It’s that time of year again when your mission is to smooth out all the kinks of 2019 so you can hit the ground running for 2020.
Everyone gets giddy when they think about goal setting and the prospect of what’s to come for the new year. But when it comes to payroll year-end, we all have to reluctantly swallow the payroll pill.
Completing payroll year-end properly and accurately can actually open up time to do the “fun” stuff. It gives you a clean slate and peace of mind to start the new year.
If you’re finding that your payroll glasses are a little fuzzy, we’re here to help you see your payroll year-end clearly.
What is payroll year-end? The answer in five steps.
We all know that payroll year-end means wrapping up payroll for 2019 and preparing payroll for 2020. But specifically, it’s the process of calculating taxes, compensation and deductions to be withheld. It’s vital that you calculate these totals accurately or you open yourself up to wasted time and money on potential audits and penalties.
It can be a chaotic season if you don’t have the right procedures in place but with these tips below, we’ll help you have your smoothest payroll year-end yet.
Step 1 — Reconciling your year-end payroll amounts.
Canada Revenue Agency (CRA):
- Income Tax (Federal and Provincial)
- Employment Insurance
- Canada Pension Plan (or QPP if you’re in Québec)
Provincial/Territorial Ministry of Finance:
- Employer Health Tax (ETH)
Provincial/Territorial Workers’ Compensation Board:
- Workers’ Compensation
Want to know the difference between income tax and other source deductions (payroll taxes)? Click here.
Step 2 — Issuing T4s
A cyborg would tell you that a T4 is a Statement of Remuneration Paid. But in plain human speech, a T4 is a slip issued by an employer to tell the Canadian Revenue Agency (CRA) how much employment income was paid and how much was deducted for an employee’s pay cheque.
Who needs a T4?
T4s are required for all employees who have earned income throughout the year whether they are current, inactive or terminated. It’s pretty much any employee who has entered the doors of your business (or metaphorical doors if you are a remote team).
If you are currently using a payroll software, you can find the information to fill out your T4 on your Payroll Register. By leveraging payroll software, all the numbers should line up perfectly for you without much hassle. That's because if your year-to-date amounts are correct, your T4s will be too.
Who needs a T4?
The year-end amounts you reconciled in the first step, are the total amounts your company either contributed or withheld for all your employees. The T4s (T4As for contractors) you create for each employee will show the specific amounts you contributed or withheld for that employee (or contractor).
Step 3 — Creating a T4 Summary Report
A T4 summary summarizes the total amounts you paid for all your employees. It's essentially a company level recap for the CRA.
Step 4 — Sending your T4s and T4 Summary to the CRA
You are required to file your T4 summary along with the T4 slips to the CRA on or before the last business day of February (following the calendar year). Make sure you submit both T4 slips and T4 summary together. If you have 50 or more employees, the T4s have to be sent electronically via NETFILE.
Of course, if you use payroll software, like Wagepoint, we’ll take care of submitting the T4s and T4 Summary Report for you electronically.
Step 5 — Sending each employee their T4
As for giving out the T4s for your employees, it’ll similarly, depend on whether you’re using payroll software.
If you have an employee portal where each employee can download their T4 directly, it’s a safe and secure way to access this information.
You can also save some administrative headaches since employees can change their direct deposit information and their address from within the portal. You also have the option to leave access to T4s for terminated employees so they can grab their T4s without having to contact you.
Image: Wagepoint's employee portal.
Employers can’t just email the T4s to employees. Without a portal, you may need to hand-deliver each T4 or opt for using a courier service. If you want to use standard mail, you have to have written permission from each employee to do so.
Why getting your year-end correct really matters.
If you opt to do your payroll year-end manually, it takes a lot of time.
Manual processes also result in two times the mistakes. Spreadsheets and the CRA payroll calculator can be money-savers, but either method might end up costing you. These mistakes anger both the tax gods and your employees. The tax authorities issue audits and fines and employees feel less confident and motivated if they're not sure their payroll will be correct.
CRA audits can also lead to incurring interest and penalties. Each late T4 slip can cost upwards of $100 with an additional fee per each day late.
Making mistakes takes time, money and energy to fix.
To illustrate this point, there’s a review called a Pensionable and Insurable Earnings Review (PIER review) that is often initiated if there are any errors or discrepancies in what’s been remitted in the actual T4s and the T4 summary. It can often mean going back to every pay period and month and outline what was remitted and what was calculated.
It’s really important to make sure all those deductions and sources remittances are calculated properly and using payroll software is the best way to do so.
Putting your payroll year-end on cruise control.
As you can see from this comic, the wrong tool could send you off the rails. Choosing the right software is critical to putting your payroll on cruise control.
Here are a few boxes we’d recommend you check when choosing the right software for you:
Generates, reviews and submits T4s.
Includes an online portal for employees to access their paystubs safely and securely.
Offers automated tax compliance.
Another advantage you can give yourself is working with professionals like the team at GnarlyBooks and Twenty Eighty Financial. When you combine expert insights with automation, you can make your payroll run like clockwork.
Why timing is everything, especially in payroll.
Why do people love setting resolutions on new years over any other time of the year? It’s because it’s their chance to draw a line in the sand and start anew.
The same principle holds true for your payroll. Whether you’re doing your payroll manually or using software that’s not quite right for you, year-end is an opportunity for you to wipe your slate clean to kick off 2020 the right way.
The timing component comes in with getting set up in your new payroll software in time to run your first payroll of the calendar year. This is the only time of year that your year-to-date amounts (your totals for income tax, EI, CPP, etc.) are zero. Or even if you hit the second payroll, you only have to enter the amounts from the first payroll.
Get a copy of this webinar.
Like to get things straight from the source? Make some popcorn then download a copy of the recording.
Ready to make a change? Preparation makes perfect.
A key component of getting set up in new payroll software is gathering all the information you need. But, never fear, we’ve created a checklist just for you.
To qualify for complimentary T4s, a business must run a minimum of two payrolls in the current calendar year. The first-month free offer is available only to Canadian small businesses who sign up to run their first payroll in 2020 with Wagepoint. Offer expires on January 31, 2020. The advice we share on our blog and in our webinars is intended to be informational. It does not replace the expertise of working with accredited business professionals.
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