In a nutshell, payroll management is all about paying your employees (and the Canadian government!) the right amount at the right time. It sounds utterly simple when put that way, but it is actually a highly complicated process.
This is why so many employers, including some small business owners, choose to just outsource payroll management. However, regardless of whether you do it in-house or by a third party, it is important that you know how it works. In case any of your employees comes knocking on your door with a question (and it will happen), you can at least provide even a general explanation.
Payroll management covers everything about wages and taxes. That means, it is concerned with tracking hours, calculating salaries on the basis of hours worked, and withholding and paying taxes and other pertinent deductions, such as various premiums and contributions.
The Payroll Management Process
First Things First
Payroll management begins the moment you hire an employee. The first thing you have to do as an employer is to open an account with the Canadian Revenue Agency (CRA) using your registered business number. This is the account that will be used to transfer salaries.
Collate the SINs and federal and provincial TD1 forms or personal tax credit returns from your employees because these are needed for the next step.
Calculate Your Employees’ Salaries
To put it simply, total pay is equal to total salary minus total deductions. By total salary, we mean the regular salaries of your employees and all other taxable benefits that each employee is entitled to.
Calculate the Deductions
Find out what deductibles apply to each of your employees each pay cycle and deduct those from their total pay. Take note that deductions are differently calculated depending on the territory or province that your business is located or your employee reports.
The basic deductions are EI, CPP or QPP, and income tax. The great thing about Canada is that there are plenty of helpful resources available online. You can easily see which employees are eligible for which benefit or should be deducted for a certain premium.
Changes in policies or regulations are also quickly published online to guide business owners in adjusting payments. Most importantly, the Canadian government has a handy online calculator that does all of the computation for you. Just make sure to input all information correctly to get accurate figures.
Use the PDOC
You can use that calculator by clicking here. Take note, though, that this payroll deduction online calculator (PDOC) is used “to calculate federal, provincial (except for Quebec), and territorial payroll deductions.”
Remit the Deductions
When remitting payments to the CRA for the first time, you will have to send it by check or money order accompanied with some details about your business, including a notice that you are a new remitter. You also have to include the remittance period that those payments are for. The CRA will regularly send you forms for your subsequent payments.
Do the Reports
Your last step is accomplishing T4 or T4A slips, which are comparable to summaries of the incomes and deductions of your employees. These go with an information return and T4 summary. Finally, make sure to keep all these documents in a well-organized manner in a safe place for at least six years after submission.
Payroll management is one of the most boring and annoying tasks you have to do as an employer. However, it is also one of the most crucial. Make sure to do it correctly and promptly because the smallest errors can have big repercussions in the end.