Managing the critical year-end process and ensuring compliance in all steps is an annual challenge that must be fulfilled precisely. This tedious process isn't for the faint-hearted. And while tedious, it must be done. Our guide will help you navigate through your company’s year-end payroll process smoothly and accurately so that you can start focusing on the new year ahead hassle-free. Don't let these year-end payroll mistakes slow you down!
7 Steps to Avoid Common Year-End Payroll Mistakes
Want to simplify year-end payroll? Follow these 7 easy steps, and you won't miss a beat:
1. Gather All Necessary Forms and Documents
A best practice for setting yourself up for year-end success every year is establishing a year-end reference filing system for you and your team at the start of each new calendar year. If you’ve been keeping track of staying organized all year, this step should be a cinch. If you need guidance, download relevant employer guides and tax forms from the Canada Revenue Agency (CRA) website to produce T4s for your employees. Required and recommended forms include:
- Employers’ Guide – Payroll Deductions and Remittances (T4001)
- Employers’ Guide – Filing the T4 Slip and Summary Form (RC4120)
- Employers’ Guide – Taxable Benefits (T4130)
- Deducting Income Tax on Pension and Other Income and Filing the T4A Slip and Summary Form (RC4157)
2. Stay Informed About Important Updates
As federal policies are ever-changing, it’s important to stay up-to-date on all the latest news affecting business payroll and benefits, such as new rates for CPP and EI premiums, new rules for T4 slip deliveries, and new employment standards amendments. Review the updated versions of employer’s guides for changes affecting year-end filing and all changes effective in the new year.
3. Connect with Internal Stakeholders
Instead of chasing down department heads the day before your filing deadlines, hold a preliminary year-end meeting with your HR, Finance, and other relevant departments. Review what information and assistance you will need from each of them to complete your company’s year-end.
Insist on conducting the meeting in person so that there is more accountability on each stakeholder’s part. From there, maintain one-on-one communication with team members to ensure alignment and resolve any blockers so that everything runs on schedule and necessary adjustments can be made quickly.
4. Conduct Checks and Balances
Before administering and processing your company’s final pay run of the year, make sure that the following parts are checked and balanced:
- Review your employee details (for both current and former employees from the calendar year) to ensure all personal information is up-to-date. Ensure you have included and validated your employees' SIN numbers, as penalties will be incurred if incorrectly provided.
- Review any outstanding payroll entries, such as manual cheques and deposits, dated in the calendar year to ensure they have been included in the current taxation year. Ensure that all canceled payroll journals and canceled paycheques are not included in year-end figures. Also, consult with accounts payable to account for personal and other miscellaneous expenses reimbursed to employees.
- In accordance with your company policies, account for the accrual, carryover, or reset of vacation time and personal/sick days allotted to employees.
- Identify any potential discrepancies with CPP contributions and EI premiums so that you can make any necessary corrections to the deduction data before the final pay run is administered. Refer to our guide to payroll deduction remittances for assistance with remitting payroll at year-end and year-round.
- Ensure benefits paid out are recorded as taxable or non-taxable according to the Canada Revenue Agency’s benefits and allowances chart.
Once your last pay run of the year has been issued, you can enable a year-end reset on your payroll so that you can start afresh with your new payroll system in the new year.
5. Prepare to Issue T4 Reports
When you close the year in payroll, you can begin generating your employees’ T4 documents. You can activate a test run of your T4 reports through your payroll software to ensure all payment periods from the taxable year (from regular pay runs to any bonus pay runs) are included. Confirm that the proper earnings, deductions, and taxable benefits amounts are entered correctly on the tax forms, following Canada Revenue Agency (CRA) guidelines.
Getting a head start on tax filing allows your team to meet CRA requirements for tax forms, including Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. Once all your T4 slips are done, process your T4SUM summary form, which reports the total amounts reported. Many payroll providers automate this process, making tax returns and filing easier for your business.
6. Proactively Prepare for Next Year’s Year-End
After balancing your books and completing your year-end, conduct a post-mortem to prepare for next year-end, including action items such as:
- Creating an annual archive for restoring data or reporting purposes, including any updated documentation, helpful notes, and reminders for improvement next year. Consider incorporating proactive habits such as balancing your payroll register every pay cycle throughout the year and requesting year-end balancing reports each quarter to ensure employee information and adjustments are updated accordingly.
- Review your payroll calendar for potential payroll processing conflicts and modify your pay scheduling as necessary.
7. Ask For Help From the Experts
Payroll service providers are up-to-date on all the recent regulatory developments. In doubt? They can assist with navigating through the administrative challenges you encounter. However, providers face a big peak in support requests at year-end, so don’t wait until the filing deadlines are approaching to reach out. Contact them early for the best service experience and get help on time.
What Are Some Common Year-End Payroll Mistakes?
