As a small business owner, you have a lot on your plate. Sales, operations, and customer service are ongoing processes. But one area you absolutely cannot afford to overlook is payroll.
It is not just about writing cheques. It is about compliance, accuracy, timing, and making sure your employees are paid correctly and legally. Unfortunately, many small business owners unknowingly make mistakes that can lead to fines, penalties, or even lawsuits. Are you making these mistakes?
Common Payroll Mistakes
So, let’s talk about the most common payroll blunders and how you can avoid them. Because when it comes to payroll, what you don’t know can hurt you.
1. Misclassifying Workers
One of the most significant and costly mistakes small businesses make is misclassifying employees as independent contractors.
Why does it matter?
If the Canada Revenue Agency (CRA) decides someone you paid as a contractor is an employee, you could owe back taxes, Canadian Pension Plan (CPP) contributions, and Employment Insurance premiums. Not to mention interest and penalties.
Always use the CRA’s guidelines to determine the nature of the working relationship. A good rule of thumb: if you control the work and schedule and provide tools, they’re likely an employee and not a contractor.
2. Missing Tax Filing Deadlines
Late and incorrect tax filing is a nightmare. Your staff relies on the timely receipt of T2 slips by the end of February, and so does the CRA. Any delays can attract penalties. And the CRA doesn’t do grace periods.
Use payroll software or set up reminders to stay ahead. Providing your employees and the CRA with relevant data on time isn’t just courteous; it is a legal requirement.
3. Inaccurate Record Keeping
Think of payroll records as your financial lifeline. The CRA requires employers to maintain accurate and up-to-date records of their employees. This includes timesheets, holidays, overtime, tax forms, employee information, Records of Employment (ROE), and other relevant documents.
If you’re missing documents or if your records are inaccurate, you could face penalties or severe headaches during an audit.
Digitize your records. Utilize cloud-based software that consolidates everything in one place, making it easy to access and update.
4. Incorrect Tax Calculations
This one’s a classic. Whether it’s calculating CPP contributions, EI premiums, or federal and provincial income tax, getting it wrong can be costly. Underpay, and you owe the government. Overpay, and you disrupt your business’s cash flow.
Tax rates and CPP contribution amounts change annually, and it’s your job to stay up to date.
Don’t guess; use reliable payroll software that updates automatically with CRA changes, or consult an accountant before every payroll run.
5. Forgetting to Issue ROEs Promptly
When an employee leaves your company, voluntarily or not, you are legally required to issue a Record of Employment (ROE). This document is essential for employees to access EI benefits. Delaying the ROE or submitting it incorrectly can not only hurt your former employee but also trigger CRA inquiries.
You have five calendar days after the employee’s last day to issue the ROE.
6. Neglecting Overtime Pay
In most provinces, any work exceeding 40-44 hours a week must be compensated with overtime pay. It’s not optional. Yet so many small businesses hope no one notices when overtime hours aren’t paid properly.
Hope isn’t a payroll strategy. Track hours carefully and ensure that overtime is calculated accurately. Ignoring this can lead to employee complaints, legal action, and a damaged reputation.
7. Not Staying Up-to-Date with Labor Laws
Labour laws and CRA guidelines are constantly evolving. If you’re not paying attention, you’re falling behind. From changing minimum wage rates to new reporting requirements, what was compliant last year might get you in trouble today.
8. Failing to Update Employee Information
When an employee moves, their address or bank accounts change, or some events update their tax credits. And you didn’t catch it. Guess what happens next? Direct deposits bounce, T4s are sent to the wrong address, and tax slips are incorrect.
Establish a system to review and confirm employee information at least quarterly. It’ll save you from hours of backtracking and explaining to both employees and the CRA.
9. Doing Payroll Alone
Look, you’re already managing everything from marketing to customer service. Adding complex payroll compliance to your to-do list is risky and, frankly, unnecessary.
Hiring a professional accountant is an investment in peace of mind. You’ll sleep better knowing payroll is being handled accurately and legally.
Payroll may seem like a mundane admin task, but it’s a high-stakes part of running your business. Mistakes aren’t just expensive; they can hurt morale, destroy trust, and attract the wrong kind of attention from the CRA.
Avoiding these common payroll errors isn’t rocket science. It’s about staying informed, using the right tools, and seeking help when needed.
Getting it right from the start is always easier and cheaper than fixing it later.
Contact Glenn Graydon Wright LLP in Oakville to Help You Stay Compliant with Payroll Regulations
Talk to a professional accountant to help you avoid costly payroll mistakes and ensure your business meets all CRA requirements. At Glenn Graydon Wright LLP, our accountants offer services including payroll setup, remittance filing, and CRA audit support. To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting expertise, contact us at 905-845-6633 or connect with us online to schedule an initial consultation.