In most cases you hire someone to work for you and you put them on payroll. You pay their taxes, CPP, EI and it is a fairly straight forward process. But what if someone comes to you only part of the time, or they are hired for a specific purpose only, how do you handle those individuals? Many of these part-timers or “occasional” workers are being treated as contractors which means they are not going on your payroll, you are not deducting CPP/EI/Income Taxes. Instead, they are invoicing you for their time, maybe even charging you HST (which you get to claim back!), and you treat them like an operating expense vs. salaries and payroll.
So what is the big deal? In the eyes of the CRA it is a huge deal. They lose out on CPP & EI contributions and receive less income taxes too!
So how can employers help make the right choices? Ask the following questions:
- How much control does this individual have on their own activities? If you’re dictating what they have to do (i.e. giving them tasks and deliverables and reviewing their work)
- Do you provide the tools and equipment (computer, phone, equipment)
- Can that individual subcontract the work or hire their own assistants?
- How much financial risk is the person taking?
- How responsible is the worker for their deliverables?
- Is there an opportunity for the worker to profit?
- Other factors such as the written contract
All of these individually and combined, as well as the stated intention, is considered in the choice of employee vs contractor.
Let’s take a look at an example:
I need help with my marketing. Person X is great for the job.
Employee à Person X is going to work from my office 2 days a week from 9-3, on my computer, I am purchasing the marketing software, there is no fixed amount of work but they will be told on an on-going basis what we need (e.g. I am telling Person X to write me 5 blogs, 2 Facebook posts with content relating to ABC), I am reviewing that content. Person X is more likely than not an employee and I should put Person X on my payroll.
Contractor à If Person X can choose to work from home OR my office until the work is done, have their own laptop and software, and I am paying them for a package of 5 blogs and 2 Facebook posts, and I approve the final content. Person X could be considered a contractor.
Each scenario needs to be evaluated accordingly. If you are unsure take a look at how similar positions are being treated.
“Behind Every Great Business is a Great Accountant”
For more information on how to keep your business tax efficient, or to get a consultation on whether you are making all the right tax choices for your business, contact Dharna CPA. www.dharnacpa.ca. Info@dharnacpa.ca