CFO services | eliminating payroll audit risk
50% of all businesses in Canada close the doors to their businesses than five years says CFO services. Out of all of those failed businesses, 29% of them will say that running out of cash was the biggest reason for their business failure. Business owners often seek professional help after they have been assessed to pay back retroactive payroll remittances, including penalties, plus interest charges, because the contractors that they have hired has been deemed employees by CRA after a payroll audit. This can be a huge and devastating problem for businesses, but it is completely fixable and avoidable.
The biggest risk to businesses is when they hire unincorporated contracts. CFO services say that hiring unincorporated contracts is a lot like smoking. It doesnít seem to be a problem in the beginning, the people can do it for a long period of time without consequences, but when it does get up to them, can be hugely catastrophic. Just because a business has gotten away with it for so long, doesnít mean itís never going to be a problem. If business owners know exactly what the consequence will be, the may think twice about either making the mistake in the first place, or avoiding fixing the mistake later.
So what will normally happen if contractors are employees asks CFO services. If the business has been assessed, the amount that they have to pay will be to pay back all of the source deductions that they didnít pain the first place for every employee, for the length of time those that employees have been working for the company. CRA will then add on interest charges to that, and then add the penalties to that. This obviously is a much higher amount the larger company is, because the more employees they have, and the longer the business has an open. This amount alone is enough to either financially cripple a business or completely and it. Any business owner should be aware of how huge penalty is, and make immediate efforts to avoid that penalty at all costs.
Luckily is extremely easy solution to the problem. In order to ensure that those contractors are deemed to contractors by CRA, all business owner has to do is ask that contractor to incorporate. They may want to wait until that contractor is due for raise, and then let them know that if they incorporate, they will get a raise. Most contractors would be more than happy to get a raise, and by getting a raise they will be less likely to complain about the cost of the corporation. Moving forward, all a business owner has to do is ensure that any contractor that they hire is incorporated. If they wish to make a contractor an employee, all they have to start taking of the source deduction from that employees paycheck.
Without easy this problem is to avoid, and how easy it is to fix, and how devastating penalty can be to the business, CFO service as there is no reason why business owners should give it have to face this problem ever.
Business owners often seek help far too late after they have been crushed financially by retroactive payroll remittances plus interest plus penalties once there contractors have been deemed employees by CRA says CFO services. Unfortunately once business owner has gone through a payroll audit, it is usually too late for them to fix the air, they will have to pay the penalty. However, for businesses that have not gone through a payroll audit event, the timing is not too late for them to fix any errors and avoid this hugely costly penalty in the future.
Unfortunately business owners often are lulled into a false sense of security that itís not to be a problem for them, because says that by doing it for so long without a problem, itís not going to be one says CFO services. However the longer a business owner goes without CRA finding out, the chances diminish that CRA will find out. There is no reason why business owners should even worry about this space because it is a completely avoidable problem with a completely easy solution.
The way that they can avoid this problem in the first place is when theyíre hiring independent contractors, is to make sure that those contractors have their own corporations set up says CFO services. When theyíre hiring employees, all they have to make sure is they are taking off source deductions with their paycheck. There is no reason why business owners should take on the risk of hiring unincorporated contractors. Most successful businesses have the hiring policy of never hiring unincorporated contractors in order to avoid the risk of the payroll audit. Any time an independent contractor that is not incorporated, there is a risk CRA may deem them employee instead. Itís simple enough for any business to create a policy to avoid this.
The way CRA will determine if a contractor is in fact an employee is by asking several questions says CFO service. One of the most important questions an auditor will take into consideration when making that determination, is does that contractor incur risk? If there is a risk involved whether they may profit or not, then back to contractors often seen as a legitimate business person. But if they get paid an hourly rate, if they never have to buy or use a ìmentor materials, chances are they donít have risk, and will be considered an employee of the business.
The second most important question that auditors will ask to determine if that contractor is actually an employee, is how much control does the business owner have over that worker CFO service say that the more control a business owner has over that person, the more likely they would consider an employee. Questions like can that contractor hire their overall placement, or does the business owner require that specific person to do that specific job? Can they have other clients? Whose setting their schedule, did the business owner tell them they met they would be getting paid, or the contractor develop how much job cost them? The rule of thumb is the more control a business owner has over the worker, the more likely they will be deemed an employee.