Payroll: Butteriss on human resources

 

Requirements to set up a payroll

There are a number of things that an employer has to obtain from different government bodies in order to set up a business and to pay employees. These are noted below.

The Business Number
In order to start a new business the owner needs to get a business number from Revenue Canada. This will be the number under which any statutory deductions will be remitted to the government.

Employer’s Health Tax
Employers are required to pay an Employer’s Health Tax for every individual employee. It is necessary to apply to the government in the province where the business operates, for the rates and frequency of remitting the Employer’s Health Tax. It should be noted that in Alberta and British Columbia health premiums are paid by the employee and not by the employer.

Workers’ Compensation
The employer also has to find out the rates that they have to pay for workers’ compensation. Workers’ compensation has to be paid for every employee and this covers injuries incurred while at work. In Ontario this compensation is now the responsibility of the Workplace Safety Insurance Board, while the other provinces each have a Workers’ Compensation Board. The rate that has to be paid for workers’ compensation depends on the industry and is similar to an insurance premium. The more claims that are made on the board for employee injuries, the higher the premium that the individual company has to pay. A company will need to contact the appropriate workers’ compensation organization for their province in order to find out what the rates are.

In determining the rate for an individual business, account is taken of whether the employer has any form of self-insurance for the organization, such as short-term disability (STD) or long-term disability (LTD) insurance. These plans cover injury and illness which are not incurred at work, whereas the workers’ compensation insurance is strictly for injuries in the workplace. Having STD and LTD insurance plans reduces the workers’ compensation rate that has to be paid for each employee.

Other Government Remittances
There are other forms of statutory deductions that have to be made from each individual’s pay and sent to the federal government. These are for the Canada Pension Plan (CPP) and Employee Insurance (EI). In Quebec the QPP is paid to the Quebec government and is roughly equivalent to the CPP. Both CPP and EI are funded jointly by the employer and the employee. Rates are provided in the tables of deductions from Revenue Canada. These remittances, together with the federal and provincial income tax deductions, and the others noted above, need to be sent to the government. They are usually made on a monthly basis, but for larger payrolls, they can be done more frequently, say, weekly or biweekly.

Individual employee information required to process payroll

The following information is required in order to put a person on payroll:

• Legal Name
• Social Insurance Number
• Date of Birth
• Date of Hire
• Remuneration (whether it be in the form of wages, salaries, and bonuses, etc.)
• Employee’s Address
• Mailing Address of Employee (if different from the above)

Frequency of payroll

The organization has to determine how often it will pay people. This will depend on what best meets the needs of the business in relation to cash flow and the type of employees that are employed by that particular organization.

The most common payrolls are:

     (a) weekly (52 pay periods per year)
     (b) biweekly (26 pay periods per year)
     (c) semi-monthly (24 pay periods per year)
     (d) monthly (12 pay periods per year)

(a) Weekly:This type of payroll is suitable if the organization is small and has employees who do piecework. It may also suit organizations with high employee turnover or with contractors where periods of activities are varied. It may also meet the needs of employers who have a seasonal payroll where they employ many people at one given time of year.

(b) Biweekly:This is the most common pay cycle for employers. Employees are paid on the same day every two weeks, i.e., every second Friday. It is much easier to administer and process for groups of almost any size and is appropriate for all pay situations. It is useful in that it accommodates both hourly and salaried employees and meets all the statutory requirements for each province.

(c) Semi-Monthly:This payroll is done only twice a month, usually on the fifteenth day and the last day of each month. This is most appropriate for large groups because there is more time for payroll processing and it is easier for accounting purposes since it requires only 24 pay periods instead of 26. This type of semi-monthly pay meets all the statutory requirements for all provinces except Quebec. There, Quebec provincial law requires all employees be paid every 14 days, thus making the biweekly pay period mandatory. However, in certain circumstances Quebec may allow a semi-monthly payroll.

(d) Monthly:Monthly payroll is relatively rare in Canada and when used, is often reserved for more senior employees in a company. It can also be used when more complicated payrolls are involved.

Processing of payroll

There are two choices for processing payroll. It can be done in-house by a CFO or a payroll person, or by a third-party processor, such as a bank or a payroll organization.

In-house payroll

If a smaller organization—less than four employees—chooses to do its payroll processing itself, it usually uses a bookkeeping/accounting process. The process is completed either by using a manual balance sheet with running totals for statutory deductions, or by means of an electronic tax table called WINTOD which is available from any Revenue Canada office. Statutory deductions are calculated using the paper table of deductions from the government or WINTOD. It is the responsibility of the employer to remit all statutory deductions to the appropriate federal and provincial bodies.

 Advantages and disadvantages of in-house payroll

Advantages	Disadvantages
• Little or no cost is incurred, other than the time of the person processing the payroll	•Under this method there is a greater degree of room for error since calculations are done manually.
• It is simple, cost-effective, and relatively easy to maintain	• Transposition errors and the lack of an actual register total other than a spreadsheet or bookkeeping process may make it difficult to reconcile all figures and provide a reconcilable year-end payroll report.
	• Year-end tax documents and Records of Employment required when an employee leaves the company may be incorrect when they are given either to the individual or to the government, since they are produced manually.
	• Payroll processing and reporting can be time-consuming if the payroll is complicated or gets larger.

Third-party payroll processing

Third-party payroll processing is done
by a bank or other major payroll provider. Such institutions include all the major banks and private payroll operators such as ADP and Ceridian. A third-party processor offers a wide degree of support to the individual and the costs will vary according to the services required.

They will give the employer software or manual processes to complete relating to the details of pay and any changes throughout the pay period. The third-party provider simply processes the information provided, but the actual data is always entered by the employer. If errors do occur in data input it is the responsibility of the business to correct these errors.

Advantages and disadvantages of third-party payroll processing

On balance in-house processing is an effective method of doing a payroll for a small group of employees but does not allow for direct deposit of pay to an employee bank account. Pay cheques must be cut and this, of course, carries the risk of their being lost or stolen.

Larger organizations that do in-house processing can do direct deposits to employee bank accounts if they use payroll software such as PeopleSoft, which will send deposits to the bank for posting.  

Advantages	Disadvantages
• The third-party processor will remit statutory deductions as requested and pay them directly to the appropriate government organization. The business is charged according to the number of pay periods and customized reports required by the business.	• There is a cost incurred in using a third-party processor, which depends on the number of payrolls required and the number of employees for whom this payroll is being processed.
• This option allows for direct deposit of pay cheques to an employee account if required.
• Technical support is often offered by these organizations through a call centre. Banks and other organizations may provide a relationship manager or client manager that can be the first line of contact to the organization should a problem arise.
• The third-party provider has the ability to produce year-end documents such as T4s, which are required for individuals to complete their income tax returns. They will also provide Records of Employment which are necessary when an employee leaves the company.

 

Copyright© 1999 by Margaret Butteriss. All rights reserved. Published by John Wiley& Sons Canada, Inc.
http://www.amazon.ca/Help-Wanted-Complete-Resources-Entrepreneurs/dp/0471643882

 

References

Butteriss, M. (1999).Help Wanted: The Complete Guide to Human Resources for Canadian Entrepreneurs.Toronto: John Wiley& Sons. pp.129-138.

Tags: compensation