What Every Small Business Needs to Know about Payroll Tax Compliance

T4 Tax SlipIt’s great to be your own boss, calling your own shots. There’s great satisfaction in pursuing your own dreams and passions. With that comes the responsibility and obligation to abide by certain rules and regulations. As a small business owner, managing finances properly is vital to your long-term success. .

The repercussions of failing to manage your finances can be very significant – especially when you consider the penalties for making mistakes. If you are an employer, for instance, you have to know and follow the Canada Revenue Agency (CRA) rules around payroll so you can collect, report and file payroll taxes properly.

Here’s what every small business needs to know:

1) Are you an employer?

You are an employer if you have employees. But it’s entirely possible to have workers who are not employees, so you need to know the difference between them. The Canada Revenue Agency’s RC4110 – Employee or Self-Employed guide explains the difference.

2) If you are an employer, you need a payroll account number with the Canada Revenue Agency.

If your business already has a business number (BN), all you need to do is add a payroll account to your existing BN. If your business doesn’t have a BN, you will need to register for a BN and a payroll account. It’s not difficult and the CRA website explains how to register for a business number.

3) Forms to be filled when you hire employees and when employees leave your company

When you hire an employee, you need to get their Social Insurance Number (SIN) and have them complete Form TD1, Personal Tax Credits Return, which is used to determine how much tax will be deducted from their employment income. You should keep this on file and ask your employees to submit a new form to you at the start of every year.

When an employee leaves your company (or has any other interruption of earnings), you will need to fill out a Record of Employment.

Using an online payroll service like PaymentEvolution Payroll will make creating and filing these forms fast and easy.

4) You need to deduct the appropriate amounts of CPP (Canada Pension Plan) contributions, EI (Employment Insurance) premiums, and income tax deductions from employees’ pay cheques, as well as calculating your share of CPP and EI for every payroll. 

The CRA Calculating Deductions guide provides the manual details. Using a cloud-based payroll service will greatly simplify these calculations and help you maintain a proper history for reporting purposes.

5) Amounts deducted from employee pay cheques along with your share of CPP contributions and EI premiums need to be remitted to the Canada Revenue Agency, accompanied by the appropriate form.

As due dates vary depending on what type of remitter you are, you’ll want to visit this CRA page for more information. To ensure you remit on time (and avoid some stiff penalties) consider using an electronic payment service to automate these for you.

6) You will need to complete and file CRA information returns annually.

Each year you will need to complete a T4 slip for each employee, and a T4 Summary which you will send in to the Canada Revenue Agency by the end of February, and send a copy of the appropriate T4 slip to each employee.  See the CRA’s T4 – Information for Employers. Modern payroll services offer employee self-service sites like PayChequer.com

7) You must keep adequate records and these must be kept for six years.

“Adequate” means that your records have to “provide enough details to determine all your tax obligations and entitlements”. You also need to keep the original documents to support your records.

8) When you close your business, you must also close your account.

Closing your payroll account means following certain prescribed steps by certain dates – this guide outlines the steps you need to follow when your business stops operating.

Small Business and Payroll – things you should know

Breeze through payrollPayroll – a word that usually increases stress levels for the small business owner. After all, a small business is focused on keeping customers happy, managing staff and finding new clients. And as an entrepreneur, all you really want is a good night’s sleep.

Whether you’re employing one or 50 employees, understanding the concept of payroll can be a difficult for small business owners. Making sure that payroll goes through each and every pay period is a stressful part of being an employer. However, the process is not as simple as making a bank transfer. Navigating the associated Canada Revenue Agency (CRA) paperwork alone can be a maze of uncertainty for a small business employer.

As an example, failing to pay CRA remittances on time can result in automatic penalties ranging from 3 per cent to 10 per cent of funds owed, based on how late the remittance was in calendar days (one to seven or more days). Late payment for a second time, if the result of negligence, can result in a whopping 20-per-cent penalty and even jail-time. So what are the few crucial topics small-business owners need to know to efficiently manage their payroll process?

