• Last Updated:
  • May 28th, 2018 3:38 pm
[OP]
Newbie
Apr 17, 2013
46 posts
7 upvotes
Toronto

Payroll account question

Asking for a friend

She is a real estate broker and has hired 2 employees that she has been paying for 2 months as vendors (not as employees on payroll) and she is planning to grow and hire 2 more employees in the future.

The CRA told her that she needs to open a payroll account for them.

My 1st question is does she really need to, or can this be avoided and the employees be paid as vendors.

2nd question is if she really needs to open a payroll account, what is the procedure to do so and what she needs to provide for this

3rd question is if she already paid them 2 months worth of pay, can she just continue with payroll for them after creation of the payroll account or does she need to retroactively recalculate payments to them as if they were on payroll and remit deductions.

Help is appreciated.

Thank you,
4 replies
Deal Addict
Sep 23, 2007
4416 posts
776 upvotes
Gudkov wrote:
May 8th, 2018 10:00 am
Asking for a friend

She is a real estate broker and has hired 2 employees that she has been paying for 2 months as vendors (not as employees on payroll) and she is planning to grow and hire 2 more employees in the future.

The CRA told her that she needs to open a payroll account for them.

My 1st question is does she really need to, or can this be avoided and the employees be paid as vendors.

2nd question is if she really needs to open a payroll account, what is the procedure to do so and what she needs to provide for this

3rd question is if she already paid them 2 months worth of pay, can she just continue with payroll for them after creation of the payroll account or does she need to retroactively recalculate payments to them as if they were on payroll and remit deductions.

Help is appreciated.

Thank you,
1) There's some literature out there about contractor vs employees. If the CRA told you so specifically, than I guess they had some reason to rule that they are employees and not contractors and therefore you should pay CPP/EI, deduct taxes and remit. It's too good to be true if anyone can just call themselves a vendor to avoid the deductions. The onus falls on you to prove they are contractors and not employees

2) Very easy. I hope you have a business number already. Simply give CRA a call. Their business lines are typically answered very quickly. Like 5 mins and you are done.

3) For this, you are best served by asking the CRA directly. It sounds like they already reviewed your case and made some kind of decision? I'd lean on the safe side and make the deductions retroactively. Penalties on payroll remittances are very stiff. Again, give them a call to avoid misunderstanding and penalties.
Deal Fanatic
User avatar
Nov 19, 2004
7844 posts
1221 upvotes
Cambridge, ON
I think the simple fact that you are calling them employees already tells you what needs to be done. Are these "employees" invoicing your friend? Are they providing all their own supplies? Are they in control of how they do the work?
Deal Addict
User avatar
Jun 24, 2015
1534 posts
236 upvotes
Woodbridge, ON
if the first two people working for your friend are vendors then i don't see why the other two can't be vendors. as long as they invoice you and you pay the invoice, you should be fine. It all depends on how you word the CRA your question, if you "Hire" someone they assume its employee, for a Vendor, you don't really "hire" them, you can interview them and negotiate a B2B relationship, its not called hiring, but make sure you create the proper paper work incase the CRA asks,. as for paying them, since you already paid them under your Business, you can NOT undo the payment and retroactively apply it as a payroll payment because payroll requires a different set of deductions like CPP, EI, Fed Tax, Provincial Tax + plus any additional benefits you include, it gets messy, so my advice keep them all 4 as vendors. if u decide to hire them, you can hire them and set a date in the future where you pay everyone from your payroll account instead of as a vendor, but if u want advice, do not consult the CRA, go to a small business advisor or accountant, there are lots of them out there to ask, heck they even are on R Flag Deals
Hi
Newbie
Feb 16, 2016
31 posts
4 upvotes
Hey!

Need to be super careful with throwing around the word "hire".

The CRA is extremely strict with differentiation an employee & a contractor. If she has any questions let me know!
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