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Employees and Taxes

© Bert Markgraf

One of the developments made possible by new technology is that you can run fair-sized businesses without any employees. This doesn't mean you have to do everything yourself. Rather, it means that you have reliable, competent people to whom you give work under long-term contracts or with a steady supply of smaller contracts. To qualify as contract workers and not employees, they will generally be in charge of their own work and working hours and have other sources of income. The new technology allows such teams to co-operate without having to be together in the same building or even without being in contact simultaneously. As a business owner, you save on office facilities and paperwork. The independent workers are paid more to compensate for not having benefits and get favourable tax treatment. More and more service industries are organizing this way.

Once you get away from service or knowledge industries and actually start to manufacture something, this model breaks down. Generally, to make something large or complex, you need a group of people to be together in the same place at the same time. This means you have to have the ability to regulate jobs and work hours, i.e. you have to have employees.

As soon as you have even one employee, the government considers you to be an employer and you now have to fill out all kinds of forms. This almost means that you can't have just one; you need a second one to do the paperwork.

The requirements and documentation vary with the jurisdiction but, as an example, here in Quebec, Canada, an employer has to keep track of at least the following:

• government pension plan contributions;
• unemployment insurance contributions;
• public medical insurance contributions;
• compulsory drug insurance premiums
• public workers accident insurance premiums;
• federal tax deductions;
• provincial tax deductions;
• amounts spent on employee training.

This is without getting into any company-paid or shared benefits such as company cars, life insurance etc.

In the U.S, there is a site called STAWRS - Simplified Tax and Wage Reporting System, which gives details of requirements for employers there and which also has a number of tax-related links for small businesses.

If you can run your business without employees, you'll have a competitive advantage. If you can't, at least start large enough that you can hire a book-keeper to take care of the paperwork. To be successful, you need to concentrate on your business, not on government formalities.

The copyright of the article Employees and Taxes in Small Business is owned by Bert Markgraf. Permission to republish Employees and Taxes in print or online must be granted by the author in writing.