Michael Gerber, the author of the E myth says the fatal assumption is, if you understand the technical work of the business, you understand business that does that typical work quotes CFO services. business owners are often very good at what they do in their business, thatís why they do business with themselves, but have less experience in businesses, and make some very big mistakes. One of the big mistakes that they make that is completely avoidable, is when they hire their employees as independent contractors. By not taking of the proper source deductions from their paycheck, and not paying that CPP and EI amount to the government, they are treating those employees as independent contractors and also running a huge risk at the same time.
Why this is such a huge problem says CFO services, is that CRA needs to get the taxes that they are due, and that a business owner has to pay. Many business owners who have been doing this for a long period of time and havenít run into problems, you realize that itís such a huge problem, we believe they can continue getting away with it. Just because they havenít been discovered doesnít make it right. If they are audited by CRA, they can be hit with some massive penalties in addition to having to pay back all the source deductions that were missed with interest.
The best way for businesses to avoid this ensure that if they hire an employee, the correct source deductions are being taken off their check. And if they hire an independent contractor says CFO services, make sure that they are incorporated. If they follow those guidelines, they will never have an issue. Big successful companies avoid this issue altogether by never hiring unincorporated contractors, for they will never be assessed as hiring contractors instead of employees. Business owners can determine whether those contractors should be considered as employees by asking a couple of questions. Does that independent contractor they hired have any risk in the company? Are they ever responsible for their own bills, or insurance? Is there any chance they could lose money? If the answer to those questions is yes, then those are contractors. The second most important factor in determining if those contractors are actually employees are how much control does business owner have over them? Who is responsible for training them? Are they required to come to staff meetings? Are they able to hire their own replacement, which is a business owner require that person to do that job specifically? There the more control a business owner has over that person, the more likely they are going to be considered an employee.
Are some things business owner can take into consideration when they are considering their risk, including how much they have been paying that contractor per year says CFO services. If itís only a few hundred dollars they paid the contractor any year, itís no big deal, and CRA will likely not hit them with a fine as it is under the threshold. The problem starts when that business has paid thousands of dollars here for several years.
One of the biggest mistakes that business owners can make well hiring in their business says CFO services is not properly filling up employees in their company. When business owners fail to have the proper source deductions taken from that employees check, that business owner is treating them like a contractor instead of an employee. This is a problem with CRA, because they get their taxes. When business owners hire independent contractors, they should ensure that those contractors are incorporated, to avoid running into problems with CRA. That way they donít have to take off source deductions pay that contractor, but CRA will get their taxes when they do their own year-end
CRA looks at the taxes that they are owed is a mess of the problem. Many business owners who have been operating their business this way for a long time often believe that because theyíve got away with it for so long, they donít actually have a problem. But just because they havenít been caught doesnít mean itís right. If CRA audits them and assesses them, they can be financially devastated by the amounts they have debated.
When figuring out how much they may be assessed says CFO services, and employer needs to figure out how much each source deduction should be, for each employee, for the length of time that employee has been working for them plus interest plus penalties. This can be a massive amount of money that the business owner ends up having to pay. Business owners who have assessed and hit the those plans, has been financially crippled and some have even had to close their business. This is an extremely serious situation.
When CRA is determining if the contractors that have been hired are actually contractors or employees, they will do significant investigating into the business. They will talk to the business owner, the employees, the contractors, and even the accountant for the business to gather their information. They may even call the company and asked to speak to different people in order to figure out if there actually contractors or in fact employees. Business owners often believe that even if there audited they will be able to talk their way out of the problem, but that is rarely the case. The auditorís sole job is to judge entrepreneurs and they take on this job without much emotion. There will not be opportunity for business owners to convince them, and once they have made their determination, itís final.
Business owners can easily avoid this problem by ensuring that they are independent contractors are incorporated, and that their employees have the correct source deductions taken off their check. And business owners who are making this mistake currently will be happy to know that they can easily fix that mistake.