The reason why it is important for entrepreneurs to understand the difference between contractors and employees according to Edmonton bookkeeping is so that they can pay taxes correctly. Source deductions to be exact, must be paid on employees, by withholding the taxes from their paycheck, and then remitting those source deductions to Canada revenue agency. Contractors on the other hand, are responsible for ensuring that they are paying their taxes themselves. However, the risk comes in when an entrepreneur hires someone to work in their business, and they hire them as a contractor, they are technically considered an employee. They may not withhold and remit source that actions to Canada revenue agency on that employee’s behalf, because they think of them as a contractor. However, when Canada revenue agency sees that the business owner has not remitted source deductions, and neither has the contractor, it will launch an investigation.
The investigation that Canada revenue agency will launch will be to determine if that worker should be considered an employee or contractor. Therefore, Edmonton bookkeeping says that understanding the difference between the two can help ensure that business owners classify their workers correctly, and remit source deductions accurately. If they end up making a mistake, and Canada revenue agency investigates, they could be in for a huge penalty.
The first thing that they will be expected to do according to Edmonton bookkeeping is pay all the source deductions that they should have paid for that employee, dating all the way back to the first day they served work. Therefore, if a business owner has made this mistake several years in around, that amount they will be expected to pay will be significant. Therefore, business owners need to ensure that they are understanding the difference between the two. The next thing, will be paying penalty on top of the amounts that they owe. The penalty will be 20% interest on the entire amount that they owe. However, business owners need to be warned that that penalty will be accrued on a daily basis. Therefore, a business owner that only owes a thousand dollars will have that amount increased to twelve hundred by the second day, and be three thousand before the end of the week.
Therefore it is very important that business owners avoid this scenario, because the resulting amount might be too difficult for them to pay. In fact, business owners who are hit with this penalty often find it difficult or impossible to pay. With 50% of all entrepreneurs feeling in business in Canada, and 29% of those failed entrepreneurs saying that the reason why they failed is because they ran out of money, this can be very significant. If business owners can avoid being hit with unnecessary penalties in Canada revenue agency, they may be able to stay in business for longer.
When business owners understand that how they hire staff is going to make a huge difference, especially when it comes to paying Canada revenue agency they can be more careful. Edmonton bookkeeping says that business owners need to understand the difference between employees and contractors, and then ensure that they are paying taxes accordingly.
Edmonton Bookkeeping | What Are The Differences Between Contractors And Employees
As owners need to understand that employees and contractors may be hired to do anything for business says Edmonton bookkeeping. However, how they get paid will be important to take note of. The reason why, is because contractors will not have source that actions taken from their paycheck and employees well. Therefore, if a business owner hires an employee, that pays them as a contractor that may result in significant problems from CRA, when they are assessed at having to pay all of the source deductions that they owe says that employee was first hired.
In order to help understand the difference between employees and contractors, Edmonton bookkeeping says that a business owner needs to consider the level of control they have over that person. For example, business owners have a lot of control over their employees. Dictating their wage, their wage increases, the hours of work that they are going to put in, when they have to arrive at work as well as when they can go home. In addition to that, business owners will shoulder all of the liability for that employee, ensuring that employees do not need to own their own equipments, do not buy their own supplies and materials, and ultimately have no risk associated their job.
Contractors on the other hand have very little control from business owners on how they operate. For example says Edmonton bookkeeping, contractors can decide when they are coming to work, and when they are going home. They can hire staff to help with jobs, and they dictate to a business owner how much hiring them will cost the business owner, and issue an invoice for their services rendered. Ultimately, contractors will then shoulder the liability that business owners would with employees. By paying their own supplies and materials, paying their own bills and owning their own tools.
By understanding the difference between employees and contractors can help an entrepreneur when they go to hire staff for their business for the first time. Not only being extremely specific when they hire someone. But also by potentially drafting up an employment contract to ensure that everybody who is hired as a very clear expectation of the terms of their employment. This way, even if a contractor does not pay their source deductions properly, a business owner who becomes under investigation can show them the employment contracts, and avoid the penalties associated with it.
By understanding how to avoid getting penalized by Canada revenue agency, business owners can ensure that they are conducting themselves accordingly, hiring employees and paying source deductions properly, or hiring contractors and ensuring that they have an employment contract that details the specificity of their employment. By doing this, business owners can avoid penalties that may affect the finances of their business.