3 Common Payroll Mistakes and How to Avoid Them

By admin, January 27, 2018

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A smooth payroll system is important to keep a business on track. The absence of a proper payroll accounting could lead to unsatisfied employees, low productivity and loss of important human resources. When the business is in its initial phase, especially small ones, payroll mistakes are common.

Payroll mistakes can prove to be costly for the business and can affect it both financially and legally, thus hampering its image and growth. If you don’t want this to happen to you, then identify those errors and prevent them. To know more, go through this list of 3 common payroll mistakes that small businesses generally make and how to avoid them.

1) Improper Classification of Employees

Misclassification of workers, whether permanent or contractual, is a common payroll mistake. If the contractual worker you have hired is considered as an employee by the Canada Revenue Authority (CRA), then it can land you in trouble as you’ll be subject to penalties and held liable for unpaid taxes. To avoid this, make sure that you classify your workers properly and determine the nature of the relationship you have with them. Take the ‘four-point test’ to classify the nature of employment before hiring.

2) Missing or Late Deductions

As per the rules of the CRA, the employers need to make certain payroll deductions from the employees’ salaries. These deductions include income taxes, employment insurance (EI) premiums and contributions towards Canada Pension Plan (CPP). If you fail to remit these deductions from the paycheques, forgot to pay your contributions towards CPP and EI and/or file the information forms late, then you have to pay the penalties for non-compliance of Canadian payroll deductions. You can avoid this by creating a payroll schedule for each year and deducting the amounts accordingly. You can also use the help of an outsourcing company to handle your payroll process.

3) Wrong Calculation of Taxable Income

Many employers pay certain expenses such as travelling expenses, telephone expenses, subsidised housing, etc., to its employees other than their salaries. These expenses are sometimes considered as taxable benefits by the CRA and should be added to taxable income. However, many employers don’t record these employment benefits in taxable income to save on tax returns from both the ends (employer and employees). This leads to penalties and can land you in trouble in the future. To avoid this, make sure that all expenses that fall into the category of taxable benefits should be reported and that taxable income is recorded correctly. You can hire a bookkeeper to maintain the records properly.

If you’re a small business and are unintentionally making these payroll mistakes, then it is time to wake up. These errors can prove costly in the long run and lead to both legal and financial consequences. Check your records and rectify the errors to avoid issues in the future. If you don’t have proper information about payroll process, then click here to know more.