Introduction to Payroll - week 8 PDF

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Introduction to Payroll – WEEK 8 As an employer you can calculate your payroll manually as we have been doing or you can look at purchasing various In House Software Programs. For Small Business:  Quickbooks  Simply Accounting  Easy pay For Large Business (more complex payrolls):  Peoplesoft  Oracle  JD Edwards  Advanti If you don’t want to do it yourself Outsourced Services (can be just payroll, HR or both)  ADP  Ceridian Other small Independent Payroll System Basics Information always required prior to paying anyone on payroll software?  Company Information  Employee Information a. Masterfile Data b. YTD – pay info required if converting systems any time other than first pay in January. Question: What information do you think is required to pay someone using software? Answer: it is the same information you need to process manually! Company Information – what is the policy on OT, are there Union dues? Any other deductions? Do you offer any taxable benefits? What is your business number? How frequently will you pay people? Employee Information – all of the information that has been included in the Master File we have been using – DOB, Address, Claim Codes, SIN, Rate of Pay, Direct Deposit Information. NOTE: If you convert to a software system midyear you will need to update it to include the YTD pay details completed so far. Why? Annually there are maximum income levels that may require deductions to cease. Also, T4’s will be created from the software so historical information needs to be added in order to ensure the final totals are correct.

Company a. Company legal information b. Government, Company, Union Rules for corporation c. Cheque or deposit format d. Links between payroll and GL accounts. When you set up a payroll system for the first time, you must input the following data: Company legal information BN numbers, HST/PST/GST registration numbers, legal name and address. Type of Company ie. Register Charity Government, Company, Union Rules for corporation What rules govern this company? For example – banks are covered by federal rules only. Most companies are under provincial rules. Are you exempt from any rules? (example: Fitness Clubs are not covered under WSIB, some ESA differences exist for farms). What are the GST, PST rates and rules? Cheque or deposit format What information is included, who signs cheques, who is authorized to enter and approve system detail Ideally links will be established between payroll and General Ledger accounts. This last step is crucial to allow you to truly enjoy the benefits of automation. If done badly, leads to lots of manual work around in the future. Company Payroll  Payroll Frequency-biweekly, monthly.  Pay period endings, Cheque dates, Entry schedule and Special payments ie. Annual Christmas bonus.  Types of employee payments - hourly and salary employees.  Standard Government Earnings and Deductions.  Standard Company Earnings and Deductions Once the basics are set up, you will need to outline all of the company specific payroll details.  When do you pay?  How often?  On what day of the week?  When can cheques be cashed?

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Types of employees? Contract? Hourly? Salaried?

Standard Government Deductions – these should be automated in the system. You will need to validate that these are appropriate and that the rates update automatically when government changes occur. Standard Company Deductions – do you offer taxable benefits? Deduct for union dues? Memberships? Employee  Employee Name and Address  SIN #  Date of Birth/Age  Tax Exemptions (TD1 and TD1ON)  Gross Pay (including type of Pay) and Hours worked.  Deductions  Banking information (only if using Direct Deposit)  Special payroll related information for an individual (order of garnishment)  YTD payroll information - earnings, taxable benefits, deductions and special accumulators- vacation accrued to date, sick day accumulation. Then you must input all of the employee details as we have laid out on the master file. Good Payroll Audit Practices 1. What Controls – checks and balancesneed to be put in place? 2. Who has access to what type of information? 3. Who is checking whom? Maintaining security and integrity of the pay process Payroll audits are an important tool used to validate that the process and controls you have set up are working properly. Payroll is a major expense – in most companies it is the largest cost. People are personally invested in the results. Every organization must organize its pay activities in such a way as to ensure an accurate, complete, timely and secure process. Controls must be put in place – for example – someone other than the preparer of the cheques should be the one to sign off on

them (to be sure that fake cheques are being cut). Audit logs should be created and reviewed for each new employee addition (so fake employee’s aren’t being added to the payroll) and these should be signed off by someone in authority. Trending reports showing payroll costs from period to period should be reviewed regularly by management to check for any weird variances in results. Access is another important question – Payroll data is very sensitive. Who has access? What controls can you put in place to keep it confidential? Principles that govern security and integrity of the pay process:  Segregation of Duties  System Read/Write ability  System Access Restriction  Audit trail (Complete Record of every transaction) Ask: What can you do to protect the Payroll? Payroll Audit Practices  Segregation of Duties  The person entering or doing corrections to payroll should not be person writing/signing payroll cheques.  Always have another person check your entry work (shouldn’t audit your own work).  People making error corrections should be separate from the signers  All Payroll entries should be checked and authorized with a formal sign off. For dollar changes authorization should be from Officer of Company or their appointed representative.  System Access Control  Only authorized people should be able to do entries  Set $ limits for higher sign off requirements  Audit Trail  Must keep a record of all transactions  Payroll Detail must remain on System until Tax form is issued for the tax year plus you must have all detail on hard copy in accordance with government record retention rules.  Pay Stubs - Employees must be provided with detail of all earnings, accruals (vacation, sick days) and deductions each time they are paid. Employees can be great auditors of their own payments. They will generally let you know if they

see an issue. If you don’t currently check your pay stubs … I recommend you start!

