CFO Services | Employees Versus Contractors
50% of all businesses are out of business within five years, says CFO services. And 29% of those failed businesses will say that they ran out of cash as a contributing factor to their businesses failure. In an effort to save money, and avoid this issue some businesses have made the mistake of hiring an employee as a contractor. There are many more risks than rewards when it comes to this practice, and businesses should understand those risks in order to avoid making that mistake just to save a little bit of money.
Hiring unincorporated contracts is a very risky action says CFO services. Many business owners have been doing it for a long time and never had a problem yet. The problem with that is, is that since it is a problem it just hasnít caught up with them, but when it does it will be catastrophic. Just because a business has been getting away with it for several years, doesnít make it right, doesnít mean that they will never get caught. It will work until it doesnít work anymore. When it doesnít, CRA is going to go back to the very beginning and make a business pay for each transgression, which could be a business and the catastrophe at worst, or force the business to very troubling times at best.
Luckily this problem is an exceptionally easy one to avoid says CFO services, a business can either hire an employee as a point, which is no problem. Or, the business can hire an incorporated contractor as a contractor, which is no problem. The only problem arises is if a business owner hires an employee as a contractor. The reason this is a problem, is that employers donít have to pay contractors payroll deductions, because contractors pay that to CRA themselves. A business owner makes this build in order to save themselves a few dollars at payroll time.
Some business owners may wonder what an employee employee, and what makes a contractor a contractor says CFO service. The CRA will have over 50 questions to determine that factor, but some of the most important questions that will help determine whether an employee is staff or contractor includes: does that person have other clients, did they use their own insurance, or use the businesses, what payments are they responsible for, can they hire their own replacement for the job, whose training them ñ did they arrange training themselves or are they getting trained up with other staff members, who is setting their schedule, how did they bid on the job, set the price of that job, the business owner tell their wage, or did they tell a business owner but that would work for. these are just a sample of some of the questions that can help business owners determine if their staff is staff or contractor. Basically, CRA wants to know that contractors risk of profit and loss, and whatís the business ownerís control over them. Once thatís determined, itís very easy to see who is an employee who is a contractor. Business owners can avoid hiring on employees and calling them contractors.
Business owners come to their accountants after they have run into a problem, and have been crushed or are about to be crushed financially by retroactive payroll remittances, penalties and interest charges because their contractors been deemed employees by the CRA says CFO service. Once the employer has been deemed guilty of this, there is not a lot they can do. They must pay that penalty. Therefore businesses must be prudent to avoid this problem in the first place.
Luckily says CFO services this is an extremely easy problem to avoid. They can hire an employee you as an employee. They can hire an incorporated contractor as contractor. And they can avoid hiring unincorporated contractor at all. This is the easiest way to avoid this problem and avoid the penalties associated with this. The only reason why some business owners who may hire an employee and call them contractor, is to avoid employee payroll deductions such as CPP and EI, as a way of saving money. Before the little bit of money this saves, the pinkies are really massive.
So what does business owner get charged if they are found guilty of hiring employers contractors asks CFO services? The calculation is fairly easy. They get calculated the amount of sleep and I that an employer should have deducted from that employees pay since the beginning of their employment. This could be as much as five to $7000 per employee. They will get charged that for every employee that they have, plus interest plus penalties. Depending on how many employees a business owner has this can be financially ruining for the business.
So what can a business owner do if they have been making a mistake and now they want to come clean asks CFO services? A business owner can quickly switch contractors to employees, but they have to be careful not to upset their staff who has been enjoying not being there deductions. A great way to do this is to wait until the business owner was going to give the raise byproduct of their raise, or they can tell their employee that they can get a raise if they incorporate themselves. These are two effective ways to very quickly and very easily eliminate this risk.
This is a huge problem that business owners can face that is completely necessary and unavoidable says CFO services. By ensuring that they hire employees or incorporated contractors, they can avoid this issue the potential duties that follow. itís definitely not worth risking so much for saving such a small amount of money, CRA will always prevail. By prudent hiring from the very beginning, business owners can sleep soundly at night knowing that they will never be assessed by CRA as hiring employees as contractors. Itís well worth the effort.