Report calls for more efficient payroll framework through simplified taxation, harmonized policies
Laden with hundreds of rules, Canada’s payroll compliance regime is hurting employers.
And that could make the country less attractive for investment, says a report, which calls for a more user-friendly payroll system.
The annual cost of payroll compliance is $12.5 billion for Canadian employers, says the report by PwC Canada, commissioned by the Canadian Payroll Association.
But the full costs to the economy are likely higher, due to the government’s need to audit such a complex system as well as missed economic opportunities.
“At a time when we can least afford it, the labyrinth of legislative requirements governing payroll is impeding our economy’s growth — forcing Canadian businesses to invest billions of dollars and thousands of hours just to be compliant,” says Peter Tzanetakis, president of the Canadian Payroll Association. “It’s troubling that the economic recovery of Canada, its businesses and people, might be hindered by compliance requirements that are actually fixable.”
The high costs and complexity of compliance are diminishing employers’ ability to innovate, and expand into new Canadian markets, says the report, highlighting how employers operating in multiple provinces spend more time on payroll compliance than those operating in a single jurisdiction.
“Organizations that are looking to establish a presence across Canada are also faced with regulatory disharmony between provincial jurisdictions,” says Tzanetakis. “This makes Canada less appealing for international companies considering entering the Canadian market — which is even more alarming given the increasing shift to global business operations with more remote workers.”
Employers of all sizes have found it challenging to access government support programs during the pandemic, suggesting there’s a strong need for harmonization and a digital, more accessible payroll system. And the large number of announcements — more than 300 since March — since the pandemic started have increased payroll’s complexity.
The report recommends several actions to move to a more efficient payroll framework in Canada:
Simplify the taxation system, starting with taxable benefits: Since the accurate identification and valuation of taxable benefits is one of the most onerous responsibilities for payroll professionals, the government should review and update policies that are outdated or lack clarity. That includes reviewing tax-free benefit thresholds that have not been indexed with inflation in recent years, such as the $650 tax-free allowance for moving expenses which has not changed since 1984.
Harmonize payroll policy: Employers in every province and territory are operating under different rules, so greater harmonization of payroll policies across Canada would decrease the complexity and costs associated with compliance and create a business investment climate more conducive for employers wishing to expand into Canada.
Implement a digital payroll system: A digital payroll system would enable employers to input payroll data into a system that would then be securely accessed by governments and agencies to calculate benefit entitlements and remittance obligations. As a long-term objective, digital payroll would significantly reduce the costs of compliance and increase data integrity, transparency, and pave the way for more effective delivery of Canada’s social programs.
The report’s findings are based on PwC Canada research collected through interviews and focus groups with payroll professionals in a range of roles, a survey of over 2,400 payroll professionals, and secondary sources.