  1. Understand what is taxable and what isn’t. Nearly everything an employee receives from an employer is considered taxable income. These benefits might include expenses, an allowance, or the use of property, such as a car, laptop, or phone. The value of these employee benefits is based on the out-of-pocket expense an employee would normally incur. Once an employer determines the fair market value, the item can then be included in payroll. An additional calculation may have to be added to account for the GST/HST and PST, which is why this Benefits Chart comes in handy, including all CPP, EI deductions and T4 codes.
  2. Maintain accurate and current employee records. Keeping up-to-date records helps those individuals in the company responsible for processing payroll quickly deal with CRA regulations. When submitting employee T4s for instance, an employer is required to have current SIN numbers and up to date addresses for all employees. When processing Records of Employment (ROEs), accurate information is vital for this process to be as hassle-free as possible. It can also help small business employers avoid the automatic penalties that accompany missing the remittance due date. One overlooked piece of data can easily result in a fine.
  3. Stay on top of employee regulations and standards. Each province and territory has its own labour standards, with overall guidance coming from the CRA. Benefits and additional payments, such as overtime, the calculation of a daily wage during a statutory holiday, and the amount of vacation time to which an employee is legally entitled, all vary depending on provincial labour standards.
  4. Understand the difference between an employee and an independent contractor. Whether someone is an employee of the business, or a contractor – an independent business in their own right working on behalf of the business – can make a big difference to the CRA. For instance, an employee has employment insurance (EI) rights, and an employer must pay income tax and CPP contributions. For most contractors, however, the small business employer has none of those responsibilities. How someone is classified comes down to whether they are in a ‘contract of service’ (employer-employee relationship) or a ‘contract for services’ (business relationship). The CRA can examine the relationship and issue a ruling if there is any doubt.
  5. Stay on top of year end reporting. Year-end reporting is time sensitive and the payroll department should be aware of the dates required to file reports. A T4 summary along with copies of all the individual T4s must be sent to the CRA, and individual T4s must be distributed to each employee. These T4 forms must be delivered no later than Feb. 28 of each year. One of the biggest challenges for an employer is filling out the T4 correctly. Errors are costly.

Sounds like too much information to handle? Understanding the intricacies of the payroll process is indeed complex and simply too overwhelming for most small business owners. However, at PaymentEvolution we’ve designed payroll for small businesses which makes the entire payroll process a breeze. Everything from quick under-5-minute signup to 30 second payruns was created knowing that you’re too busy to manage the complexities. If you’re still doing payroll the old way and want a simpler, more reliable way, register for Payroll by PaymentEvolution.

Everyday payments

Everyday paymentsProcessing payroll and paying your staff electronically has always been super easy with PaymentEvolution. Today, we’re making it even more convenient – you can now pay your staff on any weekday. Payday no longer needs to be on a Friday. If you have a staff member that wants to be paid every Tuesday, no problem!
We’ve enabled everyday electronic payments for everyone. If you don’t have electronic payments yet, you can register and turn it on right away. We’re not increasing any fees for this service – electronic payments remains just 50 cents per transaction. Go ahead – pay your staff any weekday!

Improved Employee Experience – PayChequer

PayChequerIf you’re already familiar with Payroll by PaymentEvolution, then you know how easy and convenient online software makes the payroll process. Innovative technology is something that we at PaymentEvolution pride ourselves on creating. For that reason, we are thrilled to announce the new and improved PayChequer – a highly secure employee payslip service built around the latest mobile technology. PayChequer saves your company from the mundane work of printing payslips and year-end T4s and RL-1s. Your employees can now access this information at any time from their mobile devices – providing a fast friendly user experience. What’s even better is that this effortless payroll and financial cloud technology is included in all PaymentEvolution Payroll plans at no additional cost. If you haven’t already set up your staff to use Paychequer, follow our handy guide. For new employees, you can have the service automatically email them an activation to access PayChequer by setting up company notifications in your payroll options. Go Green now and take PayChequer for a spin at PayChequer.com.

Point of Sale integration from POS2Payroll

POS2Payroll and PaymentEvolution

If your business uses a point of sale system (POS) then you know how critical these are to your business. Most modern POS systems allow staff to log their working hours but then force you to manually re-key this information into your payroll system. Thanks to our friends at POS2Payroll you no longer have to worry about retyping this information. POS2Payroll integrates with your point of sale terminal  to extract employee time data for use in PaymentEvolution payroll. They integrate with a lot of systems including Aloha, Micros 3700, POSiTouch, Squirrel, QSR, Focus POS, PAR, Harbortouch and many more.

Our help article explains how the integration works and getting started is as easy as connecting with the folks at POS2Payroll. If you have a point of sale system, you’ll save time, avoid retyping errors and automate getting your payroll by using POS2Payroll.

How we reached over 7000 clients

PaymentEvolution-PayrollWho doesn’t love to get paid? It’s a basic premise of work and one we’re quite fond of! In fact, we now help over 7000 businesses across Canada and around the world pay their staff. It’s made us one of the largest and most loved payroll and payments services. We make people happy – we pay them. I often get asked how we started the company and what it took to get to where we are. Well, this is our story (it’s an abridged version of a talk I recently gave at a startup event).
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Employee notifications

PayChequerInvitationEmailSetting up new employees? Invite them to see their playslips using our free tool https://PayChequer.com. Now, when you setup employees you can invite them to use PayChequer to manage their pay history online. No more paper payslips or printing year-end tax forms – employees can now find all their personal pay history and T4/RL-1 forms online. If you haven’t already setup your staff to use PayChequer, follow our handy guide. For new employees, you can have the service automatically email them an activation to access PayChequer by setting up company notifications in your payroll options.

Go ahead – set up the notifications today. Your employees will thank you!