Managing payroll may seem straightforward at first; calculate hours, withhold deductions, and issue paycheques. However, many small business owners discover how complex payroll compliance can be once CRA and provincial rules enter the picture. Even minor errors can lead to audits, penalties, unhappy employees, and wasted time correcting records.
This guide highlights the most common payroll mistakes Canadian small businesses make and how to avoid them through better systems, professional support, and ongoing attention to detail.
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1. Missing Payroll Remittance Deadlines
One of the most common payroll mistakes is sending CRA remittances late. The due date depends on your remitter type:
- Regular Remitters — Payments are due by the 15th of the following month after employees are paid.
- Quarterly Remitters — Very small employers with an excellent compliance record and an average monthly withholding amount under $1,000 may remit quarterly, by the 15th of the month after each quarter.
- Accelerated Remitters — Larger businesses remit more often, either twice per month or within three working days after each pay date, depending on their average monthly deductions.
Missing these deadlines can lead to penalties and interest charges that add up quickly.
How to avoid it
- Check your CRA My Business Account to confirm your remitter type and due dates.
- Set calendar reminders or enable automatic payroll remittance through your payroll software.
- Work with a professional payroll service like Unique Accounting Services to ensure every submission is made on time and compliant with CRA rules.
2. Incorrectly Classifying Workers
Confusing employees with independent contractors can have serious tax consequences. Employees require source deductions (CPP, EI, and income tax), while contractors are responsible for their own remittances. The CRA assesses worker relationships based on control, ownership of tools, and financial risk.
How to avoid it
- Review CRA guidance for worker classification and document your rationale.
- Reassess roles annually, especially if work arrangements change.
- Seek professional advice before onboarding contractors or freelancers.
3. Miscalculating Deductions
Payroll deductions differ by province and can change yearly. Federal deductions include income tax, CPP, and EI. Some provinces add other elements such as health tax
How to avoid it
- Use the latest CRA and provincial tax tables each year.
- Review CPP and EI contribution rates and limits annually, and update your systems at the start of each calendar year.
- Reconcile deduction totals monthly against CRA statements to catch discrepancies early.
4. Neglecting Vacation Pay and Statutory Holidays
Each province has its own rules for vacation pay and statutory holidays. Missing a paid holiday or miscalculating vacation pay can frustrate employees and breach employment standards.
How to avoid it
- Stay current with the employment standards for the province where each employee works.
- Track vacation accruals automatically through payroll software to reduce manual errors.
- Pay out unused vacation when employees leave, as required by law.
5. Forgetting Year-End Payroll Reporting
At year-end, employers must prepare and file T4 slips (and T4As, if applicable) for each employee by the last day of February. Delaying preparation often leads to rushed corrections and missed submissions.
How to avoid it
- Keep payroll records accurate and current throughout the year.
- Verify employee details (SIN, legal name, and address) well before year-end.
- File electronically through the CRA online portal for faster confirmation and fewer errors.
6. Poor Record-Keeping Practices
The CRA requires employers to retain payroll records for at least six years. Missing timesheets, pay stubs, or remittance proof can create problems during an audit.
How to avoid it
- Store payroll files in secure, encrypted digital folders with regular backups.
- Keep paper copies of key documents in a locked location if you maintain physical records.
- Restrict payroll data access to authorized personnel only and use strong passwords with multi-factor authentication.
7. Ignoring Provincial Payroll Variations
While the CRA sets national payroll standards, each province has its own regulations.
How to avoid it
- Confirm which provincial laws apply based on the employee’s province of employment.
- Update payroll settings when hiring in new provinces or when legislation changes.
- Review official government updates annually and whenever you expand to a new location.
8. Doing Payroll Manually Without Checks
Manual spreadsheets are a common starting point, but they invite errors, especially with complex pay structures, commissions, or multiple employees.
How to avoid it
- Use reliable payroll software integrated with your bookkeeping tools.
- Set an internal review step before every pay run to catch anomalies.
- Consider outsourcing payroll to specialists who focus on CRA compliance and reconciliation.
Accurate payroll management protects your business and your employees. It prevents penalties, builds trust, and saves valuable time. Whether you handle payroll in-house or delegate it, staying informed about CRA and provincial requirements is the safest path forward.
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