There are three main, costly mistakes that the CPA (Canadian Payroll Association) has listed in an article with guidelines on how to prevent them. These common payroll mistakes include miscalculating taxable employment income, neglecting to report taxable employment benefits in the period in which they relate, and failing to remit source deductions on time.
Employers can miscalculate taxable income when they overlook certain taxable benefits for an employee. For example certain personal and living expenses paid by the employer need to be taxed as income. When an employee is provided free or subsidized housing the employee must pay taxes on the difference between the FMV (Fair Market Value) and the amount charged to the employee. Other areas employers should pay close attention to are amounts other than base salary (Commissions, bonus, gratuities, and vacation pay etc.).
When employers report taxable benefits only at the end of the year, the employees can face income tax liabilities when they file their personal taxes. Not to mention, the non-compliance penalties and subsequent audits from the CRA (Canada Revenue Agency) and RQ (Revenu Quebec) that the employer could face. If employers schedule the applicable source deduction remittances according to the appropriate payroll schedule, then these liabilities and penalties can be avoided.
Employers can incur different penalties ranging from 3% to 15% when they fail to remit deductions by the prescribed deadlines. These deadlines are determined by the government depending on the monthly average withholding amount from two calendar years ago. As a best practice, payroll administrators and/or the accounting department need to create payroll schedules in preparation for the next year, and plan ahead for statutory holidays and leap years, to ensure they pay employees on time and meet their remittance deadlines.
These 3 common mistakes can be easily avoided as long we ensure that our payroll practitioners are kept up to date on the current year material. Employers need to ensure that all income and taxable benefits are recorded and taxed correctly. This in turn will make certain that all taxable benefits are reported during the correct pay schedules. If the department that processes your remittances creates payroll calendars that provide the correct remittance schedule, then you can avoid penalties from CRA and RQ.
For more information please visit https://www.payroll.ca/cpadocs/CommonPayrollMistakesJun.pdf
Nicole McCulloch / Payroll Administrator / PEO Canada