Many business owners may not even take into consideration the problem that could be facing if they have hired a contractor in their business, who actually would be classified as an employee by Canada revenue agency says Edmonton bookkeeping. This is a huge risk, because while employees get source deductions withheld on their check, and then sent off to Canada revenue agency. Contractors do not have source deductions withheld from their pay that they get. Also, they are responsible for sending off that money to Canada revenue agency themselves. The risk comes and unfortunately, if a contractor does not pay Canada revenue agency their CPP and EI, they risk falls back onto the business owner to pay that.
Ultimately, a business owner needs to understand that the penalties associated with this are the most severe and serious that Canada revenue agency hands out. The reason why says Edmonton bookkeeping, is because business owners have a legal obligation to pay the source deductions, and if they do not, Canada revenue agency considers that as a complete mishandling of government funds. Worse yet, if they determine that a business owner use that to fund their business, or pay themselves, that is an even serious misstep. They do not take lightly businesses that use government money to grow their business.
The penalties that entrepreneurs will face if they have been found guilty of hiring a contractor that should have been considered an employee is having to pay all of the source deductions that they have owed on that person’s paycheck since the first day they were hired. Every hour that they have, very of their employment, which may have been months or even years earlier. How much contractor has worked for an entrepreneur will increase the amount of source deductions they have to pay.
However this is not the hard part of the penalty comes in. The penalty is a 20% interest charge per day on the entire amount that an entrepreneur owes, for every day that they are late. This means that if an entrepreneur owes one thousand dollars, that amount literally comes twelve hundred overnight This can be a huge financial burden that may be difficult or impossible for an entrepreneur to bear. In fact, 50% of all businesses fail, and 29% fail because they ran out of money says Edmonton bookkeeping. This does not help entrepreneurs if they are incurring massive penalties from Canada revenue agency for hiring an employee, but paying them as a contractor.
By being aware of the difference between an employee and a contractor can help entrepreneurs be very clear when they are hiring anyone in their business, so that they do not run into this problem. Ultimately, if they are hiring contractor, they do not withhold source deductions from the pay that they give them. However, employees do. By being very clear on this, entrepreneurs can minimize their risk in their business of being assessed this penalty.
Edmonton Bookkeeping | The Risk Of Hiring An Employee As A Contractor
Ultimately, if entrepreneurs hire people as independent contractors in order to avoid paying taxes, Edmonton bookkeeping says that this good come back and backfire on entrepreneurs at any moment. The reason why, is because while contractors do not have source deductions withheld from their paycheck, and employees do. If an entrepreneur is assessed at paying a contractor who should have been paid as an employee, they can be assessed penalties dating back to the very first day that the employee was hired.
One thing that entrepreneurs can do that can not only minimize this risk, but eliminate it altogether says Edmonton bookkeeping is ensure that there contractors are incorporated. By ensuring this, a business owner can ensure that they are never taking a risk that there contractor would be considered an employee. If an entrepreneur is currently in violation of this, Edmonton bookkeeping says that one thing that they can do to help fix it immediately in their business is to have that employee incorporate immediately. If they do that before CRA assesses them as an employee, a business owner can eliminate the risk completely.
However, in order to avoid this in the future, business owners need to understand in the eyes of Canada revenue agency what the difference between an employee and a contractor is. It all comes down to an issue of control. How much control a business owner has over that person is what determines they are an employee or contractor. The more control they have says Edmonton bookkeeping, the more they would be considered an employee. Canada revenue agency will first send a questionnaire directed at the person in question, and asked them series of fifty questions that will help them determine if they should be considered an employee or if they should be considered a contractor. Because this is not necessarily clear-cut answers, the auditor who is in charge of this will use their best judgement.
The types of questions that they will be asking will be determined amount of control. They will ask questions about who sets the price that they are going to get paid at the end of the day, how much control they have over their own schedule, are they able to come and go from the jobsite as they wished, or do they have to show up on a certain time and leave on a certain time. Does the person use their own tools, or to the use the business owners, do they pay their own bills and buy their own supplies and materials, and who dictates how the job gets done? By asking approximately fifty questions of this nature, a Canada revenue agency auditor determine who should be considered a contractor an employee.
Business owners may not understand the risk that they are taking on when they hire a contractor that should have been considered an employee. However, by learning what they should look for, and either starts deducting source deductions from there contractors paychecks, or asked them to incorporate can eliminate the risk for the future.