For small businesses that pay employees, payroll can be a real pain in the butt. For companies that employ their founder or founders exclusively, the issue can be a little less annoying.
However if you have arm’s-length staff (i.e. not “related” to you), you’re required to pay them regularly. You’re required to withhold income tax, Canada Pension and Employment Insurance and remit to the Canada Revenue Agency (the “CRA”) on the 15th of every month.
These withholdings are considered to be “held in trust”, and the world at large takes a very dim view of employers that get behind on payroll.
There is a special consideration for technology companies that are claiming eligible wages as scientific research & experimental development (“SR&ED”). Specifically, payroll issues can result in the loss of entitlements to SR&ED tax credit refunds that you would other wise be entitled to.
EMPLOYEE OR CONTRACTOR
When you “hire” someone to work for your company, the first thing that needs to be determined is whether the person is an employee or a contractor. This is the same whether your business is located in BC, Alberta, the US or Australia.
President and Chief Executive Officer
Keith Hall is the President and Chief Executive Officer of the National Association for the Self-Employed. He has previously served as the National Tax Advisor for the NASE where he offered personalized tax advice and answers on just about every topic ranging from: incorporation to automobile expenses to the home-office deduction to travel expenses for the self-employed and micro-business owners. Hall was born and raised in Dallas, Texas, and graduated from the University of Texas at Austin in 1981 with a degree in Accounting.
He began his career with the international accounting firm of KPMG, working with clients in banking, insurance and other financial services. Hall has served as the Chief Financial Officer for a medium-sized bank and a long-term care provider. He is a certified public accountant and has provided consulting and tax services to small businesses for over twenty years.
Hall’s small-business advice and tax preparation expertise has been featured in The Wall Street Journal, The New York Times, The Washington Post and Good Housekeeping, and on hundreds of radio programs across the country.
While Mr. Hall works in Texas, the determination of a worker’s status as an employee or self-employed contractor, doesn’t vary all that much no matter which country you’re in. It is primarily the consequences – particularly to the “employer” that vary. Many employers like to classify workers as self-employed in order to avoid paying vacation pay, overtime, employment insurance or severance.
However, if you terminate someone and they take issue with the termination, as the employer you may be stuck with all of these additional costs anyway. What’s more you’ll likely to need to professional help to navigate your way through the adjudication of your former worker’s grievance.
The Canada Revenue Agency publishes Form RC4110 that describes some of the issues surrounding the categorization of staff. Starting on page 4 the list the factors that are considered in making a determination.
PROVINCIAL EMPLOYMENT STANDARDS
While the Canada Revenue Agency provides information on the taxation of payroll, including deductions at source for income tax, employment insurance and Canada pension plan, provincial governments are responsible for regulating employment standards. These will dictate minimum wages, hours of work overtime, statutory holidays etc…
CALCULATION THE DEDUCTIONS AT SOURCE