Setting Up Your Payroll

Setting Up Your Payroll: Part 3

Most small businesses start with a few contract employees, but as they grow they move towards hiring full-time employees and getting them on the payroll. Sifting through all the information on the Canadian Revenue Agency to set up payroll for the first time can seem scary and daunting. This four-part blog series will take you through each step needed to set up payroll, calculate deductions, and maintain your accounts using QuickBooks in a clear and easy-to-follow manner. 

Part 3: Avoid Late Fees! Remitting Payroll Deductions on Time

As an employer you will need to remit CPP contributions, EI premiums and Income Tax Deducted from your employee. For CPP and EI, you will also need to remit the employers portion to CRA.  Hefty penalties can occur if you are late remitting your employees payroll deductions.

Note: If its your first time remitting payroll be sure to check out Part 1 and Part 2 of the Payroll Series.

There are 4 steps to determining your remittance date and frequency:

1) Determine your due date

2) Calculate your Average Monthly withholding amount (AMWA)

3) Determine your Remittance Type and Frequency using the table below

4) Complete the Remittance Forms

1) Determine Your Remittance Due Date

Identify the Pay Day for your employee. This is not the pay period end date.

Example: Pay period is from July 3 – July 16 but the employee is paid on July 24. You will use July 24 to calculate the the remittance date.

2) Calculate your Average Monthly Withholding Amount (AMWA)

After 2014, CRA has increased the threshold amount, which could reduce how often you send your source deductions.

AMWA calculation:

Total the following for the past two calendar years.

AMWA = (CPP + EI + Income Tax )/ Number of months that you were required to make payments

 Note: CPP and EI (Both the employee and employer portion)

Example for New Business:

You open your business on Jan 1, 2015. You hired your first employee on March 1, 2015. In June, you finally get the time to setup your Payroll account with CRA. You made sure to keep the CPP, EI and Income Tax aside in a separate account since March 1, 2015.

Therefore you have 4 months (March, April, May, June) that you were required to make payments. The amounts you set aside totalled $5000.

AMWA = $5000/4

AMWA = $1250

3) Determine your Remittance Type and Frequency using CRA table

Click here to view the CRA’s table of remitter types, average monthly withholding amounts and due date.

Note: If your due date is a Saturday, Sunday, or public holiday, your remittance is due on the next business day.

4) Complete the Remittance Forms

Depending on the type of remitter you are CRA will send you a personalized form, you will need to complete this form. To see more information about the types of forms, click here.

Late Remittance and Penalties

CRA can apply a penalty if the following occur:

  • You deduct the amounts, but do not remit to CRA
  • You deduct the amounts, but send the remittance late

The penalty is:

  • 3% if the amount is one to three days late;
  • 5% if it is four or five days late;
  • 7% if it is six or seven days late; and
  • 10% if it is more than seven days late, or if no amount is remitted.

Photo Copyright: nito