Casual labour is generally defined as employment involving the performance of a service on a temporary or part-time basis. If you hire an individual to work for a few hours on a sporadic or intermittent basis, and they are not on your payroll, you utilize casual labour. Until about 10 years ago, the Canada Revenue Agency (CRA) accepted casual labour as a valid expense. Now, however, they do not.
There are only two employment options available for tax filings – subcontractor or employee. In either case, an employer must have an individuals’ social insurance number on file. If an individual is to be considered a subcontractor, the company must obtain an invoice describing the services rendered after the completion of the work. If a person earns more than $30,000 per annum, then he/she must be assigned a business number and register for the Harmonized Sales Tax (HST).
Usually, subcontract work is for a particular project or specified time frame. If payments for subcontract work are of a recurring nature, CRA will seek to categorize an individual as an employee. If CRA is successful, the company is exposed to interest and penalties for unremitted Employment Insurance Premiums, unremitted Canada Pension Plan Contributions and unremitted Income Tax withholdings, in addition to being liable for the unremitted payments.
Two other items to consider when assigning an employment category are the Ontario Health Tax and Workers Safety and Insurance Board (WSIB) payments. The Ontario Health Tax is paid on a company’s total payroll in excess of $450,000 at the rate of 1.95%. If CRA deems payments to a subcontractor to be a payroll amount, it may attract an Employer Health Tax (EHT) if the total payment exceeds $450,000.
Many companies in “soft” businesses like professional services and sales are not WSIB registered. However, all businesses in Ontario are required to be registered and pay WSIB premiums. WSIB is conducting regular audits and assessing premiums for the current year and up to three years prior, and charging interest on unpaid amounts.
Whether you use casual labour to complete a specific project, employ seasonal help, or occasionally hire part-time help to fill your staffing needs, it is important to consult with your accountant to ensure that your business is accurately categorizing employees so as not to attract unwanted attention from the CRA and others.
Jerry Paskowitz, CPA, CA, CMC, BBA is a Partner with Sloan Partners with over 30 years’ experience in all tax and financial matters. Contact Jerry at firstname.lastname@example.org if you need assistance with employment tax matters.