All Canadian businesses that have employees must complete payroll at least monthly. Many companies pay their employees on a bi-weekly basis and must complete payroll more frequently. Completing payroll on time and correctly is among the most important tasks of running small businesses. The accuracy of the small business payroll is crucial for compliance with Canada’s tax and wage and hour laws. Business owners must understand how to complete payroll and how to handle payroll taxes and mandatory withholding.
Table of Content:
- What is payroll?
- Why is payroll important to the business owner?
- How is payroll prepared?
- Wage garnishments.
- Payroll Record Keeping.
- Benefits of outsourcing your payroll to our accounting and bookkeeping professionals.
What is payroll?
Payroll refers to a couple of different things. In its most common use, it is a process that a business completes when paying its employees. The process includes calculating and distributing the paychecks to employees on each payday. Payroll also includes all of the financial records that the company maintains for salaries, wages, withholding, bonuses, and deductions. It also includes recording payments for time that the employee didn’t work for sick leave, vacation pay, and holidays. Finally, payroll is used to refer to the total amount that the employees of a particular business earned during the fiscal year.
Why is payroll important to the business owner?
Payroll is very important to business owners for several reasons. The small business payroll has a substantial impact on employee morale because employees are more aware of the business’s stability that the employees of large companies. If the payroll remittance is late, employees begin questioning the business’s financial stability. Late payroll can cause workers to care less about their jobs and to underperform. For this reason, completing payroll on time is crucial.
Payroll allows employees to feel their worth within the companies for which they work. The total compensation of an employee, including his or her salary, bonuses, and benefits, is included in the company’s payroll. Workers who receive raises, bonuses, and benefits feel like they are worth more to their employers and are likelier to perform better.
Payroll can be time-consuming for the owners of small businesses. Businesses must complete payroll at least once or twice per month, and the payroll information must be accurate. Business owners need to make certain that their employees are paid the correct amounts and that the payroll taxes are paid on time. They must also ensure that the withholdings are accurate. To ensure that payroll is always completed on time and is accurate, it is a good idea for small businesses to outsource their payroll to accounting and bookkeeping professionals.
Finally, payroll must be completed correctly to reduce a business’s federal and provincial taxes. Businesses must ensure that new employees fill out their TD1 forms correctly so the correct amount of taxes are withheld each year. They must also issue T4s each year so that their employees can file their income tax returns on time.
How is payroll prepared?
Canadian employers must complete the following steps to run payroll:
- Open a CRA payroll account.
- Collect their employees’ TD1 forms, social insurance numbers, and other required information.
- Take the proper deductions from the employees’ paychecks every pay period.
- Completing the payroll remittance of the deductions, the employer’s part of the CPP contributions, and the EI premiums to the CRA.
- Report the employees’ income and total deductions on the T4 slips and issue T4s on time.
- File an information return each year no later than the final day of February for the prior year.
To complete your payroll remittance, you must first open your business’s payroll account with the CRA. If you do not have a business number, you will need to get one.
If you don’t have a business number already, you will have to get one before you can remit the required deductions. You can get a business number in one of the following ways:
- Register for a business number online with the CRA
- Call the CRA at 1-800-959-5525 to get a BN
- Fax or mail Form RC1 to the closest tax centre or tax service office
After you have received your business number, you can open the following types of CRA accounts:
- Payroll deductions account
- GST account
- Corporate tax account
- Import-export account if applicable
After your account has been opened, you should make certain that every new employee provides you with a copy of his or her SIN card and completes a TD1 form within seven days. If a prospective employee has a SIN that begins with the number 9, you cannot hire him or her. The TD1 form will tell you the amount of taxes you should deduct from the employee’s income.
Every pay period, you will need to add your employees’ taxable benefits and then make the correct payroll deductions from their paychecks. Anything that you provide to your employees such as a company car other than money is a taxable benefit. The value of taxable benefits must be added to your employees’ income every pay period before the payroll deductions are made. This is because an employee’s total income determines the amount that will be subject to a source deduction. The taxable benefits may also be subject to EI premiums, CPP contributions, and income tax deductions. You can learn about how to calculate the value of taxable benefits and the types of taxable benefits that are subject to the GST by reading Guide T4130 from the CRA.
After you have completed these steps, you will need to subtract the Canadian payroll deductions from the paychecks of your employees. The three primary government deductions that must be taken include the Canada Pension Plan contributions, the income tax, and the EI premiums. Your company might also have other types of employee deductions to collect for retirement plans, life insurance, extended health benefits, and others.
To determine the amount of income tax that you should deduct from an employee’s pay, you will need to use British Columbia’s table or use the payroll deductions calculator from the CRA. The calculator will also calculate the other types of payroll deductions that must be made in addition to the income tax.
Canada Pension Plan contributions must be deducted for each employee who is younger than 70 but older than 18 who is not disabled and who does not receive a CPP pension. You can find more information about CPP contributions on the CRA’s pension plan page.
Under the law, creditors can petition the court for an order of garnishment when they receive judgments against debtors. These orders allow a percentage of a worker’s pay to be seized to repay the debt that is owed. If your company receives an order of garnishment from a court, you must withhold the required percentage from the employee’s paycheck and remit it directly to the court. You should not send the payment to the creditor. If you do, you will still have to remit the same amount to the court from which the order was issued. A wage garnishment order for debts allows creditors to seize up to 30% of the weekly wages of an employee. The amount may be higher if the garnishment is for child or spousal support. You must comply with wage garnishment orders, and you cannot terminate an employee because of a garnishment. If you violate these rules, your business can face severe penalties.
Payroll Record Keeping
Completing payroll also means that you must keep good records. You are required to maintain separate payroll records for each employee. These records should include the amounts that the employee was paid during each pay period, source deduction records, withholding and income tax records, CPP contribution records, EI records, and other deductions. Maintaining proper records is important for your end-of-year reports. You must also create and maintain records for any changes in pay and employee authorizations.
The record of all of your employees is called the payroll register. It shows the total amounts of wages and salaries for every pay period and the year. If your business has a payroll program, the register will be included within the system. The totals will be used to complete the financial statements for your company.
An individual employee’s payroll calculations over time are his or her earnings record. The earnings record for every employee along with his or her other related documents must be retained during his or her employment.
Benefits of outsourcing your payroll to Ensight Cloud CPA
Payroll is a complex process, and mistakes can subject companies to penalties and problems with employee morale. Because of the time-consuming and complicated nature of payroll, many companies choose to outsource their payroll processes. Partnering with our accounting and bookkeeping professionals for your payroll can help you to ensure the accuracy and timeliness of your payroll for every pay period. We can also help to make your company’s end-of-year reports accurate and ensure that your taxes and remittances are submitted correctly. Contact us today to learn more about getting help with your payroll.