Casual Labour? Don’t Tell That To The CRA

bc hst repealCasual labour is essentially when you have somebody working for a few hours here and there that is not on your payroll. Maybe you decide to hire a student for 3 days to clean up your shop and write them a cheque. Some business owners think that this is okay.

When claiming these types of expenses many years ago there used to be a term called “casual labour” with Canada Revenue Agency (CRA) but it hasn’t existed for a long time. If you’ve been using it when claiming your taxes then you should know it could cause problems when filing and is likely to trigger a CRA audit.

The Myth of Casual Labour

If somebody is getting paid to do something for you they are either a:

  • Subcontractor
  • T4 employee

In both scenarios they are getting some form from you to declare that you paid them money. Casual labour doesn’t really exist and it tends to get a lot of people in trouble because the wage category doesn’t match the T4s. That becomes a common trigger for a CRA audit.

The bottom line is that they either have to be an employee or a subcontractor. If they are a subcontractor then you need to be getting their social insurance number and obtaining an invoice from them after the work is completed. Those in the construction industry also need to issue subcontractors a T5018 since the CRA is trying to crack down on unrecorded revenue being paid under the table.

bc hst repeal

Paying Under The Table Hurts The Business

Paying casual employees under the table might seem quick and easy but the problem comes when the business pays it out as casual labour and then tries to deduct it as an expense later on. The money still has to come out of your business but the person receiving the money is expecting not to pay taxes on it unless they receive a T4.

If you are withdrawing cash to pay casual employees under the table so they don’t have to declare it, you still have to pay tax on that as a business owner except now you are at a disadvantage because you won’t be able to expense it. Generally when there is somebody down the line that doesn’t want to declare something it is always the business owner that gets hurt in the end.

The Worker’s Compensation Issue

Not being able to expense the employee work is only one of the various things the business owner can get in trouble for. For example, if you have a subcontractor and they are doing something that represents your business, they need to be covered for Worker’s Compensation.

If you’re hiring someone to do a specific task that is not an employee, they are not automatically covered under your plan so you need to make sure that individual is covered. Just because they are invoicing you doesn’t mean they are paying for coverage. If they aren’t, it is the business owner’s responsibility to make sure they are covered.

We’ve seen the Worker’s Compensation board do audits on companies where they notice a bunch of subcontractors that have been paid and will request proof that they had coverage. In some cases, business owners aren’t even collecting business numbers or social insurance numbers for these people so you can bet that the workers aren’t being covered. If this happens to you and you’re audited by Worker’s Compensation, you’ll be forced to pay for that coverage.

bc hst repeal1 Step Forward, 2 Steps Back

What employers always seem to forget about “casual labour” is that it really does have all of the same tax implications that regular employees have. Just because somebody’s “casual” doesn’t make them CPP or EI exempt, so that is something to watch out for. Due to Provincial Labour acts, you might still end up having to pay them stat holidays too.

Whoever you’re having work for you, whether it’s a subcontractor or someone working 5 days a year, make sure that you have their business number or social insurance number and that you are obtaining an invoice so you can do the proper reporting at the end of year.

Ideally you would have a signed agreement in place with each subcontractor, reviewed by your lawyer, that clearly outlines the following key items:

  1. Their business number or social insurance number
  2. What specific services/work they will do for you, over what term, how much leeway they have in performing that work, who they are accountable to, what amount and how they will charge, what this includes/excludes and the agreed to payment terms
  3. If they will be responsible for paying their own WCB, proof of their WCB coverage must be provided before work commences
  4. If they will be providing any of their own “equipment/tools” to perform the work and, if so, if this is included in the fees charged
  5. A statement that the subcontractor acknowledges and understands that:
    • They are an independent contractor and not an employee of your company
    • As such you will not be deducting or remitting any CPP or EI on their behalf, and,
    • That your company reserves the right to issue to them any tax forms that may be required by CRA at year end.

In summary, take the time to review your specific casual labour arrangements with your accountant.  They can help you determine what arrangements may be “onside” versus “offside”.  If you conclude that using casual labour still makes sense for your business, consult with your accountant and your lawyer on the specific wording of a subcontractor agreement.  Doing so could save you many headaches and heartaches down the road.
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4 Responses to Casual Labour? Don’t Tell That To The CRA

  • John Cameron says:

    This is very good information. I’ve posted it to my Facebook page.

  • Hi there
    Thank you for the article. I need a simple solution to pay my “casual labour”.

    -If I pay ADP to pay my casual labour, it is $40 per payment.
    – If I pay my accountant to remit CPP, EI, Income tax,, etc the hourly rate is the same or greater.

    If I paid some kid $100 bucks for his service, it seems odd to pay ½ that to administer his tax payments. Tracking all this to make a T4 at year-end is a pain in the but.

    Please write me if you have a solution to easily manage T4s, and the admin.

  • ali says:

    I wished I would have seen this earlier, we have a small company and my husband actually paid 2 “casual” labourers with company chqs, one for 337.50 and the other 624.00, I have already filed our t4-sumary and since I did not know about these two people who helped clean out and build some shelves in our shop, I did not include them in the T-4 summary. So what do I do now, should I just report the money we gave them as part of our own personal income? I don’t know how else I could account for it and still pay taxes on it. We do not remember their names. I certainly do not need to trigger an audit for something so small (and dumb!)

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