Experts explain new payroll risks as tax rules, benefits and work models shift
The pressure on payroll and HR teams at tax time has intensified as benefits programs expand and work arrangements become more complex.
To answer questions about how employers and payroll can prepare for a complex tax season, Canadian HR Reporter, spoke with two industry experts.
They explain that employers must monitor legislative changes closer than ever before now, especially when it comes to taxable benefits and new reporting requirements that can affect employees’ access to government programs.
Tax forms that now affect employee benefits
One of the most significant new trouble spots is the Canadian Dental Care Plan (CDCP) indicator on the T4, according to Payworks’ Aimee Daly.
“It's actually the first non-payroll-related box on the tax form, and there's a lot of misunderstanding as to who needs to fill it in,” Daly says.
“Or, people think that if they don't offer benefits, they don't need to fill it in. But they actually do … and it can have an impact on their employees going and applying for the Canadian dental plan program.”
The consequences fall first on employees, but quickly circle back to employers and payroll who have to jump into crisis-management mode when an employee requests amendments urgently. Daly explains the impact on employees in more detail: basically, if an employer incorrectly fills out this single field, when that employee applies for Canadian dental coverage, they will be rejected.
“That is a huge impact to people that have children and even individuals that are looking for dental coverage,” she says.
“Sometimes it's an emergency situation. They've applied for it, they're waiting for the approval, or they've paid in advance knowing they're going to get approved because they've never had dental coverage. And then they get rejected, and they've incurred this cost that they were expecting to get back.”
Communicating with hybrid and remote workers about taxes
Payworks’ analyst CHML and HRMS consultant, Cindy Tarasow, points out another tax season tripping-spot for employers to be aware of: ensuring HR and payroll are aligned on worker profiles, designations and work arrangements.
A common example of this risk is not communicating consistently and equally with hybrid and remote employees about extra tax claim requirements – no longer a fringe occurrence, Tarasow says slip-ups with remote workers is now a legitimate reputation consideration.
“We have more employees working remote in a hybrid role,” Tarasow says. These employees are usually eligible to write off home office expenses on their tax returns, but Tarasow points out that knowledge about these benefits aren’t equally understood, which is why she recommends employers step in to educate.
“Can you imagine if we failed, and an employee owes taxes, or finds out that someone else got a big tax break, and they didn't know that they could?” Tarasow says.
“It'll affect the brand, it'll affect the relationship, it'll affect the trust of the business. If we don't get this right and … we don't give people that are hybrid the opportunity to reduce their taxable income.”
This is where communication between HR and payroll is essential, she says – not only because of changing work arrangements, but also due to shifting foreign worker and immigration laws and evolving case law around job classifications.
“These are all more complex relationships that have evolved over the last three or four years,” Tarasow says.
“We need to communicate these needs. We need to ensure that payroll has all of the proper permit numbers, the proper SIN numbers, the proper employment type. We need to work in harmony, so our brand is upheld, our trust is upheld.”
Contractor vs. employee: CRA focus and documentation
Tarasow highlights the longstanding but intensifying risk around who is truly a contractor versus an employee in the eyes of the Canada Revenue Agency (CRA). She stresses the importance of recordkeeping when an organization uses contractors, “To protect itself, and help the employee.”
Daly, whose background is payroll management and implementation, says the core risk for employers is misclassification, long before tax-season begins, “Making that clear distinction between what is a contractor and what is not.”
Employers can get into murky territory when they are unaware of the rules, Daly says – such as when providing contractors with tool or truck use, seemingly casually, can re-classify that contractor as an employee.
“Then that breaks that whole contractor situation,” Daly says.
“That's a really big focus right now from the CRA standpoint … really defining that employer-contractor relationship, and not bending into those employer-employee relationships.”
Interprovincial payroll and constantly changing rules
Beyond individual worker status, Daly explains that multiprovince payrolls remain a redflag area in CRA reporting.
“Every different province, you have to report their earnings separately,” she says. “Different provinces have different ... health care, different workers’ compensation, so those are impacted.”
When employees move, the complexity increases, and pandemicera programs illustrated how uneven rules can become, Daly says. For employers, the key to staying informed comes back to knowing where to look for answers.
“I can't always spin [province-specific knowledge] off the top of my head,” Daly says. “But I know where to go look to find the most recent information, and that is the most important part.”
