Businesses in Canada are subject to a statutory requirement to withhold income tax, Canada Pension Plan (CPP) and Employment Insurance (EI) premiums from their employees. This places an administrative burden on employers that many will seek to avoid whenever possible. This blog discusses the nature of casual employment and how a business should deal with “casual employees” from a tax point of view.
Examples of casual employees might be the kid who mows the lawn in front of the office once a week, janitorial staff, the spouse of the owner who just comes in once in a while to provide administrative relief, or the guy who sweeps up the construction site. Their pay cheques are minimal and they may even be paid in cash.
The technically correct answer is there is no such thing as a casual employee from a tax compliance perspective. Employees are either employees or independent contractors. See the blog we wrote about this here: Employee or Independent Contractor?
Low income employees are often exempt from CPP and income tax deductions due to the low level of income. However, EI premiums are always applicable from the first dollar earned. In the “old days”, EI was subject to a minimum number of hours worked but that exemption no longer applies. If they are employees, then they are always subject to at least a statutory deduction for EI premiums.
Some employers choose to ignore the statutory requirement because the cost of compliance is greater than the risk of non-compliance penalties.
The cost of compliance includes the general administration costs of formal payroll and the employer’s portion of EI (and potentially CPP) premiums.
The risk of being assessed non-compliance penalties consists of the risk of detection and potentially having to pay the employee plus the employer’s portion of the EI/CPP premiums and penalties for non-compliance (generally 10% to 20% of the amounts not remitted). This risk tends to be fairly low for employees only earning a few hundred dollars per year.
There will also be issues related to the deductibility of wages paid in cash because of the difficulty in providing appropriate evidence to CRA to support the expense claim.
The business may be able to successfully argue that the employee is an independent contractor, although, in our experience, employers aren’t usually willing to spend much money fighting CRA on this matter given to low dollar values involved.
We’re always happy to discuss your employees, casual labourers, and anything else related to your business. Give us a call.
Written by: Doug Johnstone, CPA, CA