CFO Services | Payroll Remittances Mistakes
Business owners often seek out professional help after they have been crushed, or are about to be financially crushed by retroactive payroll remittances, penalties and interest charges because their contractors have been deemed employees by CRA says CFO services. This is more of a common issue than it should be, because it is extremely avoidable, because the rewards of this behaviour are extremely low, and itís very fixable. There are several questions that can be asked to understand this problem.
Why is hiring unincorporated contracts a lot like smoking ask CFO services? See faces that just like smoking, business owners who have been doing it for a long time but have never had a problem, failed to see the problem with it. But what they donít know, is that it is actually problem, but it hasnít caught up to them at. When the problem does catch up to them the results will be catastrophic. Just because business owner isnít seeing the problem with that now doesnít make it right. Once the problem catches up to them, the financial strain that puts on the business can be terrible, which might even cause that business to close.
How can big successful companies avoid this issue altogether? Companies completely avoid this issue says CFO service by not ever hiring unincorporated contractors. By completely eliminating that factor, businesses can ensure they will never be assessed by CRA is hiring employees as contractors. It is such an easy fix, that was businesses should adopt this practice to avoid the risk.
Why do entrepreneurs have a natural false sense of security on this issue? Entrepreneurs who have been getting away with it for so long are lulled into a sense of being okay with it, and believe that if they get caught, they will be able to convince CRA to rule the way they want them to. Basically, entrepreneurs are charismatic and believe they will be able to talk themselves out of the problem. Unfortunately that is rarely the case cautions CFO services.
How do CRA auditors see entrepreneurs, and what will be audit process look like? CRA auditors donít view entrepreneurs favourably. Their sole job is to judge them, so they look on them without much emotion. The business ownerís argument will be that the people working for them are in fact contractors and not employees, and the process will go the way entrepreneurs believe it will go. Sometimes, the auditors will call the business and asked to speak to specific people to determine if they are actually employees. Those auditors are going to do research, gather information, do their due diligence as well as talk to the owner, accountant, and contractors. Once I submit all of their facts, business owners will not have an opportunity to sway their opinion. The report will come back, and CRA will have found the contractors to be employees in the business will be assessed for all the damages. It is a heartless process and to the business owner in the end will be responsible to pay the bill.
Business owners often believe that they are doing no wrong employees as contractors, says CFO service. But then they get opted by the CRA, and are hit with having to pay payroll remittances retroactively, including interest and penalties. Once businesses are in the situation, there is not a lot anyone can do to help them, but by avoiding this problem in the first place, business owners can be assured that they will never get hit with that assessment. There are several questions a business owner can ask to ensure if their business is at risk.
What will happen if contractors are deemed employees by CRA? CFO services says if after an audit, CRA has determined the independent contractors are in fact employees, the business owner can be sure that they are going to pay all of the payroll remittances that they should have paid since the beginning of the contractors employment with them. No matter how many years that has been, the business owner will be expected to pay since the beginning of the issue, for each of the employees that have been determined to be employees. Plus the business owner will also have to pay interest on the amount plus penalties. It is definitely a process that is designed to keep people from making this error, by making the penalty huge. Depending on how many employees the business owner has, and how long they have been in operation, this assessment could be massive, and financially devastating to the business.
How much did the amounts involved contribute to the risk factor? CFO service makes the recommendation to be pragmatic when business owners are evaluating the risk. How much has the business owner paid each contractor? If it has only been a few hundred dollars a year, CRA will likely see it as no big deal. if on the other hand, the contractor works almost every day and has been paid several thousands of dollars every year, that increases the risk.
Is the risk of profit and loss an important factor? CFO services says that this is actually the single most important factor. CRA often looks at the potential for that contractor to lose money. If the job goes well, they profit if the job does not go well, the contractor loses money. That potential to lose money will show CRA if that person is a legitimate business person. If they just get paid a flat hourly rate or if they never have to buy equipment, pay bills, or take risk and they will be less likely to be seen as a contractor.
Is control an important factor? CFO services says that this is the second important factor to determine if that contractor is an employee or not. How much control the business owner has over that person for example, can they hire their own replacement or does the business owner require that specific person to do that specific job? Does that contractor have the ability to have other clients? Whose training them, whose setting schedules?