Preparing for Payroll Year-End: A Guide for Retail and Construction Businesses

Fall is just around the corner, and businesses are gearing up for the season’s changes. This often involves tackling a unique set of challenges, from stocking up on new inventory for the busy months ahead to planning for the slower pace of winter.

But what most businesses have in common at this time of year is the looming payroll year-end and administration of T4 slips for their staff. Ensuring payroll accuracy is essential to avoid costly mistakes and maintain employee trust.

Year-end payroll can be complicated, but getting ahead of it ensures a smoother transition into the new year and keeps your business compliant with CRA regulations. Let’s dive into how you can make this process seamless.

The Importance of Year-End Payroll Preparation

Getting your payroll in order before year-end is something every business should prioritize, especially in industries like retail and construction where regulations are strict. Taking the time to prepare ensures you’re compliant and prevents issues down the line. Payroll mistakes, whether it’s a missed deduction or an error in earnings, can result in penalties, wasted time correcting them, and even a dip in employee morale.

T4 slips are the forms that summarize each employee’s earnings and deductions for the year, and they’re not just important for compliance—they’re what your employees need to file their taxes. Missing that deadline or submitting incorrect information can lead to penalties and create unnecessary stress for you and your team. This is because fixing T4 errors can be time-consuming and costly, and in some cases, it could even trigger a CRA audit—a situation every business wants to avoid.

Aside from that, accurate payroll builds trust with your team. Employees expect their earnings and deductions to be reported correctly, and mistakes can cause unnecessary friction. Luckily, taking the time now to audit your payroll and get things in order will help you stay on top of these things. Let’s break down how best to do it.

Auditing Your Payroll: The First Step

The first step in preparing for payroll year-end is conducting a thorough internal payroll audit. Before issuing T4 slips, it’s important to carefully review all payroll records to catch any errors. Even small mistakes, like incorrect earnings or missed deductions, can have a big impact. Besides the fact that these errors can lead to costly corrections and potential penalties, they can also affect employee morale in a negative way.

No one likes to find errors on their pay stubs, and if discrepancies make their way onto T4 slips, it could disrupt their tax filing process, which will create frustration and undermine their trust in your company.

That’s why an audit helps ensure that everything from overtime pay to benefits deductions is accounted for correctly. By addressing any inconsistencies early, you save time and avoid scrambling to fix problems at the last minute. Plus, an accurate audit streamlines the entire year-end process, making the issuance of T4 slips much smoother for you and your employees. When you start with this step, it helps ensure your payroll is accurate, compliant, and ready for the next phase.

Key Payroll Checks to Perform

A bookkeeper performing the key payroll checks

Now, let’s talk about the key payroll checks you need to perform.

Verify CRA Payroll Account Remittances

The first one you need to check is your payroll account remittances. Payroll account remittances refer to the payments you make to the Canada Revenue Agency (CRA) for employee deductions such as income tax, CPP (Canada Pension Plan), and EI (Employment Insurance) contributions. This step matters because accurate remittances are crucial for compliance and avoiding potential penalties. If your records don’t match what the CRA has, it could lead to costly fines or issues with your tax filings.

To do this, start by comparing the amounts you’ve remitted, as shown on your bank statements or remittance forms, with your internal payroll records. Make sure everything aligns perfectly to ensure you’re up-to-date.

On the other hand, you can also consider using payroll software. These tools can automate tracking and generate detailed reports, making it easier to spot any discrepancies and ensure your remittances are accurate in no time, without the hassle.

Employees Turning 18 or 70

Next, pay special attention to employees who will turn 18 or 70 during the year, as these age milestones significantly affect CPP (Canada Pension Plan) deductions. When an employee reaches 18, it becomes mandatory to deduct CPP from your employee and remit it, along with the employer portion, to the CRA. On the other hand, employees who turn 70 stop contributing to CPP, provided they continue working.

It’s important to adjust your payroll settings for these changes to ensure that contributions are accurate and in compliance with CRA rules and regulations. For employees who just turned 18, this adjustment means adding CPP deductions to their paychecks, while for those who reached 70, it involves stopping these deductions. Keeping track of these changes prevents errors on T4 slips and helps maintain accurate records. Attention to these details ensures that you meet legal requirements and avoid potential issues with employee contributions.

Group Benefits and Retirement Savings Plans

Do you have any benefit plans or retirement savings plans in place? If you do, have these been accounted for in your payroll yet? If you have benefit plans like health insurance, ensure that employee deductions for these premiums are accurately recorded. Deductions from employees should be summarized in Box 85 on each employee’s T4 slip.

Similarly, if you provide a retirement savings plan, such as a pension plan, make sure that all pension adjustments are correctly reported. Accurate reporting helps avoid discrepancies that could lead to issues with the CRA or cause confusion for your employees.

By carefully checking these entries, you ensure that all benefits and retirement contributions are properly accounted for, maintaining transparency and compliance. This attention to detail helps make sure that your employees’ records are correct and their benefits are managed smoothly as you close out the year.

Employee Terminations

An employee packing up his things

Have you had any terminations during the year? If so, make sure you remember to issue T4 slips for these employees as well. Even if an employee left the company early in the year and was only paid once, you still must issue a T4 slip.

Why is this important? Each T4 slip summarizes the employee’s earnings and deductions for the year, which they need for their personal tax returns. That’s why neglecting to provide a T4, even for employees who were with you briefly, can lead to complications for both the former employee and your company.

So, when preparing your year-end payroll, ensure that all terminated employees are included in your T4 filings. This helps maintain accurate records and keeps your business in good standing with the CRA while also making sure your former employees receive the necessary documentation for their taxes.

Additional Considerations for Construction and Retail Businesses

Because every retail or construction business is unique, payroll preparation still needs to be tailored to address every business’s specific industry needs. For retail businesses, managing seasonal hires and fluctuating payrolls during busy holiday seasons is key. Retailers often experience an increase in staff during peak times, so keeping track of these temporary employees and their earnings can be challenging. Ensure that their wages, benefits, and any special holiday pay are accurately recorded to avoid issues at year-end.

In the construction industry, the situation can be quite different. Construction businesses often deal with employees working across various locations or on different projects. This can complicate payroll as you need to manage different pay rates, project-based wages, and possibly even overtime calculations. Additionally, seasonal layoffs are common in construction, so it’s important to keep accurate records for employees who may be temporarily out of work.
Addressing these industry-specific considerations helps streamline your year-end payroll process, ensuring that all aspects are managed accurately and efficiently.

To Sum It All Up

Payroll is one of the most highly regulated spaces in Canada, and preparing for year-end can be complex. It requires getting all the details right, from checking CRA remittances to managing seasonal hires and project-based wages, to avoid compliance issues and keep your employees happy. Remember, every industry, whether retail or construction, has its unique set of challenges, and tackling these requires a keen eye for detail.

If managing all these payroll intricacies feels overwhelming, consider outsourcing or reaching out to payroll experts like us at eGO Bookkeeping! We offer a “payroll only” service tailored to businesses like yours. This means you can continue handling your bookkeeping while we take care of your payroll needs. Our goal is to streamline your year-end process, making it as smooth and stress-free as possible for you. Contact us today to ensure your payroll is accurate and compliant so you can focus on running your business with confidence.