had to shut their business down after being assessed this penalty, because it was just impossible to pay.

Business owners can help themselves significantly by figuring out who should be considered an employee, and who should be a contractor. By being very clear, and even outlining it in an employment contract can help ensure that a business owner does not have this happen to them. Or, they can simply require all contractors that get hired them to be incorporated, and eliminate the risk.