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Paying Employees “Under the Table”

When it Rains, it Pours

By Raissa Sagun, IBEX Staff

An Alberta entrepreneur owned 12 different franchises from two different franchise chains. When he bought his first franchise, times were tough and he decided to pay some of his staff “under the table.” As he continued to acquire more franchise locations, he continued to pay some of his employees at his original location under the table but put all new employees on the company payroll.

When a large U.S. competitor opened a flagship Canadian operation right down the street from his operation, within a year his operation was in trouble; the franchisor decided to take back control of his franchise. Rather than being a major relief for the entrepreneur, it turned out to be a major problem.

Within a couple of weeks the franchisor wanted all employees at the original location transferred to the corporate payroll. This transfer included completing T4s for all employees and creating Record of Employment forms for those employees being laid off. Naturally, creating the forms for his under the table employees was not possible and there were enormous consequences.

The entrepreneur was required to pay the Canada Revenue Agency all the past EI, tax and CPP contributions that should have been deducted from the employees along with the employer portions he was responsible for. The event also triggered an audit of his entire operation by CRA, which did confirm his other locations were above board, but took a huge amount of his energy at a very bad time. To make matters even worse, the entrepreneur has not been allowed to purchase any more franchises from the franchisor because of his mis-management.  Paying under the table is just not worth it!

note: certain elements of this story have been changed to protect the guilty