Payroll Mistakes to Avoid
Posted On: 27/06/21 - 0

Payroll Mistakes In Your Small Business

Preparing payroll is an essential task for any small or mid-size business. When preparing payroll, it might feel like the process is simple. But actually a lot is involved to avoid payroll mistakes. Properly managing your payroll is very critical to the success or downfall of any business. We strongly encourage you to seek out the services of a payroll processing company and let the professionals handle it. If you choose to do it yourself and there is an error in processing, this could have a negative impact on your employees. If it happens more than once, there is the potential of losing a very good employee as a consequence. Also, if payroll remittances are not provided to the CRA on time, there are also late filing penalties which can add up very quick and become costly.

If you are choosing to do your own payroll, what should you be aware of?

1) Classifying Workers Properly

There are two kinds of workers that a firm hires. There are sub-contractors who are not on your payroll and then there are the permanent employees that are. Be sure to know the difference. Mixing up sub-contractors and employees in your business payroll could be a costly mistake. It is up to the sub-contractor to report the tax deductions to the CRA. When you conduct an employer classification always make sure that you have your contractors on a separate list from the employee list. There is also a form that the CRA provides for you when you do hire sub contractors (RC4110). This form protects both you and the sub-contractor at tax time.

2) Understanding Different Pay Structures

Differentiating between employees when you’re preparing payrolls is crucial as not all the employees are likely to have the same benefits, commissions and pay structures. You may have both salaried and hourly employees at the same company. You may also be tracking overtime wages if employees are working more than 40 hours a week. In addition to this, you may have employees on a base salary plus commission.  It is very important to have a very detailed process to ensure all employees are paid fairly, on time with no issues.

3) Miscalculating Overtime Wages Which Cause Payroll Mistakes

Salary that you pay to your employees is different than overtime wages. Calculating overtime wages accurately is necessary because if you don’t pay proper overtime wages it may become an issue for you when payroll is processed. There could be penalties and interest that are applied if not done correctly. According to the Canadian laws regarding overtime wages, if an employee works more than eight hours a day or more than 40 hours a week, overtime payments will be 1.5 times more than the actual per-hour pay.  This must be calculated separately from the basic salary that you owe them.

4) Paying Wrong Tax Rates Cause Payroll Errors

You must deduct the proper tax rates and other remittances off of your employees pay check. Tax rates fluctuate according to economic and political situations. The tax rates that you are paying your employee can change. You need to be informed on all current tax and payroll deduction rates as regulated by the CRA. Back taxing an employee because you were misinformed about current tax rates can be a costly mistake. Some of the payroll deductions that you must deduct from your employees wages are C.P.P., E.I., and income tax. Always know about changing tax rates in your business area.

5) On Time, Every Time Payrolls

Preparation of business payroll must be done regularly and on time. Your employees and their families depend on timely paychecks. Not having paychecks processed on time will negatively  impact your employees which will negatively impact your business and your customers.

If you are thinking of outsourcing payroll and looking for a cost effective service, please call Padgett Business Services N.W. at 780-482-7297. Ask for Cheryl.

12203-107 Avenue.
Edmonton, Alberta.
T5M 1Y9

Call us:
780.482.7297

cheryl@padgettnw.com