5 Common Payroll Problems and How to Fix Them

It is essential to understand these 5 common payroll problems and how to fix them to ensure your good standing with the audit and with the Canada Revenue Agency (CRA), who are very keen and highly particular with such errors and irregularities.

Are you the one doing your employees’ payroll? Efficient preparation and employing an excellent strategy and system is vital for the smooth operation and success of the business. Payroll preparation is one task that is sensitive and prone to errors, thus utmost care and precision should be exercised in every little detail that you input and provide.

It is essential to understand these 5 common payroll problems and how to fix them to ensure your good standing with the audit and with the Canada Revenue Agency (CRA), who are very keen and highly particular with such errors and irregularities.

 

Classifying Employees and Independent Contractors

 

Generally they all work for your business, however, not all may be considered as employees as there are those that fall under a different classification, which are the independent contractors. This normally includes gig workers, temporary employees and freelancers that you hired to do certain projects and tasks.

Classifying them properly when doing your payroll is vital as each category corresponds to a different or no tax deductions and eligibility of benefits. Otherwise, you will be accounted for some costly fines and penalties, not to mention the stress and load of additional administrative work fixing it.

How to Fix them?

In order to avoid such mistake, you have to be able to identify and classify them from the very beginning, and have to understand the difference between the employee and the independent contractor. Perhaps, the primary difference is that the employee enters into a contract of service while the independent contractor enters into a contract for service.

As an employer, it is your responsibility to deduct Canada Pension Plan contributions, Employment Insurance premiums, and income tax from your employees whereas, you do not have that same obligations with your contractors aside from paying them for the service they rendered for you. They will be the one to file and pay for their own.

 

Discrepancies on the Time Records

Wrong input and recording of time may cause a huge problem when doing the payroll, especially for some businesses that uses paper time cards. Employee salaries are based on the hours worked, hence inefficiency in the data results to wrong computations or either overpayment or underpayment of employees or contractors’ salaries.

Aside from that, this may also mean wrong amount of tax deductions and beneficial taxes, and major audit findings if not addressed immediately.

How to Fix Them?

Make sure to double check on the data to avoid such discrepancies. Employ an efficient time record system to ensure the accuracy of details provided.

 

Managing and Computing for Employee Overtime

 

All Canadian jurisdictions stipulates that an employee should be paid for the hours of worked rendered beyond their company’s standard work day or week. It is normally calculated 1.5 times the regular hourly rate of pay. In some rules, however, like that of New Brunswick, Newfoundland and Labrador, the overtime rate is based on the minimum wage.

There are other conditions following these overtime regulations, as there some classes of occupations and jobs that are not covered. At the same time, there are cases of “averaging agreements” that states the standard of how overtime will be paid.

Thus, computing for the overtime pay can be a daunting task, as you also have to closely monitor the exact number of extra hours worked for each employee. Any difference even on a single hour can already affect the entire computation.

How to Fix Them?

Always check and monitor that everything is recorded accordingly so nothing will be missed. It is important that the rules and policies of the federal law regarding employee’s overtime pay should be conformed on top of everything else to avoid conflict with the CRA.

 

Not Fully Understanding Each of the Payroll Deductions

 

There are several deductions that you will be dealing with when making your employees’ payroll. Accuracy is highly important as any error caused will trigger some strings that follow grave consequences that you have to answer to the CRA. You have to therefore know what and how to determine these deductions and be wary of the common errors when preparing in order to avoid them.

While there are several conditions and rules governing each one, the basics that every employer have to understand regarding what to deduct from its employee’s total earnings includes the income tax, wherein the rates ranges from 15% to 29% depending on the province the business it is operating, employee’s classification, wages and the TD1 form that workers filled out when they were hired.

Other mandatory deductible items are the Canadian Pension Plan (CPP), which employees pay while they are working and all benefits will be received upon retirement after t hey turn 60 years old, and the Employment Insurance (EI).

There are also non-compulsory deductions that may be considered such as child support, group insurance premiums, union dues and RRSP deductions.

How to Fix Them

Because of the underlying consequences for any errors committed, you might need to consider outsourcing your payroll to reliable payroll providers to take this huge load off your shoulders and focus on running the business.

If you are opting to do it yourself, then you have to be very keen and accurate about getting all computations right.

 

Using Unreliable Payroll Software

 

There are basically several different software available to help employers prepare their payroll. It is important to know and understand, though, that not all may work effectively and efficiently for your business. There have been series of payroll problems encountered due to the software being used is not working properly, not built well, or does not match the type of business.

And if this happens, it will be a major problem with your payroll preparation, which could possibly result to inconsistent or late filing to the CRA.

How to Fix Them

To ensure you are using a reliable payroll software, know first all the details and feedback regarding it. Ask questions and do your homework as you cannot risk having any mistakes with your payroll system. It is better to use those that are already tried and tested to be efficient and working excellently by other companies to ensure its reliability and effectiveness.

 

Conclusion

What do you think of these common problems experienced when doing the payroll? We can’t stress enough the importance of accuracy when doing the payroll, thus you have to be aware and cautious of these mistakes in order to avoid them, and if not, you will know how to deal and fix each one of them.

Have you had any similar experience when doing your business payroll? Tell us about it in the comment section below. And please feel free to share if you like this article.

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