Free consult & free copy of book

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

Contact Us


Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

CFO services | Hiring Contractors

Business owners often act too late by contacting their accountant after they have been slapped with huge retroactive payroll remittances, penalties and interest charges because there contractors have been deemed employees by the CRA says CFO services. Luckily this is a completely avoidable problem, all employers have to do to avoid it, is ensuring that when they are setting up their employees and contractors, they set them up properly. Employees should have payroll deductions, and employers should ensure that there contractors are incorporated.

CRA has absolutely no problem with a business having an employee, or incorporated contractor, the problem happens when a business has hired an unincorporated contractor, that may be considered an employee by the CRA. Many successful companies avoid this issue by not hiring any contractors who are not incorporated. That way CRA will never be able to come back to them and say that those contractors should have been classified as employees says CFO services.

So how does an employer figure out if their employees are employees or contractors? This is easy to sort out by asking several questions. Figuring out if the contractor should be considered an employee , the business owner needs to determine if that person has a risk of profit or loss within their business. Would they ever need to pay for their own supplies, whose entrance are they using, if they have any risk to losing money in the business, they would be considered a contractor, are some of the questions that business owners can take into consideration when they are determining if the person they are hiring is an employee or contractor.

The second most important factor that business owners can take into consideration while figuring out if there contractor is an employee says CFO services, is are they able to have other clients, are they able to hire their own replacement if they canít make it to a job the amount of control over that person can be the second most important determining factor when figuring out if that person is an employee or contractor.

Luckily if business owners have determined that their contractors should be considered employees, it is an easy fix says CFO service. Switching contractors to employee is easy, business owners may want to choose the best time to do it in order to avoid upsetting their staff. Pay increases can be a great time for employers to change that classification, and have their employees see it as a part of their race. Or business owner could also let them know that as a way for them to get a raise they can incorporate themselves.

Avoiding this issue is very easy, and most business owners should be able to avoid it in the first place, however if business owners have this issue in their business they can be assured that the fix is very easy, and can be done quickly. Once they switch the classification they will completely eliminate this risk.

Entrepreneurs who have classified their employees as contractors often get audited by the CRA says CFO services, and end up being crushed financially by retroactive payroll remittances, penalties and interest. This shouldnít be a problem in many businesses if they take care when hiring staff to determine if they should be considered employees or contractors, and the penalties that CRA can hand down to business owner who is found guilty of this can be financially devastating, and even potentially and a business.

Often business owners donít even consider this a problem, because theyíve been doing it for such a long time. They think that because they havenít been caught yet that itís no big deal. But just because they havenít been caught, doesnít make it right says CFO services. It will work until it stops working, and when CRA finds out theyíre not just going to give that business owner fine, they will be charging the business owner retroactively for all of the errors.

Once CRA has determined that the business owner has been classifying people that should be considered employees as contractors, the penalties that the business owner will face will be as follows: for each employee, every payroll deduction that should have been accounted for, since the beginning of their employment. Every employee that has been classified incorrectly see this charge plus interest plus penalties. Often businesses who have been fined by the CRA for this reason, have seen extreme financial hardship, and has even caused business owners to close their business.

Business owners often believe that even if they are audited by the CRA that they will be able to convince them to rule the way they want them to rule, but this is rarely the case is CFO services. The reason for that is the auditorís sole job is to judge the entrepreneurs on this case, they will be researching and looking at all of the facts. They will speak to the employees, the contractors, their accountant. Even going so far as to call the business and asking for specific people in order to help determine if they are contractors or in fact employees. They will set up interviews, and they will have a list of over 50 questions that will help them make their determination. Questions such as who trains them, can they hire their own replacement, who sets their schedule, had they been on the job. The two biggest determining factors that CRA will use to figure out if contractors should be considered employees, is whatís that contractors risk of profit and loss in the business, and what is the business ownerís control over them. Once CRA has made their determination, there will be no chance that appeal, and the business owner will get a letter in the mail with their assessment. It is a heartless process, and the business owner will have to end up paying the bill.

This is a potentially devastating penalty to receive, and business owners can be very assured that this is easily avoidable and easily fixable problem.