Payroll is a complex process that is subject to an ever-changing litany of regulations. When companies choose to handle payroll manually, mistakes are inevitable —below are the top 5 common manual payroll mistakes.
Missing or incorrectly calculated statutory remittance amounts – employee or employer
The rules around which monies are subject to which statutory remittance are complex and vary between the federal and provincial rules. An employer needs to determine whether the payment is to have remittances calculated using the pay period calculations, the using the annualized bonus tax calculations, or using the Lump Sum tax calculations. As well, whether earnings and/or taxable benefits are subject to certain statutory remittances can vary from province to province.
Employers who have weekly or biweekly payrolls need to correctly identify when they will have an extra pay period during a calendar year; there are distinct tax tables for weekly payrolls for 52 versus 53 pay periods, and for biweekly payrolls for 26 versus 27 pay periods.
Missing federal & provincial deposit deadlines
You must deposit your federal and provincial remittances on specific dates, those dates are determined by a combination of your estimated annual gross payroll as well as total taxes you remitted the prior year to CRA or applicable provincial tax agencies. File late and you can end up with hefty penalties, that increase with each recurrence of late remittances.
Failing to report all taxable forms of compensation
Most taxable benefits like employer contributions to benefit plans, stock options, and employee discounts are subject to federal & provincial income tax, Canada Pension Plan/Quebec Pension Plan, and in some cases Employment Insurance, and Quebec Parental Insurance Plan; in addition, there is Ontario Employer Health Tax. These forms of compensation must be reported to the CRA (along with RQ for Quebec employees) on the correct tax form(s) and correct box(es) on those tax forms, or you could face significant penalties along with being required to produced amended tax forms that correctly reflect the employees’ reportable amounts for that year. And if that error also occurred in prior years (to a maximum of 7 years) then amended tax forms will have to be produced for those past years too; and the employees that are issued amended tax forms will be required to refile their tax returns for each year impacted by this.
There are different rules for different kinds of employee garnishments (family support order, back taxes, garnishment orders, etc.). Failure to comply could result in fines, and/or the employer being held liable for untaken amounts, and employees may struggle to retrieve payments that were processed in error.
Sloppy or incomplete records
The CRA requires employers to keep seven years’ worth of pay records, including hours worked, payment rates and the date of every payroll. The provinces impose their own record-keeping requirements on employers that typically also extend seven years. Missing records could mean big headaches down the road.