Kelowna’s economy is the home to entrepreneurs and small businesses.
Sometimes, these kinds of businesses come up with various schemes to be able to hire workers and put some money in their own pocket.
In such an environment there becomes the creation of what the Canada Revenue Agency likes to call ‘the underground economy.’
Consider what I like to call the sub sub-contractor scheme.
What happens is that a company from the Lower Mainland or perhaps Alberta might want to expand into the area.
They place an ad locally for a self-employed contractor to be able to service the area and they pay using Lower Mainland or Alberta rates, which are usually much higher than the local rates.
The hired self-employed contractor is told that they won’t get paid until the head office gets paid, so the self-employed contractor is fronting all the costs of operation for at least 30 days.
Then that self employed contractor hires workers as sub sub-contractors, who are also told the same thing.
The time lag to pay these workers can be up to 60 days and in some cases the sub sub-contractors may not be paid at all if the venture ends up being unsuccessful.
Probably in 90 per cent of the cases, the contractors don’t realize who they are actually working for and there is no written contract.
The reason why this is considered the underground economy is that many self-employed contractors do not report their earnings because these are ‘cash’ deals and many of them do not make enough to be registered for GST .
Because the worker is operating as a sub sub-contractor, if the deal goes south, there is no help from employment standards because they only handle employment claims.
However, the unpaid sub sub-contractor may be able to make a plea to employment standards arguoing they were actually working as an employee.
Even if the sub sub-contractor gets no relief, this will at least put the self-employed contractor on the radar.
The CRA will recognize the sub-contractor arrangement because one of the criteria for being self-employed as a sub-contractor is that you take risk of non payment. (Employed or Self Employed RC4110)
The self-employed contractor, at income tax time, will need to pay CPP and income taxes on this self-employment income which can be problematic because the money may have already been spent.
A simpler and fairer way to handle an arrangement like this can happen. It all depends on how you structure your contract and you need to make sure that you have a contract. At least then you have something that you can take to small claims court, if needed.
If you structure the contract so that you are paid an draw of 25 per cent of the contracted amount perhaps 10 days into the contract.
That should allow you to pay some of your operating expenses and you should be able to hire employees and pay them instead of using sub-contractors.
Those of you that are out there in the sub sub-contractor position probably ended up there because the money seemed so much better than the going wages of the area.
But if you need to wait 60 days for payment and need to remit your own taxes anyway, perhaps it’s not much of a deal.
As the saying goes if it sounds too good to be true, then maybe it is.