Many business owners have heard that it is a good idea for them to ensure that all contractors that the higher are incorporated says Edmonton bookkeeping. However, they may not understand why. The biggest reason is because if they are incorporated, then they can never be considered employee by Canada revenue agency. If a business owner does not hire a contractor that is incorporated, and they do not end up paying the source deductions, Canada revenue agency will be investigating to figure out if that contractor should actually be considered an employee. If they are considered employee, the responsibility will fall back to the business owner to pay all of the source deductions that are owed, dating back to the first day of employment.

Not only can this end up being a huge amount of money to a business owner, especially if the contractor has been working for them for several years. Not only does a business owner have to pay CPP and EI for the employee portion. But they also will be expected to pay the employer portion as well. Many business owners may argue that because they were contractor, they did not first withhold that money. But the legal responsibility falls to them anyway. Some business owners may ask the contractor to pay the money that is owed, especially since they did not have it withhold in the first place. But legally, business owners are the ones on the hook for it.

However, business owners can eliminate this risk completely by only hiring contractors that are incorporated. The have their own responsibilities to Canada revenue agency to report their income, and pay all the source deductions that they owe. Once a contractor is incorporated, and business owner will never run the risk of having them be considered an employee by Canada revenue agency. This is the reason why they are recommended to only hire contractors that are incorporated.

However, if business owners have already made this mistake in their business, Edmonton bookkeeping says there are still things that they can do to fix the situation. The first thing that they can do, is simply ask those contractors to become incorporated. They may even offer a raise, to offset the costs of that contractor incorporating. If they refuse, then they can simply start being treated like an employee, and having that source deductions being withheld from their pay. Ultimately, making the decision one way or the other can help an entrepreneur ensure that they have mitigated the risk, and will not have Canada revenue agency assessing them penalties.

By understanding the difference between an employee and a contractor can help entrepreneurs be very clear when they are hiring people, neither ensuring that they are incorporated. Or else, the can ensure that there being very clear on employment terms, and outlining it in an employment contract, so that if Canada revenue agency has any questions, entrepreneurs can show the contract, that clearly outlines intent.

Edmonton Bookkeeping | Why Should Employers Higher Incorporated Contractors

There is a significant risk that an employer carries says Edmonton bookkeeping, if the higher a contractor who might be deemed an employee by Canada revenue agency. Ultimately, if a business owner hires a contractor who should be considered an employee, if the contractor does not submit source deductions properly to Canada revenue agency, they may investigate. They will determine if the contractor should be considered an employee, and if they find that that should be the case, then the employer will be responsible for paying those source deductions.

This can end up being a significant hardship financially for a business owner says Edmonton bookkeeping. The reason why, is because not only will they owe all of the source elections since the beginning of employment for that person. They will also add assessed a penalty on top of that. This means all of the employer and employee CPP and EI for however many weeks, months or years it has been. The longer the contractor has been employed by the business owner, the more they are going to owe Canada revenue agency.

A business owner will also be expected to pay a penalty on top of that. It is 20% interest on the entire amount, and that penalty is calculated on a daily basis. Therefore, even if it is not a significant amount to start, that daily interest penalty can end up costing a huge amount in the long run. Many business owners have had to close their business due to not being able to afford to pay the amount plus the penalties.

What the Canada revenue agency auditor will be looking for if they do not investigation, is to figure out how much control the business owner has over that person. The more control they have, the more likely they will be considered an employee and not a contractor. For examples is Edmonton bookkeeping, contractors set their own rates and issue an invoice to the business owner. They set their own hours, take care of their own expenses, by their own supplies and materials and own their own tools.

Employees on the other hand do not set the wages, they work for the business owner who then gives them a salary or an hourly rate. They also are expected to come to work by certain time, and stay until a certain time. They have no risk associated with being an employee, they do not pay their own expenses, nor any bills and do not own any of the tools they used to get the job done.

By understanding the difference between the two can help entrepreneurs ensure that there being very clear on what the intent is when they hire that person. They can create an employment contract that outlines it very clearly, or even ask all contractors to be incorporated before they hire them. By doing this, business owners are protecting themselves from this scenario, that could be very devastating financially to their business.