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

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CFO Services | Hiring Incorporated Contractors

A huge problem that several business owners bring to their accountant when itís too late says CFO services is when they have been crushed financially by retroactive payroll remittances interest and penalties because CRA has deemed their contractors are actually employees. This is such an avoidable problem that all business owners have to do to avoid getting that massive penalty is to just not hire an incorporated contractors. Many entrepreneurs try to save money by hiring employees and paying them as contractors, which means they do not take off the appropriate taxes to get to the CRA. This may save the business a few dollars upfront, but the massive risks and penalties involved in it are not worth it.

This tends to be such a huge problem is because business owners fall into this habit, and because they have not been caught, it gives them a false sense of security that they can continue doing it. Maybe they do it when there business is very new, and they need to save a few dollars in order to increase their cash flow by the time they have operation for a few years, this is become a habit. Since they have not been caught before, they will continue to make this their practice. But the problem is says CFO services is that this actually is a huge problem, and when it catches up to them it will be catastrophic. A business owner needs to realize that just because they got away with it before, doesnít make it right. If CRA audits them and finds them to be guilty, they can receive the potentially business ruining fine.

So what happens to a business if CRA deems contractors to be employees asks CFO service. A business owner can be prepared to have to pay since the beginning of that employees time with the company every single CPP and EI deduction they should of had taken off their check. So for every employee times the number of years theyíve been working for that company plus interest plus penalties. that business will be expected to pay that back. It can be very devastating to a business.

So a business owner should take into account the amount that they are paying said contractor as it relates to the risk factor. If a business owner is only being that contractor a few hundred dollars here, CRA is probably not going to see it as a huge problem says CFO services. That risk tends to get higher the more that contractors getting paid. Are they getting paid $50,000 a year, hundred thousand dollars a year, for several years? The higher the pay the higher the risk.

Most important factor on whether or not the business will get assessed or not is the risk of the profit and loss. CRA will factor in whether they think this person is a legitimate business person, or if they get a flat hourly rate, or a flat fee, or if they never have to buy any equipment or take on any risks. Without risk, CRA generally doesnít see them as contractors.

About habit that some entrepreneurs fall into early on in their business is in order to save money, they hire on employees as contractors so they can save the payroll deductions says CFO services. This is a huge problem because while they might not get caught now, CRA will catch this and the longer is before they get assessed, the more theyíre going to have to pay.

If business owners just never hire employees as contractors this problem is entirely avoided. Business owners need to see that it is not worth the few dollars that theyíre going to save by avoiding payroll deductions because when it gets caught, itís not just paying back those payroll deductions, there will be interest and penalty charges on top of that. So a business owner needs to determine what makes a contractor an employee? One of the most important factors in deciding this is if that person stands to lose money ever. If they never take on risk, they are never considered a contractor. Other things that CRA takes into consideration when they are figuring out if contractor is an employee is do they get in our rate the rate or flat fee, do they ever have to buy equipment? Profit and loss is the biggest factor CRA must figure out to determine if a contractor is actually an employee.

The second most important factor when CRA determines if a contractor is actually an employee says CFO services is control. That is how much control a business owner has over that person. How does that person get trained, do they take classes independently, or are they sitting in the staff room getting trained with other employees? Can they hire their own placement to do their job, or does a business owner require that specific person to do that specific job? These things can point to whether or not a contractor is actually an employee if they get treated like an employee and there is no risk to them, chances are CRA will deem them an employee.

CFO services says thereís actually over 50 questions that CRA will ask each employee and each contractor in the business thatís being assessed in order to make their determination. Other questions they may ask include does that contractor have the ability to take on other clients, whose insurance do they use, the businesses or their own, what payments are they solely responsible for, who is responsible for setting their schedule, and how did they get the job. By figuring out the answer to those questions, CRA can figure out who is an employee of the business, and who is a contractor. Business owners can easily figure that out have time and ensure they are not paying employees as contractors in order to eliminate their risk and avoid the penalties completely.