In this article we summarize the Top 10 Mistakes Accountants Make Running Payroll.
Payroll mistakes can have a major impact on a business from fines and penalties, personal director liability, to damage to reputation and frustrated employees. A quarter of all workers have had paycheck errors and 49% of workers will begin a new job search after two pay cheque errors(According to a survey from The Workforce Institute at Kronos). However, even with such high risk, payroll is often overlooked as a key responsibility in an organization. As such this burden falls to busy individuals who wear multiple hats such as an accountant, a human resource manager or a financial manager. Sound familiar?
Why do accountants and other professionals run payroll?
Accountants, admins, office managers, HR managers and financial managers typically try to run payroll internally because their supervisor expects them to know how to. They do this, without understanding that these professionals were never trained to do so. CPA Ontario’s curriculum does not cover anything payroll related! The CHRP (Human Resource) designation focuses on the management of HR, not payroll. Undergraduate programs typically don’t cover payroll processing either. When payroll is not your specialty it can easily become overwhelming and stressful. It seems straightforward enough at the start but what happens when the sheets hit the fan? You’ve got no one to ask… It can be a very isolating thing to not know how to do something that carries so much risk, penalties while having no one to turn when there are issues.
Common training professionals need to avoid mistakes running payroll
There are various payroll courses people can take to learn the basics but the most widely recognized is the Payroll Compliance Practitioner (PCP) designation offered through the National Payroll Institute. This program generally takes 1 – 2 years to complete and is a good place to start to gain essential compliance knowledge. To maintain your PCP designation you must keep current by completing 14 hours of training annually. If you are responsible for payroll at your organization it is highly recommended that you complete the PCP designation. That level of payroll knowledge is required even for a payroll of 5 employees.
It typically does not make sense to have an employee do this training and for a company to carry the risk of non-compliance. That’s why a third-party payroll provider is usually hired by experienced small organization leaders. This is why we decided to discuss the top 10 mistakes accountants make running payroll.
Below are some common mistakes, errors and issues that accountants make when running payroll. We have seen these easy mistakes to make but are also easy to avoid, if you know what to look for. So here we go, Top 10 Mistakes Accountants Make Running Payroll:
1. Missing a Deadline
Have you ever paid payroll 1 day late? It’s awful! Employees are scrambling and emailing you! CRA charges you a 10% penalty even 1 day late(On a $10,000 payroll that’s a $1,000 penalty!). Changing deadlines due to bank closures or being overwhelmed can mean no one is getting paid on time. Missing a remittance deadline can mean substantial penalties and interest(10% of remittance) from the CRA. Remittance deadlines can change annually and it is your responsibility to update your payroll system.
2. Records of Employment (ROEs)
- When an employee leaves, you are required to submit a ROE within 5 calendar days after the pay period. Have you ever missed that 5 day deadline? Delays and errors in ROE submission could delay your employees EI payments. These are also a hassle to amend! HOT TIP – Register to file your ROEs electronically through ROE web. That way, it’s easy to fix any mistake on your payroll platform. Errors on paper ROEs are much more common.
3. Lack of Record Keeping
- The CRA requires you to keep your payroll records for at least 6 years. Ensuring your records are organized and up to date is incredibly important in the event of an audit. Employee may also ask questions too about your records. Typically employee’s do not review their pay stubs each period, however rest assured they will eventually look. And when they do, they will have questions. Keeping organized records of employee changes will ensure quick and thorough responses for employees.
4. Vacation Pay
- A common pain point for business owners is tracking and maintaining vacation records. We get it! It’s annoying! Inaccurate records can easily lead to costly overpayment errors and employee dissatisfaction. It is important to develop clear processes for employee time off requests to ensure your records are up to date.
5. Calculating Overtime and Holiday Pay
- Each province sets their own rules for overtime and statutory holiday pay. Overtime rules are also specific based on certain industries and provinces. It’s especially important if your business operates in multiple provinces. The rules keep changing all the time. Manual overtime and stat holiday calculations are very time consuming. You need a good process to minimize errors and increase efficiency. Lots of businesses just try and make a calculation and hope the employee does not complain. That’s NOT the right approach!
6. Overpaying employees
- A costly error is overpaying an employee, whether it be by a data entry error or miscalculation. If you’ve overpaid an employee, you’ll likely need permission to recoup the funds. Then you need to adjust your remittances and their year to date earnings. That’s if you catch it…. Because the employee may not say anything and that costs you money!
7. Taxable benefits
- Certain company paid benefits are taxable to an employee and you need to apply taxes against those benefits. Maintaining your benefits records to reflect changes in salary or hours worked is important. This ensures your employees have the proper coverage in the event they need to access their benefits. It is equally important to understand which benefits are taxable. Sometimes it’s actually better to have them employee-paid. Some provinces require you to include sales tax in the value of the benefit. It could mean the difference between a tax-free life insurance payout or fully taxed payout!
8. Pensionable and Insurable Earnings Review (PIER)
- Once your T4s are filed, the CRA may issue a PIER assessment. They do this if they do not agree with the CPP and/or EI deductions reported on your T4 slips. It is important to perform a self-review before you process your T4s each year. You can often reconcile your payroll account before filing T4s. This mitigates the risk of receiving a PIER report from the CRA. If you do receive a PIER it is important to investigate the cause and respond as soon as possible. CRA audits suck! Specially the payroll one! If you don’t respond thoroughly they will apply interest on the outstanding amounts owed. In fact, payroll audits are one of the most stressful and thorough audits performed by the CRA. Avoid the issue if you can!
9. Worksafe- WCB, WSIB, WSCC
- Each province mandates their own worksafe program, reporting deadlines and insurable earnings. These programs can be a lot to keep up with if you operate out multiple provinces! Ensuring you are compliant is important to ensure you can provide clearance certificates. These may be required from vendors/customers and ensures the business is covered in the unfortunate event of an employee injury.
10. EHT
- As with many of the above items, EHT is also provincially mandated with changing rules and requirements. Make sure your company is registered and compliant.
Bonus: Unforeseen Circumstances
- Covid-19 Pandemic put a lot of strain on payroll practitioners. Mass layoffs, increase in ROEs, wage subsidies and changes to T4 reporting added complexity to the standard payroll processing. Many companies are still dealing with the effects of the 10% wage subsidy and the improper filing of the PD27.
As simple as your payroll may seem, it can easily become complicated and cumbersome. Payroll is nice and smooth 95% of the time, but when that 5% hits it becomes a world of trouble. Ensuring you have a qualified payroll practitioner to assist is a great first step to ensuring you are on the right track. This will now help you avoid the top 10 mistakes accountants make running payroll!