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Remittances (Monthly) Remittances Who ? Government agencies – CRA, WSIB, EHT, Stats Canada and Garnishments Company Obligations – Unions, Insurance companies, Pensions Agents and Banks What ? Employee and/or Employer payments Frequency most are monthly, CRA is based on annual payroll and can be as often as every pay How? CRA – paid at major banking institution (in person or online or cheque) WSIB – Mail or online through WSIB website EHT – Provincial Government office or by mail Miscellaneous (union, garnishee) – By Mail or automated banking Any money we deduct off an employee’s pay does not belong to us. We need to keep track and send it to the various organizations that we have collected it for. Every payroll professional will need at minimum to remit to CRA, WSIB and EHT. Others may be necessary as well depending on the type of deductions your company requires (to unions, clubs for fees, banks for RRSPs, etc). Be sure that you have a clear record of what was collected and what was sent as audits from these agencies are quite common. Remember that we have to send both our contributions (expenses) and the employee deductions. Regular Remittances What information is required? Assuming we are on Monthly Remittance Schedules 1. Remittance period – normally all payroll cheque dates that fall from 1st calendar day to last calendar day of month. To/from date and tax year 2. Company Name, Address and contact info 3. Company ID # 4. Amounts being remitted and gross dollars being using to calculate remittance 5. Remittance Rates – Vary by agency 6. Other miscellaneous info – CRA - # of employees, 7. Report on Hiring – SIN, Start date

The remittance schedule is usually based on the size of your payroll. The period in question includes all of the payroll cheque dates that fall from the first day of the month to the last. Any deductions taken off during that period must be sent to the agency by the remittance date in the month following. When you submit your money to the agency, be sure to send all of the details listed on this slide. For our simulation, we have determined that SFY is a regular remitter (they haven’t been around long enough to establish an Average Monthly Withholding Amount AMWA so they default to regular). This means that their deductions are due to CRA by the 15th of the month following the payroll. For example – for all pay dates between January 1 and January 31 2015, they must send the cash to CRA by February 15th. Remember – when they remit they have to send both the part deducted from the employees as well as the company related expenses. How Remittances are done? CRA 1. Determine Applicable Wages 2. Determine # of Employees 3. Determine Remittance Period 4. Determine CPP, EI and Tax owing for period 5. Complete Remittance form and pay remittance at bank or mail the cheque How do we remit? First determine the applicable wages (this is the total taxable income for the period). Then determine the number of employee’s who are involved and what your specific remittance period will be. From there it is a simple calculation – add up all of the CPP, EI and taxes collected and owing for the period, complete the form and mail the cheque (or pay at a bank).

PD7A Remittance Form

This is a sample of what a CRA Remittance Form looks like. Once you are registered with a business account, CRA will send this form to you regularly, based on your remittance schedule. As you can see, the details included in your response are quite sparse. You must have detailed records behind the scenes to support whatever you put in this form. You will be required to reconcile with your T4 data at the end of the year.

themselves. Usually Officers/Director’s Insurance will cover this situation. With WSIB, typically companies record amounts owing based on the total company payroll and make adjustments at year end for any differences. There is an annual maximum salary for WSIB (generally updated each year) and the employer is not required to contribute for any portions of employee salary that exceed this maximum.

What would we send in for SFY? Also, coverage does not extend for time not actively at work so any payments for maternity or parental leave, termination or lost time are not considered for premium calculations. These must be adjusted out at year end as well.

