As an employer you have a lot of responsibilities to both your employees and the CRA when it comes to payroll and the necessary deductions. It is not something that you can do without being cautious and ensuring that it is done right.
One of these deductions is the Canada Pension Plan, and when errors are made in this deduction it can impact both you and the employee.
With today’s modern technology many businesses rely on various forms of software to calculate their deductions for them for the payroll. There sometimes can be flaws in these programs where errors are made and it calculates that too much is deducted by way of the CPP. At the end of the year the employee receives a refund, but in fact an error has been made. These errors can lead to a refund to the employee at the end of the year so it seems like the problem is solved, however in the long run this error could have an effect on the employee’s pension in future years when the individual retires and his CPP pension to be received is being calculated.
To avoid problems such as this as well as others when using payroll software it means you first have to have an understanding of the payroll system regarding the CRA, so you know that you are entering the correct data into the software to start with, and also be able to identify potential mistakes as they happen and not just at the end of the year.
One common mistake with the CPP deductions is individuals responsible for the payroll are under the impression that the contributions that have to be made are based on a full year employment. The proper calculation is based on the amount of pensionable earnings after the exempt amount for the period of employment has been excluded. The error that is made is the payroll clerk uses the full year’s exemption amount.
Something else to keep in mind to help you avoid errors with your CPP deductions is to stay on top of the changes that may take place regarding CRA rules. If you are using a software be sure that you upgrade it each year, and that the upgrades include the latest changes regarding the Government regulations.
Using automated resources to help you with your payroll deductions like the Canada Pension Plan really can be a time saver and make it easier when your have to provide your Toronto accountant with the proper documents at filing time. These are only an advantage to you though if the data is entered properly, and the software is of good quality and of course applicable to Canada tax.
