What You Need to Know About Special Payments as an Employer
In most cases as an employer you will be busy enough keeping up with the standard accounting and tax remittances that are demanded of you as a business owner. Every once in a while though there may be special payments made to your employees that you will need to make adjustments for when calculating and submitting your payroll remittances.
On the rare occasion you may allow your employees to ask for an advance on their pay. This can really mess up your accounting schedule, if you don’t handle it properly. It really won’t be too confusing if you just follow your regular payroll deduction amounts for that particular employee when you are giving the advance. Then when regular payday comes along the accounting staff can simply reconcile the payday income and payroll amounts.
Where it get really confusing is when you are paying bonuses or you need to catch up on pay increases. You will have to deduct the CPP, EI, and income tax from this. If you are making this type of payment on a separate check then you have to be sure that you do not take into account the annual basic exception for the CPP.
What also has to be taken into consideration is if these payments are retroactive payments applicable to previous years, but are just being paid now in the current year. These payments may be eligible for tax calculations that are special, that will come into play when the employee files his income tax return. This is in reference to retroactive lump sum payments.
With there being so many rules and regulations to follow with payroll it really is wise to use an experienced bookkeeper, even if you are utilizing software for this purpose. Then this should be followed up with utilizing an experienced accountant. Mistakes that are made on payroll can have adverse effects both on the employee and the company. For the business owner it can mean having to deal with the CRA to get common errors cleared up, and for the employee it can mean the wrong deductions are being made which may result in the individual having to pay taxes at the end of the year, or it can even affect his or her future Canada Pension Plan.
Getting payroll right is critical to the smooth financial operation of your business and really demands the need for different levels of expertise.