Wouldn't it be nice if you could just plug in the payroll numbers, pay employees and move on? Now that's simple payroll. Buuut there's this small matter of payroll compliance, and as much as it might give you the heebie jeebies, it's an integral part of the payroll process.
What is payroll compliance and why should you care?
Simply put, payroll compliance means following the rules and regulations set by the federal and provincial or territorial governments relating to payroll. These rules and regulations relate to how payroll is calculated, different income and deduction types, payroll taxes and so forth.
Staying compliant looks like staying up-to-date with changes to these rules and regulations to ensure accuracy and efficiency when processing payroll. It can even save you time because you, your business and employees won't run into trouble further down the line that you'll need to sort out and correct.
Not being compliant with payroll requirements can lead to fines and penalties. The amount and severity of the consequences varies depending on what the issue is. For instance, failing to get an employee Social Insurance Number (SIN) can result in a $100 fine for every missing SIN, whereas late remittance fines can be up to 20% of the amount when you're late two or more times. Speaking of SINs and T4s, you'll need employee SINs later for T4s, and late T4s also have fines. Yikes!
And don't forget that lack of compliance can also become frustrating to employees when they're paid incorrectly or overworked. Everyone deserves a chance to hit pause on their workday and be paid fairly, and people are prone to look elsewhere when that doesn't happen. In other words, employee retention and turnover are also at stake.
Key elements of payroll compliance.
To keep all your payroll compliance ducks in a row, it helps to know what you need to be mindful of when running payroll. Payroll compliance can be broken into two categories: Employer compliance and employee compliance. They're similar in that they relate to payroll and follow the government rules and regulations, but there are different things each focuses on.
As an employer, you're the gatekeeper for your business's payroll compliance. Here are some key areas you'll want to pay attention to.
- Source deductions and remittances: Source deductions are amounts taken off of each pay cheque for income tax as well as Canadian Pension Plan (CPP) and Employment Insurance (EI) contributions. Keep in mind, too, that CPP and EI have both an employer and employee portion! Employers are expected to correctly calculate and deduct these amounts from the pay cheque and then remit the amounts to the federal or provincial government.
- Employer taxes, premiums and deductions: Apart from source deductions, there are other taxes, premiums and deductions employers may subtract or calculate premiums owed from an employee pay cheque that must then be remitted to the appropriate sources. This can include things like Workers’ Compensation or Employer Health Tax (EHT).
- Employment standards: Employment standards covers a lot, but when it comes to payroll, it hones in on areas like hours worked and minimum wage. This might seem small, but making sure you're following these standards keeps your business out of trouble (and your employees happy!).
Employees also have payroll compliance responsibilities, so make sure that your employees are providing or have the information and forms they need.
- Contact information: Name, address, SIN and all of that jazz. This properly identifies the employee to both the employer and the government.
- Tax forms and filing: From TD1s to T4s/RL-1s, if you've been employed, you know the drill. Making sure the tax information is correct and also filed correctly on these forms is a must.
Tips for keeping up with payroll compliance.
While we doubt "Keeping Up With The Payroll Compliance" will ever be a reality show, it is something you'll want to do. Here are a few tips that'll help make sure you're not stepping out of line when you're processing your payroll. (Note: This is not an exhaustive list!)
- Be aware of payroll tax changes: The Canada Revenue Agency (CRA) makes updates to the way taxes are calculated twice each year — January 1 and July 1. Online, you can see it as the Payroll Deductions Online Calculator (usually called the PDOC for short).
- Be mindful of minimum wages: Each province and territory has its own minimum wage requirements. Bookmark our handy-dandy Minimum Wage Requirements in Canada blog!
- Consult an accountant or payroll tax professional: When in doubt, it's always a good idea to bring in the pros who know their way around payroll. They'll be able to work with you in detail to make sure everything is just right.
- Use a payroll software: Software can do some of the heavy lifting and reduce headaches when it comes to calculating and processing payroll. (Keep reading for more on this!)
Payroll software makes compliance easy.
Having payroll compliance know-how in your back pocket is a fantastic way to be on the ball as an employer. All the same, payroll software can make things easier by taking the legwork (brain work?) out of calculating things like taxes and remuneration — AKA the wage or salary that your employee gets for the work they've done. This means increased accuracy in your pay runs and more time for you to focus on your small business (or whatever else tickles your fancy).
Wagepoint follows government rules and regulations for payroll, and it can even handle remittances on your behalf. Whoo! That, combined with numerous other features designed just for small business owners, makes Wagepoint a great option for those looking to streamline their back-office processes with a simple payroll solution.
- Employers’ Guide – Payroll Deductions and Remittances
- Pay (remit) source deductions
- Penalties, interest and other consequences
- Payroll penalties and interest
- Consequences of non-compliance
- Federal Labor Standards
- Payroll Deductions Online Calculator (PDOC), payroll tables, TD1s, and more
- CPP contribution rates, maximums and exemptions
- How and when to pay (remit) source deductions – Overview
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