Canadian employers know that, in addition to holiday parties, the end of the year brings a little song and dance called “year-end.” Not sure what that entails? Read on to find out.
At the end of the year, Canadian small business owners have to reconcile and report all payroll contributions and withholdings from the calendar year.
But you’ll want to make sure your records match those of the relevant tax authority. If an amount doesn’t match, you’ll want to figure out what’s happening and fix it.
If you don’t reconcile these amounts, expect a love letter in the form of an audit, fine, PIER review, or all of the above. Friends forgive mistakes. Tax authorities, not so much.
Then use these totals to complete T4s (or a Relevé 1 for workers in Québec) and summary reports for contractors.
What amounts do I have to reconcile for my payroll year-end?
Reconcile your totals for federal and provincial/territorial income tax, Employment Insurance (EI), and the Canada Pension Plan (CPP/QPP). These amounts must match the Canada Revenue Agency’s (CRA) records.
If you pay employees in a province or territory with an employer health tax (EHT), records must match each appropriate Ministry of Finance.
If you’re in an industry that requires workers’ compensation, your amounts need to agree with those of the provincial or territorial board.
How to issue and file T4s
Employees are due T4s, or Statements of Remuneration Paid, on the last business day of February. Sounds simple enough, right? But you can’t mail employees their T4s unless you have written approval. Yep, that’s right. And email isn’t an option either. The most secure method is providing T4s via an online employee portal.
Employers also need to provide the CRA’s copy of each T4 along with a summary report. In some cases, a bookkeeper or accountant or your payroll software can do this for you.
If you’re flying solo and rocking payroll manually, you can forward T4s to the CRA on your own. If you have more than 50 T4s, you have to file them electronically.
Year-end starts at the beginning of the year
The key to avoiding year-end mistakes is in the details. For example, at the start of each year, you should verify a few things.
- Tax rates: Federal and provincial/territorial income tax, EI, CPP, workers’ compensation, Employer Health Tax, and any other required employer tax.
- Remittance schedule: Most Canadian employers are monthly remitters.
- Statutory holidays: The days paid in each province to each employee.
- Business identification and program numbers: Just one missing number could mean the CRA can’t tie your payments to your business.
- Employee information: SINs, addresses, first and last names, and updated banking information.
- Employee classifications: Make sure you don’t have employees listed as contractors or vice versa.
Payroll includes a lot of basic calculations that repeat each time you run payroll. If one number is wrong, the mistake will continue to repeat itself, compounding the problem.
Adding hours and wages into the mix
If you have hourly employees, you have schedules and timesheets. The administrative burden can take a toll on your time, money, and sanity. For instance, U.S. employers say they have to correct errors on 80% of employee timesheets. (While this is a U.S. statistic, we have a lot in common with our neighbors to the South.) So a time and attendance tool alongside your payroll software can further reduce time spent on year-end processes.
In addition to preventing time fraud and overseeing labor costs, automation also helps prevent unwelcome surprises at the end of the year. Approval for a shiny new tablet: brilliant! Finding out your hours have been off for the past six months: dismal.
Michelle Mire, content and relationship manager at Wagepoint, enjoys simplifying complex payroll topics and generating articles with actionable advice for small businesses and startups. When not at the keyboard, she enjoys chocolate, running, and quality television (not always in that order).