Small businesses often don’t do a very good job of payroll. They file remittances late, make mistakes and – as a result – invite payroll audits.
For example, if your annual T4 summary shows an amount owing (or recoverable) CRA’s payroll reviewers may suspect problems and launch a ‘PIER’ Review (Pensionable and Insurable Earnings Review). To be clear the CRA (“Canada Revenue Agency”) takes payroll very seriously. Source deductions (i.e. the tax deductions you make from your employees’ paycheques) are considered money held ‘in trust’ on behalf your employees.
Where “SR&ED” or IRAP incentives are relevant for your company, particular care should be taken with the payroll function.
While any small business can do their own payroll, it requires that sufficient resources are allocated to the function. Most small bookkeeping firms can handle payroll compliance issues quite well – and at a reasonable cost. However, as the number of employees increases, small companies often outsource payroll to payroll specialists (eg. ADP, Ceridien, Desjardins or Payworks).
Recently one of my startup clients used a local Vancouver company RiseHR to handle their payroll. The results seemed good and the cost very reasonable. Note that using a 3rd party payroll service doesn’t eliminate the risk. In many cases the funds for your recurring payroll may often be withdrawn from your bank in advance of the issuing of the payroll cheques to employees and source deductions to the CRA.
This shouldn’t be a problem for most established payroll specialists. However if the service provider gets in trouble, your company is still liable to pay your employees and the CRA.
It is fairly straightforward to use the CRA’s own Payroll Deductions Online Calculator – provided you actually keep track of the detail surrounding payroll. If you choose that route you may need help filing your annual T4s and T4 summaries. For early stage companies with 3 or 4 employees this isn’t difficult.
LEAN ACCOUNTING for Startups will include a demo on how to use the CRA’s Payroll Deductions Online Calculator.