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E-Myth – “Why most small businesses don’t work & what to do about it”

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CFO Services | Avoiding Payroll Remittance Issues

Business owners start their business, and donít take into consideration how the decisions they make early on in their business can affect them later on says CFO services. Then business owners need professional help when they are about to be hit with a massive retroactive pay roll remittance including penalties and interest because their contractors have been deemed employees by the CRA. Business owners may have made this choice when they were brand-new in their business, and didnít realize the far-reaching implications of this decision, or they get lulled into a false sense of security that since they had not been caught doing it so far, they continue to do it.

Unfortunately says CFO service says, owners who make this mistake with their payroll – not having the correct payroll deductions from their staffís paycheck, effectively treating them like contractors run into issues when they have been operating the business for years, and continue to make this error. CRA does not look favourably on businesses who are essentially not paying their taxes, and when they come in for an audit to figure out if that business owners contractors are actually staff, they will be extremely judicious and look at only the facts. Business owners may believe that they will be able to convince the CRA to not assess them, often by arguing that those employees are definitely contractors. But the CRA auditors will look at all of the facts, do their own research and make their decision based only on those facts.

The type of assessment that business owners can expect if they have been found guilty of this says CFO services is that they will have to pay all of the missed source deductions dating back to the beginning of that employees relationship with them. Plus interest plus penalties, for each employee. This is a huge penalty and can add up very quickly. The CRA has designed it to be so financially difficult, in order to act as a deterrent so business owners will not do this.

The good thing is business owners can completely eliminate this factor from their business if they donít make this mistake in the beginning. By only hiring independent contractors who are incorporated, business owners can completely avoid this problem and risk in their business from the beginning. But what can a business person do if they have already made this mistake asks CFO service the recommendation is they can easily either switch those contractors to employees, ensuring that the right source deductions comes off their checks, or they can ask those contractors to become incorporated. One of those two ways, business owners can completely eliminate the risk their business. This is a extremely avoidable problem, and very easily fixed says CFO services. There is no reason why any businesses should ever be at risk for making this mistake. Once businesses have fixed this error, they can put into place the hiring practice of always ensuring that employees have the right deductions taken off, and that all contractors are incorporated.

Michael Gerber the author of the E myth says the fatal assumption is if you understand the technical work of the business, you understand a business that does that technical work says CFO services. Business owners seek out professional help after they have received a devastating assessment by the CRA because their contractors have been deemed employees. This is a huge risk that business owners are taking in their business that they are hiring on employees, but calling them independent contractors to avoid having to pay the CPP and EI. The penalties that CRA can hands down to business owners found guilty of this are massive and completely avoidable.

How can a business owner avoid this problem in the first place asks CFO services, by ensuring that the people that they hire are hired and accounted for properly. If a business is hire a contractor, they need to know what makes them a contractor, which is the amount of risk they have. If they have the potential to lose money, then that they are contractor. Do they have to take care of their own bills, pay for their own insurance, or by their own supplies? If yes then chances are they will be considered a contractor. However on the other hand they never have to pay money, donít have to buy insurance, donít have to buy their own equipment, they are more likely to be deemed an employee.

The second most important factor of the other CRA will consider a contractor employee, is how much control the business owner has over that employee says CFO service. Can that person hire their own replacement for a job? Or does the business owner require that specific person to do that specific job? Are they free to have other clients, who is responsible for the schedule? If a business owner has more control over the person, there are more likely to be deemed employee by the CRA.

So once CRA has audited a business and has a system, they can expect to pay some very hefty fines. Not only do they have to pay all the amounts that were missed retroactively dating back to the beginning of their employment, business owners also have to pay interest on the amount plus penalties on top of that. Depending on how many employees that business has how long theyíve worked for the business, that can add up to a very significant amount. Some business owners have been completely financially ruined having to pay this fee says CFO services.

The good thing about this is it is completely avoidable, business owners need to determine if those people being hired are actually employees, or if they are actually contractors. If there hiring contractors, ensuring that all contractors that they hire Inc., they can eliminate this problem from the beginning. If on the other hand business owners have been making this mistake and now want to eliminate the risk, all they have to do is switch contractors to employees, or ask those contractors to become incorporated themselves.