This June, the Canadian Payroll Association identified the three most costly payroll mistakes made by organizations. Are you making any of these?
#1. Miscalculating taxable employment income.
Many employers do not report personal and living expenses paid for by the employer as taxable employment income. However, unless the employee falls under a specific exemption, these amounts are considered taxable income.
In addition, where an employee is provided free or subsidized housing, there is a taxable benefit to the employee equal to the fair market value (FMV) less any amount charged to the employee.
Another area worthy of attention is regarding amounts other than base salary. Amounts such as bonuses, commissions, tips or gratuities, vacation pay, certain honorariums and flat-rate vehicle allowances must be included as part of the employee’s taxable employment income.
#2. Reporting taxable benefits only at the end of the year.
Use caution when assessing taxable benefits, such as employer-provided life insurance. Schedule the applicable source deduction remittances according to the appropriate payroll schedule, and be absolutely certain that you are calculating the actual value of the benefit, including any related taxes.
Otherwise, the employee may face income tax liabilities when they file their personal income tax return and the employer could face non-compliance penalties and subsequent audits from Canada Revenue Agency (CRA).
#3. Not remitting source deductions on time.
Due dates vary depending on the type of remitter you are, which is determined by the government based on your average monthly withholding amount from two calendar years ago.
As a best practice, payroll practitioners 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.
CRA penalties ranging from 3% to 15% may be applied if you fail to pay or remit deductions by the prescribed deadlines.
To help payroll practitioners stay up-to-date with legislative and administrative compliance requirements, the Canadian Payroll Association offers professional development seminars at locations across Canada throughout the year. Among the more than 20 seminars offered are Learning Payroll I, Learning Payroll II, Payroll Administration in Canada, Employment Standards and Taxable Benefits and Allowances, all of which provide essential information and training to help avoid common payroll mistakes. Seminars are open to both Association members and non-members.
This is an excerpt from our Payroll Newsletter, the AccSys Payroll Quarterly. You can see back issues and subscribe here.