CFO services | Payroll Audits
50% of all businesses are out of business within five years, and 29% of these failed businesses will say that they ran out of cash says CFO services. Business owners when they first start a business, think that they can save a bit of money by not paying payroll deductions, and classify their employees as contractors as a way to save some money. This is hugely risky move that can cause them huge problems at any point if CRA has decided taught at that company. It can be a business ending problem, and business owners should take care to avoid this problem as a way of saving money. The risk is deftly not worth the reward.
Business owners who have been doing it, feel that there is no problem with doing it because they have been able to do it for so long says CFO service. But just because they havenít been caught yet doesnít make it right. Once CRA finds out that they have been improperly considering their employees as contractors, they will audit the business and charge them not only all the funds they havenít paid retroactively, but they will also charge them interest and penalties. CRA has absolutely no problem if business owners hire employees who then get their source deductions removed from their paycheck, and CRA has no problem if a business owner hires an incorporated contractor. That contractor will claim their income their own year-end, and CRA collects their taxes says CFO services. The problem occurs, when CRA doesnít get the taxes they are owed when an unincorporated contractor doesnít claim those taxes. The responsibility of this falls to the business owner, to ensure that there employees and contractors are properly accounted for.
As a very simple way to avoid this problem, that to most big and successful companies use, is to only hire employees, or incorporated contractors. Since the problem occurs with unincorporated contractors, they completely eliminate the risk by refusing to hire them. That way, they know for a fact that they will never be audited by CRA and be hit with penalties.
When CRA goes to audit business, they will do their due diligence and they will investigate says CFO services. It will call the business and asked to speak to the various people there to determine if people answering the phones are employees or contractors. They will interview the business owner, their staff, contractors and their accountant. They will have a huge list of questions, and will be looking at the entire issue very judiciously. Business owners think that they may be able to talk their way out of the fine, or be able to convince CRA to see things their way, and thatís rarely the case. Auditors sole job is to find out whether businesses are guilty of this or not.
Business owner should take care when hiring staff, to ensure their contractors are incorporated, and that there employees have the correct payroll deductions taken from their check, in order to completely avoid this risk.
Entrepreneurs often contacted accountant after they have been hit with a massive penalty from the CRA because there contractors have been deemed employees in an audit says CFO services. Unfortunately for the business owner, once they have been audited and assessed to pay, there is very little that anyone can do to help them, except figure out a payment plan. Fortunately for all business owners this is a completely avoidable problem, and if business owners are currently doing this within their own business, is an extremely fixable problem. There is no reason why any businesses should be hit with this penalty.
The problem starts when a business owner is hiring their staff, the believe that if they consider their employees and independent contractors, they can save themselves the CPP and EI remittances. If they can avoid paying that to the government, they can save money, and positively affect their bottom line. Whoever says CFO services the risk of this is definitely not worth the small reward. The reason for this is because the penalties that are associated with this are massive. Businesses that are deemed guilty will have to pay not just fine, pay back all of those source deductions retroactively since the beginning of that employees time in the company. They must pay those restrictions back for every employee they have, for every year they were working for the business plus interest plus penalties. Even if the business is only had a few employees they were calling contractors, this can be a huge bill thatís hard or impossible for business owner to pay.
The reason why so many business owners who started doing this continue to do it says CFO services is the fact that since they havenít been caught by CRA, they think that they can continue to get away with it. But just because they havenít been found out yet doesnít make it right. When CRA finds out, they will investigate and their judgement will be fast and harsh. Luckily for business owners, this is an extremely fixable problem, one that they can take care of in their business immediately. All you have to do is switch those contractors to employees and start taking the correct deductions of their check. Business owners may want to find the best time to do this in order to avoid sitting there employees who may not be happy there will be no getting source deductions taken off their check. One great tactic business owners can use, is at the time the employee should be getting a pay increase, the employer can switch then, and the employee will not see it as negative since they will also have got a raise. Another way to fix this issue, is for business owners to tell those employees that if they incorporate themselves, they will get a raise. There will be more likely to not to see the additional cost of incorporation as it if they know theyíll be getting more money in the future.