In Canada, employers are required by the government to help them with the collection of federal and provincial income taxes. All employers must deduct certain taxes directly from their employee’s pay and remit those funds to the Canadian Revenue Agency (CRA). This process is known as payroll remittance.
Payroll remittance can be tedious and time-consuming. However, it’s extremely important for the health and well-being of a business’s payroll management. Therefore, business owners must clearly understand their role and responsibility for payroll remittance. Those that don’t may find themselves paying significant fines and penalties to the CRA.
Let’s take a look at the basics of payroll remittance in Canada and help your business steer clear of paying costly penalties due to clerical errors.
What is payroll remittance?
In short, payroll remittance is the process by which employers withhold certain taxes from their employees’ pay and submit those funds to the CRA. The most common deductions include:
- Federal income tax
- Provincial income tax
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
What are a Business’s Payroll Remittance Responsibilities?
As an employer in Canada, your primary responsibilities for payroll remittance are to:
- Register for a payroll account with CRA.
- Set up new and existing employees.
- Calculate deductions and contributions.
- Withhold the correct tax amounts from your employee’s pay.
- Submit those funds to the CRA on time.
- File your year-end payroll forms on time.
6 Common Payroll Remittance Errors
Now that we’ve established payroll remittance basics, let’s look at some of the most common payroll errors employers make. It’s important for employers to know what to watchout for in order to prevent payroll remittance errors from occurring.
- Not Registering for a Payroll Account
- Incorrectly Setting Up Employees
- Not Calculating Deductions & Contributions Correctly
- Withholding Incorrect Tax Amounts from Employees
- Not Submitting Funds to the CRA on Time
- Not Filing Year-End Payroll Forms on Time
CRA Penalties for Payroll Remittances Errors
The penalties for payroll remittance errors are very real and can be costly. To avoid paying penalties and interest charges due to mistakes in payroll remittance, businesses may want to hire outside help and let the experts take care of this critical piece of the business.
Missed Payment Deadline
When the payroll remittances are submitted late (or not at all) the CRA will charge interest on the owing amount. The amount of interest charged depends on how long the balance is outstanding. The longer a business owner takes to submit funds, the greater the interest that will be applied to the debt.
If payroll remittance funds are submitted late, the amount of interest charged by the CRA is:
- 3% if the amount is one to three days late.
- 5% if it is four or five days late.
- 7% if it is six or seven days late.
- 10% if it is more than seven days late, or if no amount is remitted.
- 20% if this is the second or subsequent time you are assessed this penalty in a calendar year, if the failures were made knowingly or under circumstances of gross negligence.
Failure to Deduct Penalty
Businesses that fail to deduct taxes from their employee’s wages should expect to pay 10% interest on all the monies owing. However, the offense occurs a second time, the interest applied to the owed amount will be 20%.
Penalty for Inaccurate Deductions
When a business makes a mistake in deducting taxes from their employee’s earnings, this may be viewed as a “failure to deduct” by the CRA. If an assessment by the federal tax authorities determines the errors meet the “failure to deduct” criteria, they will be required to pay the amount owing as well as the accrued interest charges.
Note: This list is not exhaustive of the potential penalties businesses may face if they make errors in their payroll remittance’s. To learn more about penalties, visit the CRA website or contact a professional payroll manager.
Benefits of an Error-Free Payroll Remittance Process
Aside from avoiding costly penalties and interest charges, there are several benefits of ensuring payroll remittances are completed accurately and on time.
For instance, when businesses have an efficient payroll system, they can rest assured that payroll will be completed error-free and on time. This gives business owners the peace of mind knowing that their payroll is in good hands and one less thing they need to worry about.
Another benefit of having accurate payroll remittances is that it helps businesses stay compliant with employment standards. If the payroll process is not completed accurately, businesses may find themselves in hot water with the government for failing to meet minimum wage requirements or other employment standards.
Finally, by ensuring payroll is completed accurately, businesses can avoid damaging their reputation. If payroll errors are made and employees do not receive their wages on time, this can lead to unhappy employees who may spread word of the payroll mishap, which can damage the business’s reputation.
How to Determine Payroll Deduction Amounts
The amount of taxes deducted from your employee’s earnings will depend on several factors. Some of these factors include:
- employment type,
- the province the employee resides in,
- the employee’s annual earnings,
- and if there are any unique deductions, such as union dues.
Employers must follow the CRA’s payroll deduction formulas when determining the amount of earnings to withhold from an employee’s pay. There is also an online calculator employers can use to assess deduction amounts. However, it should be noted these formulas change regularly; anyone involved in the payroll remittance process should always check the CRA website for the latest formulas when calculating tax deductions.
Additionally, the use of the online calculator does not guarantee an error-free payroll remittance filing.
Those who rely solely on the CRAs online tool will incur the same penalties applied as everyone else if a mistake is found in their remittance documents. To avoid this, consider connecting with payroll remittance professionals; they can be of great help to business owners and help to ensure accurate and timely payroll deductions.
Payroll Remittance Deadlines
To avoid penalties, deductions must be remitted on time, in accordance with the business’s determined remitting frequency. In Canada, there are four different types of remittance frequency:
- Regular (monthly)
- Threshold 1 Accelerated (bi-weekly)
- Threshold 2 Accelerated (weekly)
A business’s remitter type is based on their average monthly withholding amount (AMWHA) from two calendar years ago.
The following chart summarizes payroll remittance deadlines:
Payroll Remittance Deadlines in Canada
|Remittance Type||Average Monthly |
|Remitting Period||Remittance Deadlines|
|Quarterly||$0.00 to $2,999.99 AND a perfect compliance history||Every calendar quarter.|
Quarter 1: Jan 1 – Mar 30Quarter 2: Apr 1 – June 30Quarter 3: July 1 – Sept 30Quarter 4: Oct 1 – Dec 31
|15 days after the end of each quarter.Quarter 1: Apr 15Quarter 2: Jul 15Quarter 3: Oct 15Quarter 4: Jan 15|
|Regular (monthly)||$0.00 to $24,999.99||Every calender month.||15 days after the end of each calendar month|
|Threshold 1 Accelerated (bi-weekly)||$25,000.00 to $99,999.99||2 periods each month. |
Period 1:1st to 15th Period 2: 16th to end of the month
|Ten days after payroll. |
For period 1, remittance is due the 25th of the month. For period 2, remittance is due on the 10th of the following month.
|Threshold 2 Accelerated(weekly)||$100,000.00 or more||4 periods each month.|
Period 1: 1st – 7thPeriod 2: 8th – 14thPeriod 3 15th – 21stPeriod 4: 22nd – last day of the month
|3 business days after payroll.|
Efficient Payroll Management with Source Online Bookkeeping
Payroll remittance is crucial for businesses to ensure accurate and timely deductions from employee paychecks. While the CRA offers an online calculator, it is not always accurate, so relying solely on this tool can lead to penalties. Consider working with payroll professionals at Source Online Bookkeeping to avoid mistakes and ensure a smooth payroll process. We can help you navigate Canada’s complex payroll deduction formulas and prevent costly errors from occurring.