Year-end Payroll Process: Ensuring Your Employees Have Accurate T4’s
Does this sound familiar? The holiday season is over which, as a business owner, means stress. Nevermind the gift-buying, meal-organizing holiday chaos that everyone has to deal with. You also need to ensure that your business is in order and all your employees are properly cared for.
You appreciate them, so back in December, you gave them a Christmas bonus, maybe a few gift cards or something similar. Now, the end of February is drawing ever closer and it’s just hit you… Are your T4’s in order? Did you do the year-end payroll process correctly? Are those gifts taxable?
There’s no doubt about it, for small and medium businesses, the year-end payroll process can add an extra layer of stress to an already hectic season. While the temptation is to rush through it and worry about it later, this is an area where it pays to slow down and get it right.
It’s the employer’s responsibility to ensure that their employees have accurate T4’s at the end of the year. If they aren’t accurate, employees won’t be able to file their tax returns with the correct amount of tax deducted and employment income.
Where Businesses Can Go Wrong
Ensuring the T4’s are accurate is easier said than done. There are a number of areas where employers can – and often do – go wrong.
- Initial auditing. When your payroll provider provides you with the preliminary reports, it’s essential to audit them. Even with the best will in the world, mistakes can slip in that can have repercussions down the road.
- Discrepancies. The CRA RP account balance and payroll software may not add up. When that happens, any discrepancies need to be discovered and then dealt with.
- Inaction. If employers receive a request or letter from the CRA, some will choose to ignore it due to the stress it brings.
- Irregularities issuing T4’s. Although it’s the employer’s responsibility to issue T4’s in a timely manner, many do it late, not at all, or issue an incorrect number of T4 slips. In some cases, the T4 summary doesn’t match the T4’s that are filed.
- Other information codes. It’s common to forget to include the correct or any amounts in the “other information codes” section, which covers taxable benefits or allowances, interest-free and low-interest loans, employee-paid premiums for private health services plans.
Common Misconceptions With T4’s
Beyond the mistakes or omissions, there are a number of common misconceptions that can affect the accuracy of the T4’s and disrupt the year-end payroll process.
For example, there’s a common belief that some kinds of income aren’t taxable when in reality they are. What’s more, this often arises around the holiday season when companies give out Christmas bonuses or other gifts. To be clear – these are subject to tax, as are gift cards that are given to employees, cell phone allowances, car allowances, and other discretionary perks with a financial value.
Q&A: What You Should Know Before Issuing The T4’s
When it comes to the year-end payroll process and issuing accurate T4’s, there are a number of common questions that people have.
1. What date must the T4’s be issued by?
The T4’s must be issued by February 28th at the latest. We recommend taking care of it earlier if possible
2. What happens if I ignore my PIER?
As the employer, you are responsible for the entire amount of the PIER. It’s worth noting that sometimes (as with the CPT30), you will just need to explain the PIER. Even if the letter states that you owe $15,000, this may not actually be the case – provided you don’t ignore the PIER.
3. What happens if I issue my T4’s late?
Your RP account will be issued a “late filing penalty” and interest will accrue on the balance owing (if any).
4. I didn’t report the correct numbers on one, or all of my T4’s. What should I do?
In this case, you will need to complete an amended T4 run. If you are filing through the CRA website, this will involve re-filing everything. If you use a payroll supplier instead, they will need to be alerted of the change. Then, they should create a “year-end processing run” to amend the T4’s. Your payroll supplier will be able to help you complete this process.
5. Is [insert item] considered taxable for T4 purposes?
A good rule of thumb is, if in doubt, the answer’s probably yes. As mentioned in the common misconception section above, any perks you give your employees that have a financial value count as income. So, that $1,000 gift card you handed out needs to be included in boxes 14, 24, 26, and 40 of your T4 information return.
My year-end reports show that some employees are deficient for CPP and EI. What should I do?
The first step is to find out why they are deficient. Once you have this information, the next port of call is to fix whatever was wrong to ensure that it doesn’t happen again. With any future issues dealt with, you can turn your attention back to the present situation. There are two ways you can address this:
- Pay the entire deficiency.
- Claw back some of the deduction from the employee. However, you can only claw back deductions at source that were not collected from an employee initially within 90 days of not deducting it.
How eGO Bookkeeping Can Help
If you’re struggling to complete the year-end process and would like help ensuring your employees are properly cared for, you have two choices: hire an employee or work with eGO Bookkeeping.
We’ve spoken before about the benefits of outsourcing your payroll and how it can save you time, increase your transparency, and ensure you’re compliant. Beyond this, it can even be more cost effective for your business than hiring outright.
We even made a handy cost calculator so you can check it out for yourself!
As for the services, by collaborating with us, we do everything to make sure the entire process is as stress-free as possible for you and your employees by:
- Auditing the T4 reports from your payroll software supplier for accuracy
- Checking the CRA RP account balance to ensure it matches the payroll software’s YTD remittances
- Dealing with any discrepancies between CRA RP account balance and YTD remittances in an efficient manner.
- Coordinating with your payroll software supplier to streamline the T4 processing schedule.
- Issuing T4’s that are accurate and on-time.
- Ensuring any PIER’s (pensionable insurable earnings review) are dealt with in a timely manner.
- Communicating with CRA regarding any deficiencies.
Want to end the year on a high and ensure your year-end payroll process is smooth and compliant? Reach out to us for a quote.