Many entrepreneurs may not understand there is a risk involved if a business owner hires an employee, but pays them as an independent contractor Says Edmonton bookkeeping. However, the biggest difference between the two, is that an entrepreneur must take source selections off of an employee’s paycheck, however an independent contractor will not have source deductions withheld from their pay. However, if Canada revenue agency has deemed an entrepreneur has hired an employee as a contractor, they will be penalized.
Business owners need to realize how significant this penalty is says Edmonton bookkeeping. It is in fact the stiffest penalty that Canada revenue agency hands out. The reason why, is because they see a mishandling of government funds as a very serious advance. By withholding any from their employees, and then giving it to the government, the money is considered as trust funds for the government. If an entrepreneur does not pass those trust funds onto the government, and instead uses them in their business, or to pay themselves, it is considered a gross misuse of government funds.
The penalties that entrepreneurs will have to pay if they are deems to be in violation of this is huge. Not only will an entrepreneur have to pay all of the source deductions that they have owed since that employee was hired. But they also have to pay the employer portion of CPP and EI as well. Depending on how many hours that employee has worked, and how many years they have been hired, this can work out to be a huge amount of money. However, the penalties do not stop there. Edmonton bookkeeping says that business owners will also be assessed 20% interest on that entire amount every single day. This can add up very quickly, turning a one thousand dollar bill into twelve hundred dollars overnight. Therefore, business owners should do everything in their power to avoid having this happen to them.
Ultimately, the difference between an employee and a contractor comes down to the amount of control that a business owner has over that person. Employees have much less say, having the entrepreneur dictate their schedule, their pay, and the employer also owns all the tools that they use, by all of the materials, and have the ability to either turn a profit or have a loss on the jobs. The contractors on the other hand set their own schedule, have the ability to decide if they would like to hire staff to help the job or not, pay their own bills and own their own tools. Ultimately, if an contractor has more control, Canada revenue agency will be more likely to deemed them as a contractor.
Ultimately, business owners can avoid this situation, by creating a clear contract matter if they are hiring an employee or contractor says Edmonton bookkeeping. By outlining everything very specifically, even if Canada revenue agency deems them as an employee, if an entrepreneur has contract, that may be able to save them from paying that he was orbited amount of penalties.
Edmonton Bookkeeping | The Importance Of Avoiding Hiring Employers As Contractors
If entrepreneurs do not understand the difference between employees and contractors, they could be putting their business at risk says Edmonton bookkeeping. Who they would be at risk from is Canada revenue agency. The reason why, is because employees will have source deductions withheld from their paychecks, and sent to Canada revenue agency. Meanwhile, contractors do not have source deductions withheld from pay that they get. And instead, they must send their own CPP and EI to Canada revenue agency themselves. However, if contractors end up not remitting source deductions to Canada revenue agency, it is the business owner who faces the risk for failure to pay.
Ultimately, if an entrepreneur can understand the difference between an employee versus a contractor, they will be able to make those determinations at the time of hiring, so that they can avoid running into problems. How Canada revenue agency will determine who is an employee and who is contractor ultimately comes down to how much control a business owner has over each person. The more control an entrepreneur has, the more likely Canada revenue agency will deem them as an employee.
Therefore, if CRA is trying to get to the bottom of this situation, to determine if the person in question is an employee or contractor, they are going to send out a questionnaire to that specific person. They also might do things such as call the office, to see who answers the phone, or if there able to get a hold of that person in question via the office phone. The questions that Canada revenue agency will be asking of the first question will be to determine how much control an entrepreneur has over that person.
Questions that Canada revenue agency will be considering will be things like who dictates the pay that the contractor gets, do they own their own tools and have to be for their own materials? Are they able to set their own schedule, and hire their own helpers for the job. Are they able to take other jobs on? These are some of the fifty questions that they will be asking the contractor to determine how much control the entrepreneur has over them.
While it can be very helpful for entrepreneurs to have an employment contract when they hire an employee or contractor, to specify the terms. Edmonton bookkeeping says that a much better and clear-cut way that entrepreneurs can completely avoid this problem, is by ensuring that all contractors that they hire are incorporated. Doing this, a business owner will completely eliminate any risk to their business completely. By minimizing this risk, entrepreneurs can ensure that they are focusing on running their business, and will never be caught off guard by having to pay a massive amount of source deductions, or penalties on top of that amount.