If we were remitting for January for SFY – by February 15th we would send a cheque to CRA for $13,839.40. This represents the total of CPP (both employee and employer portion), EI (both employee and employer portion) as well as employee Tax deductions. We would note that we have 6 employees and our gross payroll is $32,945. WSIB Insurable Earnings Amounts excluded from Remittance 1. Officer and Director Wages 2. Excess Wages – amounts over annual maximum – Quick Fact sheet 3. Termination, Maternity/Parental and Lost time pay – Not actively at work 4. Contractors and volunteers where they have their own WSIB coverage Points of Interest: WSIB Coverage was put in place to ensure employees did not suffer financially, medically for a work related injury. Why? – they cannot control the company decisions on working conditions and safety. In Return – if you are covered by WSIB you cannot sue your employer for anything related to the accident or injury. Officers and Directors are excluded. They control the actions of the company therefore are directly responsible for accident or injury…if they were hurt at work they would be responsible. They can sue the company but would be effectively suing

Contractors and volunteers are also not covered by your WSIB therefore should not be included in the calculation. *EMPLOYEES DO NOT PAY ANY PORTION OF THIS COST – IT IS FULLY FUNDED BY THE EMPLOYER How Remittances are done WSIB 1. Determine Rate Group 2019 Premium Amounts 2. Find Remittance Rate 3. Calculated Applicable $$-excludable wages 4. Calculate Amount Owing 5. Complete Remittance Form 6. Pay!!!! WSIB premiums are set based on the type of industry your employees are working in. Generally, the price is based on their experience with similar companies – how much injury is likely in that type of work? How much time is usually lost? What is the cost of an average claim? Companies with more dangerous work (such as logging, sky rise window cleaning, demolition) pay higher rates than somewhat safer jobs like office and warehouse work. Premiums are subject to change each year and are based on a cost per $100 of Assessable earnings. So – if your rate says you pay $2.73 it means that for every $100 of salary costs, you owe $2.73. Rates for 2019 and prior years can be found here: https://www.wsib.ca/en/businesses/premiums -and-payment/2019-premiumrates#premiumrates

SFY Inc: Is a warehouse company. We pay based on rate category 560 which is currently at $1.99 per $100 of Assessable earnings. Our monthly Remittance is based on our Actual Assessable Earnings (i.e. our Gross Taxable Income). Remittance Requirements Once WSIB sets the assessment rate for the coming year, they send employers a notice of assessment, indicating how much they owe and when it is due. Employers who base assessments on actual earnings will be required to pay assessments monthly, quarterly or annually depending on their annual assessable earnings. Frequency thresholds The thresholds for the three-tier reporting structures are as follows. $300,000+ = Monthly $20,000 to $299,999 = Quarterly >$20,000 = Annually How Remittances are done! EHT  Determine Applicable Wages  http://www.rev.gov.on.ca/en/tax/eht/i ndex.html  Determine Premium Rate (1.95%)  Determine Remittance Frequency  Calculate Wages  Calculate Premium  Complete Remittance for and Pay **all Ontario Earnings and Taxable Benefits less 490,000 annual exemption EHT – Employer Health Tax. This tax is paid for all employees in Ontario by the employers. The rate is applied to all applicable wages (employee total earnings and taxable benefits) over the basic annual exemption of $490,000 (note that some companies are not eligible for the exemption and must pay for every dollar of applicable wages). If a company has an annual payroll of less than $600,000, they can remit payments annually. If it is higher than 600K, must pay monthly. For SFY Inc – we will calculate EHT monthly even though it is not required. EHT – Employer Health Tax: Wages: What is considered payroll/remuneration? In general, remuneration means employment income (box 14 of the T4 slip) that is taxable

under sections 5, 6, and 7 of the federal Income Tax Act. In addition to salary and wages, remuneration includes:  tips and gratuities paid through an employer  bonuses  commissions and other similar payments  vacation pay  taxable allowances and benefits  directors' fees  payments for casual labour  amounts paid by an employer to top up benefits  advances of salaries and wages, and  stock option benefits. Exemption: Eligible employers are exempt from EHT on the first $490,000 of total Ontario remuneration each year. This exemption will be adjusted for inflation every five years using the Ontario Consumer Price Index. Employers with annual Ontario payroll over $5 million cannot claim the exemption. Only one annual exemption is available for an associated group of employers. Employers that are associated at any time during the year must take into account the total Ontario remuneration of each associated entity in determining whether they can claim the exemption. When the combined total Ontario remuneration of all the employers that are associated exceeds $5 million, these employers are not eligible for the exemption. When do I pay the tax? If your payroll is $600,000 or less, you need to pay your taxes by next March 15. If you have all of your payroll in one month, if you amalgamate, or if you close your Ontario permanent establishment, you may have a different payment due date. If your payroll is over $600,000, make monthly payments. How Remittance are Done Miscellaneous 1. Determine Wages and/or Premiums as set out by “remittee” 2. Determine payment frequency 3. Calculate and Pay amount owing (both employee and employer portion) For any other organizations you collect money for, you will need to validate their payment requirements. Some example – unions, life insurance premiums, charitable donations....