When you think of a small business, a certain picture may come to mind. Maybe it’s of a flower shop, a convenience store or a home-based business. It’s less common to picture a small business as a family that hires a single individual (for child care, senior care, pet care, a housekeeper, etc.).
If you hire an individual to work in your home you may be considered their employer rather than one of their clients. The distinction between an employee and a contractor is important and has legal consequences. The Canada Revenue Agency determines a worker’s employment status based on whether the individual has been engaged to carry out services on his or her own account, or as an employee. RC4110 is a CRA guide that reviews the factors to considered when assessing employment status.
Features of an employment relationship can include a degree of continuity, loyalty, security, subordination, and integration or exclusivity. If you have hired an employee, it is very important to withhold statutory deductions from salary and correctly file taxes. If you don’t follow the correct procedures or, for example, fail to report the income you’ve paid on a T4, the results can include back taxes, penalties, and interest.
According to the CRA, as an employer you are responsible for deducting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax from remuneration or other types of income you pay, and for remitting and reporting them on the applicable slips.
Make sure you are aware of the different government requirements when you hire a full-time or part-time worker. If you are hiring an employee you will need to:
As a payer, you must withhold funds from salary payments and report income on a tax form. If you don’t, and the employee owes those funds to the CRA, you can be subject to an enforcement action for the failure to withhold and the failure to remit the funds you should have held in trust. Some due diligence in advance will set you up for success and ensure your employee doesn’t receive a tax bill at year-end.