Of all the responsibilities of an employer, ensuring correct payroll filings is easily one of the most important. Errors in payroll can cause frustrations with employees and can be costly with the CRA. Keep reading to learn about five of the most common payroll mistakes.
Not increasing minimum wages or vacation pay when legally required
Minimum wage changes provincially. Also, provinces do not maintain the same minimum wage increases at the same time. To top it off, the provincial minimum wage rates do not change at the same rate as the federal rates.
In Manitoba specifically, did you know that minimum wage went from $13.50 to $14.15 on April 1, 2023 and will increase to $15.30 on October 1, 2023? Now consider that the federal minimum wage is $16.65 per hour as of April 1, 2023. What this means is that anyone working a federally regulated job will be paid $16.65 as of April 1, 2023, yet a provincially paid employee will be paid minimum $15.30.
If you are researching and changing your minimum wage rates, ensure you are interpreting the changes correctly.
Dealing with statutory holiday pay
The rules around payment for statutory holiday are complex. Salaried employees can be straightforward. Holiday pay for employees working less than full time are paid holiday pay based on the number of hours worked.
Consider the province you are paying the wages in and whether the day is considered a stat holiday. For example, “Civic holiday” in August, or “Easter Monday” in April (or March) – are not necessarily statutory holidays in every province. Yet they are for federally regulated employees.
Not paying appropriate statutory pay may result in upset employees and inappropriate payroll remittances – both of which may be costly to your business.
Failing to report all taxable forms of compensation
There are many forms of payments on behalf of employees and employee reimbursements. Did you know that paying an employee a cash allowance for vehicle use may be considered a taxable benefit, but if you reimburse based on mileage (at a CRA prescribed rate), it is not a taxable benefit?
Do you provide a vehicle or phone to your employee to use? Do they get access to these benefits when they are not working? There is likely a taxable portion to consider.
Consider items like employee health plans, disability plans, meal and mileage reimbursement, cell phone or home office reimbursement. Do you know the taxable impact of these various forms of payments and reimbursements?
Incorrectly remitting CPP and EI
CPP and EI errors can occur if you do not remit payments on time (resulting in late filing penalties and interest), or incorrect calculations of EI and CPP (resulting in Canada Revenue Agency reviews and interest or penalties).
Are you an accelerated or regular payroll remitter? For many businesses, you will be a regular remitter but there are five remitter types, depending on your average monthly payroll withholdings. Knowing the different remitter responsibilities is key, and ensuring payment is made to the CRA before the specified dates is important.
While CPP and EI deduction formulas and calculations remain consistent every year, the rate does change. For example, the CPP rate for 2022 was 5.70% and increased to 5.95% in 2023. If you use a pre-set formula for employees to calculate payroll, ensure you are updating each year for the appropriate CPP and EI remittance rates.
Incorrect classification of employee vs contractor
While there are four standard criteria to determine whether someone working for you is an employee or a contractor, this is one payroll item that frequently gets handled incorrectly. Consider the four main criteria when determining if a member of your team is an employee or a subcontractor:
- What level of control does the worker have over their activities such as when and how they complete the job/ duties?
- Does the worker have to pay for and provide their own tools and equipment to complete the requirements of the job?
- Can the worker subcontract the work, hire assistants or work for other companies?
What level of financial risk and opportunity for profit does the worker have?
Misclassification of employee vs subcontractor will result in over-remitting or under-remitting EI and CPP to the CRA. This can be costly to your company and your employees if reviewed by the CRA.
As you can see, payroll is a routine part of most businesses but can be complex to handle without appropriate support and information. At Accent CPA we can answer your questions and perform payroll duties for your business if you require support. If you would like to know more, please contact our office for trusted advice and personal service.