Even employers who have the best interests of their workers at heart and do payroll processing by the book sometimes make mistakes and end up paying thousands and even millions in fines because of these errors.
Payroll is one of the most sensitive functions of a business. Even employers who have the best interests of their workers at heart and do payroll processing by the book sometimes make mistakes and end up paying thousands and even millions in fines because of these errors. What exactly are the hidden dangers of payroll?
The Canadian government imposes different types of sanctions on employers who do not fully comply with payroll-related laws. Penalties, interest, and other consequences are the usual sanctions
Problems with deductions, remittances, and reporting can be grounds for prosecution. You can be fined up to $25,000 and/or imprisoned for up to 12 months. Appeals are only granted if it is proven that extraordinary circumstances rendered you unable to fulfill your obligations.
The CRA charges interest on unpaid dues from the day they were due. This interest rate is set by the CRA every three months and is compounded daily. Unpaid penalties are charged interest as well.
Failure to deduct. If you do not deduct the right amounts for CPP or EI, you are responsible for these amounts and will be assessed both your and your employee’s shares. You will be charged interest and penalties for these. The CRA can charge you 10% of the amount that you failed to deduct for CPP, EI, and income tax. This percentage can increase if you commit the same mistake in the same calendar year either intentionally or due to gross negligence.
Failure to deduct the right income tax may result in penalties too. However, this can be rectified by having your employee pay the amount or by deducting more income tax at source.
Failure to remit (on time). The CRA can charge penalties if deductions are remitted late or are not remitted at all. The penalty ranges from 3% to 10%, depending on how many days you were late. A 10% penalty is assessed if no amount is remitted.
These amounts are computed against any unremitted amount over $500. Percentages can be a lot higher in cases of repeat offenses and/or if the failure was committed intentionally or due to gross negligence. You will also be charged for payments that are not processed by your bank for any reason.
Failure to accomplish TD1. TD1 forms need to be submitted by employees within seven days of any change that may affect their personal tax credits. Failure to do so can result in penalties ranging from $100 to $2,500.
Failure to maintain or provide records. The list of books and records that you have to maintain as an employer are specified in the Income Tax Act (subsection 230). You can be imprisoned and/or fined at least $1,000.
Failure to file an information return on time. Each slip is an information return, and filing these slips late can cost you penalties ranging from $100 to $7,500, depending on how many days you were late.
Failure to file information returns online. If you have more than 50 information returns to file for the calendar year, you have to file them online. Otherwise, you will be charged penalties ranging from $250 to $2,500. You are penalized separately for each type of information return.
Failure to obtain employee SIN. You have to get your employees’ SIN within three days of their first working days with you. If they refuse, you should have proof that you attempted to obtain it. Otherwise, you can be penalized at least $100 per head.
Failure to file ROE. A record of employment or ROE has to be issued for insurance purposes if an employee has any interruption in earnings. Failure to issue this can get you fined up to $2,000 and/or jailed for up to six months.
Other grounds. The situations we have listed above are only the most common reasons that can get you fined. There are other cases that the CRA can penalize you for, including failure to pay amounts that are deemed to be held in trust, failure to honor a payment, and others. The CRA has the complete list here.
Payroll processing needs to be done accurately. There is simply no room for error. The smallest mistakes can lead to huge fines, sleepless nights, and bad blood between you and your employees and the government. Therefore, you have to pay attention to it and entrust it to the right people and/or technology.