Managing year-end payroll can be challenging, especially with all the details that need attention. Here are some of the most frequent year-end payroll (and overall payroll) mistakes and how to prevent them:
1. Miscalculations
Miscalculations happen when numbers don’t add up correctly, often due to small math or data entry errors. These mistakes can lead to overpaying or underpaying employees, affecting company finances and employee satisfaction. Reviewing numbers and double-checking calculations can make a big difference in preventing errors.
Solution: Automate Calculations with Payroll Software
One of the biggest advantages of payroll software is that it handles all payroll calculations automatically. From calculating employee pay to deductions and tax withholdings, the software ensures accuracy, helping avoid common payroll errors like overpayment or underpayment. This automation makes the payroll process much smoother and reduces the chance of mistakes.
2. Misclassification of Employees
Misclassifying employees occurs when workers are incorrectly labeled as contractors, part-time, or full-time employees. Each classification has different rules for taxes and benefits, so mistakes here can lead to fines or compliance issues. Track each employee’s role to ensure accurate payroll.
Solution: Generate Tax Forms with Ease with Payroll Software
Year-end payroll involves preparing various tax forms, which can be daunting. Payroll software simplifies this by generating forms like T4s or other tax forms required in Canada based on the data already in the system. This saves time and ensures that the forms are filled out accurately, reducing the risk of penalties from tax agencies.
3. Overtime Pay Errors
Overtime pay can be tricky, especially when managing employee hours. Failing to track overtime accurately can result in underpaying employees, affecting morale and even leading to legal problems. Make sure to track employee hours and calculate overtime pay correctly closely.
Solution: Reduce Manual Errors with Payroll Software
Managing payroll can be challenging for small businesses with limited resources, especially during year-end. Payroll software helps simplify payroll management by handling tasks such as overtime pay requiring extensive manual work. By streamlining these processes, payroll software saves time and reduces stress, allowing small business owners to focus on other important aspects of their business. Leave the pay stubs to automation!
4. Disorganized Payroll Records
Organized payroll records are essential for preventing mistakes. Payroll records help keep track of employee hours, salaries, and benefits. When records are up-to-date and easy to find, verifying details, correcting errors, and avoiding issues is simpler.
Solution: Organize Payroll Records and Generating Reports Quickly with Payroll Software
Payroll software can organize and generate detailed reports on employee earnings, deductions, and benefits, making it easy to review everything before the year ends. These reports are helpful in double-checking payroll information. This ensures all records are complete and correct and identifies any discrepancies. Having all reports ready makes the year-end process more organized and allows businesses to prepare confidently for the new year.
5. Preparing Late
Preparing payroll late in the year-end is a common and potentially costly mistake many businesses make. As the year draws to a close, companies often find themselves overwhelmed with various tasks and responsibilities, leading to delays in processing payroll. This procrastination can result in missed deadlines for tax remittances, incorrect calculations due to rushed work, and failure to account for year-end adjustments or bonuses. Delayed payroll processing can also cause issues with record-keeping and reconciliation, making it difficult to ensure that all wages, taxes, and deductions are accurately reported for the entire year.
Solution: Prepare Early
Preparing early for year-end payroll can save payroll professionals time and stress. Year-end tasks are time-consuming and require careful attention, so starting early helps prevent last-minute issues. Working closely with a payroll provider or team can ease the workload, handling tax deductions, premiums, and remittances correctly. Early planning reduces the risk of errors, keeps the process smooth, and helps ensure compliance with all requirements. Early preparation is key to a successful and stress-free year-end for payroll professionals.
Year-End Payroll for Independent Contractors and New Hires
When handling year-end payroll for independent contractors and new hires, it’s key to classify workers correctly to avoid tax issues. You should also ensure new hires are paid in alignment with their signed contract terms and Canadian payroll rules.
Track employee hours accurately and avoid misclassification to prevent penalties. Independent contractors must follow specific guidelines to keep payroll records clear and compliant. Proper handling of these details helps your business stay organized and in line with payroll requirements, especially at the end of the year and during the pay period.
Future-Proof Your Payroll System with Rise People Year-Round
Careful planning and organization are essential for a smooth year-end payroll process. By following best practices, staying informed of regulations, and using payroll tools effectively, you can ensure compliance, minimize errors, and start the new year confidently.
To prepare for the new year, it’s smart for Canadian businesses to review and upgrade their payroll system. Updating your system helps you stay ready for any changes in tax rates, CRA rules, and employment insurance (EI) premiums. A modern payroll system keeps businesses compliant with Canadian requirements all year long, making year-end tasks easier and more accurate. By future-proofing your payroll system now, you can avoid surprises and ensure a smooth, stress-free payroll process year-round.
Read more: What Is the Best Payroll Software in Canada?
A good payroll system or payroll software doesn't just help at year-end; it benefits the payroll process year-round. With everything managed in one system, payroll management becomes more efficient overall. This consistency helps avoid last-minute problems, making the year-end process smoother each year.
Rise can simplify the year-end process for businesses of all sizes, especially small ones. Manual payroll management can be time-consuming and leave room for mistakes. Our platform also automate many complex tasks, saving time and reducing stress. Want to learn more? Let's chat.
