When you have people working for and with you, it is important that you distinguish between staff who are actual employees, and people working with you who are self-employed contractors.
The Canada Revenue Agency (CRA) rules regarding employees are different from those regarding self-employed contractors – employers are required to deduct CPP contributions, EI premiums, and income taxes from employees and remit them to the federal government. If this is not done for workers who are employees, the CRA will NOT be happy, and you can face stiff penalties.
As noted on the Canada Revenue Agency website,
“Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration or other amounts they pay to their employees. Employers must remit these deductions along with their share of CPP contributions and EI premiums, to the Canada Revenue Agency (CRA).
An employer who fails to deduct the required CPP contributions or EI premiums has to pay both the employer's share and the employee's share of any contributions and premiums owing, plus penalties and interest.”
CRA Guidelines – Learn Them, Love Them
The CRA has established guidelines to help employers decide what role their employees/contractors are filling. The CRA makes the distinction between “a contract of service” and a “contract for services.” There is a list of questions the CRA would ask when figuring out this status.
Again, according to the CRA, “The facts of the working relationship as a whole decide the employment status… We ask the worker and the payer what their intent was when they entered into the working arrangement. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)?”
For a little more information, here's a video on the topic of Employee Versus Contractor. https://www.youtube.com/watch?v=BbIIq_lbf30
Shaw & Associates – Your Guides to the Guidelines
Shaw & Associates can take care of all of your accounting needs, including payroll and helping you determine who is an employee and who is a self-employed contractor. We can sit down with you and go through the CRA guidelines and decide who is an employee of your company, who is a self-employed contractor, and work with your payroll to accurately reflect that status.
Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.