5 Easy Fixes for Common Payroll Errors

For most businesses, payroll is a huge expense. While businesses in the service industry generally have higher payroll costs, it's fair to assume that 20% to 30% of your gross revenue will be spent on payroll. It's important to be precise and accurate whenever you're dealing with such a huge chunk of money. Consequences for late payments, missed deductions, and more can add up and eat into your business' bottom line. Here are some common payroll errors and easy fixes to help you get the most out of your payroll.

1.      Remit Your Payroll on Time

Missing deadlines for payroll remittances to the CRA is a costly mistake that's commonly made. The CRA can fine you 10% of the total of the late remittance for a first offense and 20% for a second offense in the same calendar year. The later you are, the more interest you are charged.

Although it's costly, it's easy for a business to lose track or forget to file payroll remittances on time. Outsourcing payroll is one simple way to avoid these late penalties.

2.      Know if a Person is an Employee or a Contractor

You can get into trouble if you pay employees as if they are contractors, especially if you're audited by the CRA and they determine that the arrangement is more like an employer/employee relationship. If you classify the relationship incorrectly, you could end up being liable for the CPP and EI owing on whatever amount was paid to the person. Visit the CRA's Employers' Guide to learn more and ensure you're classifying the people who do work for you correctly.

3.      Deduct CPP, EI and Income Tax from Overtime Pay

If you're paying employees overtime, you still have to deduct CPP, EI and income tax from that overtime pay. The way you should pay overtime depends on the pay period. Whether the amount owed is paid in the same pay period it was earned or paid in a later pay period will depend on how you pay it and what deductions you make. Talk to your accountant of visit the CRA's Employers' Guide to ensure you're paying overtime correctly.

4.      Pay CPP on Commission

In some situations, you may pay an employee commission after they sell something, which can happen irregularly. In this case, to determine the maximum CPP contribution amount, you have to prorate the annual basic exemption amount for CPP for the number of days in the year between the commission payments. Otherwise, you may pay CPP incorrectly and be stuck making up the difference later on.

5.      Ensure You've Got the Cash for Payroll

Let's face it. Payroll can put a huge strain on your cash flow. Talk to J D Factors about invoice factoring, which is a great solution to ensure you always have the cash available to pay your people on time.

Correcting these costly payroll errors will help you avoid having to pay more than you need to. With your payroll under control your cash flow will be too, which is a critical part of a strong, healthy and growing business. Give the team at J D Factors a call for more cash flow tips!