Dealing with payroll deductions in Canada can be a difficult process, fraught with potential mistakes and grave consequences, delivered by the Canada Revenue Agency. The CRA is currently cracking down on payroll compliance, auditing companies for misclassification and errors in payroll deductions. This can be daunting to any new venture that's seeking to make their mark on the Canadian landscape.
It's important to know what to expect when dealing with payroll deductions in Canada, how to determine your deductions, and what avenues to take. Also, it's worth looking into what potential mistakes are made most often and how you can avoid them.
How to Determine Your Deductions
First, there are a number of responsibilities as a business owner that you need to undertake in order to ensure proper Canadian payroll compliance. Opening and maintaining a payroll account and getting your employees’ information are only the tip of the iceberg.
In order to determine your deductions, you need to deduct CPP contributions, EI premiums, and income tax from your employees’ paychecks. The deductions then need to be remitted along with your own share of CPP contributions and EI premiums when they are due, which is determined by you calculating the average monthly withholding amount (AMWA). When you fill out your tax forms, you're also going to have to report the employee’s income and deductions in an appropriate T4 and T4A slip.
With all of these steps, it can be incredibly difficult to keep up with payroll regulations and errors can often occur. Mistakes with payroll deductions can be pretty devastating, particularly if you're a small business that's already working within the financial margins. Having to pay fines with interest can stymie any progress that a business is trying to make, not to mention breed distrust and a lack of faith in employees when they get overdeducted in their paychecks. Finally, if you get caught up in a payroll audit, paying your legal team alone can break the bank and leave your enterprising new venture into the Canadian market a veritable shipwreck.
Use a Canadian Payroll Deductions Calculator
It helps to use the CRA's Payroll Deductions Online Calculator, which can determine the provincial and territorial deduction amounts. All you need to do is enter your data into the calculator. However, there are some warnings against this, with the CRA's website claiming no responsibility for miscalculating deductions. Ultimately if there is an error in your remittance, you won't be able to blame the calculator on it.
When In Doubt, Outsource
Fortunately, there are alternative avenues that you can take which will prevent you from making errors in your deductions and save you time and money so you can focus on your business.
A payroll provider is going to be able to figure out all your deductions and remittance, and process it all on time. You'll be working with a staff experienced in following strict compliance, so you no longer have to worry about keeping up to date with new regulations, or making a costly mistake that sets back the growth of your company. For a monthly flat rate, you will have access to an existing infrastructure that can adapt to the unique qualities of your company and save you the hassle of having to train your own in-house employees, with their own deductions, benefits and premiums to consider. They'll also be able to take care of a number of HR related tasks, giving you a great package, all for the price of one-third party provider.