Posts Tagged: CPP

Payroll / Tips and Tricks — 1 Comment
25
Oct 11

Payroll basics for start-up companies

By Kevin Zimmer, Payroll Specialist at IBEX

Payroll challenges begin before you even hire your first employee.  After that, things just get more and more complicated…

Before Employees

Before you hire your first employee, the biggest issue is making sure you take the Canada Pension Plan (CPP) and income tax into account on whatever money you yourself take out of the company.   This is where many new entrepreneurs get tripped.   Many go for a while without getting paid at all.  Then, when profits start to allow, they start taking some money for themselves. The problem comes at the end of the year when you have to report the income to Revenue Canada and have to pay CPP premiums and income tax on whatever you have taken out.  If you have taken out all you can and there is not much or any spare cash left (and this is often the case) you may not have the cash to pay the government.  The result – late payments and penalties – not fun.

The right way to handle this is to pay the CPP and tax as you go.  Do not wait until you file your personal tax return. Or, make sure you set aside at least 35% (call us or use the online calculator on the CRA website if you want a more exact estimate) of whatever you take home so that you have the cash to pay at the end of the year.  CRA will start to insist on quarterly payments to them if you do the “pay at the end approach”, especially as the amounts get larger – over $3,000 in tax due at the end of the year will trigger a requirement to pay CRA quarterly.

One benefit of owning your own business is that you do not have to pay Employment Insurance (EI) premiums on your earnings, only CPP and income tax.  At least there is that!  Although, if you get pregnant or things don’t work out – you won’t be able to access EI either.

After Employees

Once you hire someone, things get more complicated.  You are required by law to deduct appropriate EI, CPP and tax amounts from just about anything you pay your employees.  You are also required to submit that money you deduct along with the employer portion of the CPP and EI (yes, you have to top up what the employee is already paying) to CRA at extremely defined intervals.  The collection and remittance of these deductions, referred to as source deductions, is an area you do not want to mess around with, the penalties for late remittances pile up quickly and CRA has very little sympathy for businesses that mess around on this stuff.  Once you start remitting, you are firmly on their radar.  We recently posted a horror story that we were brought into a few years ago along these lines.

The Solution

We feel that there are only two ways to handle the employee situation.  The first one is to purchase payroll software, like the payroll add-on for QuickBooks or a stand-alone system like CanPay or EasyPay and use this software to do your calculations and tell you how much to pay the government.  You then manually pay CRA each month and take care of filing other government forms at year end (t4’s) or when someone leaves (ROE’s) by yourself.   The second approach is to outsource your payroll with a company like IBEX.  I think the outsourced approach is the way to go for start-ups (bet you saw that coming!).  With two employees, the annual fees to have an outsourcer take care of paying your employees by direct deposit, paying the government for you and otherwise keeping you out of trouble is around $300. That’s  less than a lot of the software and best of all, you don’t have to know anything about payroll, other than how much you want to pay people.  The outsourcer will make sure you come across as a professional employer from day one.

When new business owners go down the route of spending too much of their time and energy doing payroll themselves, we often tell them, “You can be the best in your industry at doing your payroll, but you will go out of business if your competition is focusing on what really matters while you try and reinvent the payroll wheel”.

 

FYI / Payroll — 1 Comment
25
Oct 11

Paying Employees “Under the Table”

When it Rains, it Pours

By Raissa Sagun, IBEX Staff

An Alberta entrepreneur owned 12 different franchises from two different franchise chains. When he bought his first franchise, times were tough and he decided to pay some of his staff “under the table.” As he continued to acquire more franchise locations, he continued to pay some of his employees at his original location under the table but put all new employees on the company payroll.

When a large U.S. competitor opened a flagship Canadian operation right down the street from his operation, within a year his operation was in trouble; the franchisor decided to take back control of his franchise. Rather than being a major relief for the entrepreneur, it turned out to be a major problem.

Within a couple of weeks the franchisor wanted all employees at the original location transferred to the corporate payroll. This transfer included completing T4s for all employees and creating Record of Employment forms for those employees being laid off. Naturally, creating the forms for his under the table employees was not possible and there were enormous consequences.

The entrepreneur was required to pay the Canada Revenue Agency all the past EI, tax and CPP contributions that should have been deducted from the employees along with the employer portions he was responsible for. The event also triggered an audit of his entire operation by CRA, which did confirm his other locations were above board, but took a huge amount of his energy at a very bad time. To make matters even worse, the entrepreneur has not been allowed to purchase any more franchises from the franchisor because of his mis-management.  Paying under the table is just not worth it!

note: certain elements of this story have been changed to protect the guilty