Canadian payroll mistakes aren’t just messy and embarrassing. They can have a major impact on all aspects of your business, from your employees’ ability to work to potential fines that can financially compromise your organization. There are also harsh penalties for violating these rules, and organizations such as the Canada Revenue Agency (CRA) work diligently to track down potential offenders. Sadly, many companies still fail to understand the intricacies of the regulations and fees they must honour.
Abiding by the proper regulations can help ensure your business continues to use all of the resources at its disposal effectively. With that in mind, here are the five most common Canadian payroll mistakes.
Failing to Outsource Their Payroll
Businesses still believe plenty of misconceptions about payroll providers. While outsourcing may not work for every business, it is cheaper and more effective than you may have thought. Hiring a professional employer organization (PEO) to manage your payroll can cost less than hiring other professionals to do the same work. It will also allow you to devote your resources to other areas of your business that may require more attention. Putting your payroll in the hands of a PEO also means that more people will be working to your benefit, potentially eliminating mistakes that a single individual may have made. They will also keep your payroll information organized, decreasing the likelihood of other mistakes.
Hidden/Accumulating Processor Fees
When hiring an outside payroll processor, it’s important to watch out for needless fees. Many processors will add surcharges when they log hours and issue cheques in addition to the fee paid up front. When searching for a payroll professional, try to find an individual or organization that only charges a flat rate. This will not only save you money, but it will allow you to better plan and allocate your resources.
Failing to properly classify an employee can be a costly mistake. Whether intentional or not, many companies fail to define their staff as either full-time workers or independent contractors. The CRA defines a “self-employed individual” as someone whose job features no supervision and does not require the individual to accept work from one employer or limit their work for other companies. Employees, meanwhile, generally require frequent oversight and have their salary, work objectives and outcomes determined by their employer. If the relationship between the worker and payer is unclear, the CRA can rule on the worker’s status. Rulings can be requested through the CRA’s website or through a tax services office.
As the Canadian Payroll Association reports, companies frequently make mistakes when paying taxes. For example, if a company covers its employees’ personal expenses, it must pay taxes on that income. The same applies to bonuses, vacation pay, and many other situations where an employee earns money outside their base salary. Businesses may also face penalties of up to 15 per cent if they don’t remit their deductions by the prescribed date. Failing to live up to these tax rules could net your business hefty fines.
Failing to Meet Regulations
Breaking CRA regulations is largely avoidable, yet it is a common mistake for many businesses. It can be difficult to get a general yet nuanced understanding of these rules, and accounting software may not account for these guidelines, especially if your company is based in the United States or other countries. Regulations also change frequently, so if your knowledge is outdated, you may face stiff penalties. Hiring a PEO or another payroll professional can help you stay on top of the CRA’s rules and prevent unnecessary expenditures.