It can be an organization’s worst nightmare. The phone rings. The payroll department picks up. Who’s on the other end? A government auditor.
At some point, HR and payroll practitioners will likely work for an organization subjected to a government audit of some kind.
Perhaps you are one of the luckier ones who already lived through the experience and can now brag about it. But, an audit is something every organization should always be prepared for.
In today’s business world, organizations are striving to implement best practices across all business lines. Payroll experts need to ensure that any organizational changes do not compromise compliance rules. Whether determining an employment relationship under the Income Tax Act, deciding what earnings are assessable for workers’ compensation or advising the best way to handle termination packages, payroll has a pivotal role to play in compliance.
Though by no means exhaustive, the following list details some of the things an auditor will want to know. Keep in mind that responsibilities vary greatly from organization to organization, and regardless of where the responsibility lies, management must be informed of all related compliance issues to avoid heavy fines and penalties.
Federal responsibilities
•Ensure all employment relationships are defined correctly in accordance with the federal Income Tax Act and Quebec Taxation Act.
•Set up employees on payroll based on province of employment, not province of residence.
•Ensure all statutory deductions for Canada/Quebec Pension Plan contributions (C/QPP), Employment Insurance premiums and income taxes are being done properly. Make sure payments and taxable benefits are made on behalf of employees.
•Hold statutory deductions “in trust” and remit along with the employer’s share on the appropriate due date to Canada Customs and Revenue Agency (CCRA) and/or the Ministere du Revenu du Quebec (MRQ).
•Report employee earnings and deductions for the previous year on the appropriate information returns (T4/T4A/RL-1) to the CCRA and/or the MRQ by the end of February.
•Ensure pension plans are registered with the CCRA, if applicable, and complete and file required annual returns.
•Register sick leave, wage loss replacement and weekly indemnity plans with Human Resources Development Canada (HRDC) to qualify for a reduced employer EI premium rate.
•Keep records related to all the above for six years.
Provincial responsibilities
•Make sure all applicable employment or labour standards legislation in the employee’s province of work are being followed. (If the business is federally regulated, follow Part III of the Canada Labour Code.)
•Set up and register for workers’ compensation protection based on the jurisdictions in which employees work. Ensure assessable earnings are set up properly. Consult legislation for definitions of assessable earnings under each provincial board or agency to determine whether or not mandatory participation is required.
•Set up and register with any provincial pension governing body for the registered plan, if applicable.
•Set up and register for health care levies and payroll taxes where there are employees working and reporting to establishments in Manitoba, Newfoundland, Ontario and Quebec. Some jurisdictions have payroll dollar exemption thresholds before the levy or tax applies. Ensure earnings are properly set up for calculating the appropriate levies and taxes. Go back and check applicable legislation for definition of remuneration subject to the taxes and levies and the payroll exemption amount.
•Establish group plans, where required, for the Alberta Health Care Insurance Plan and the Medical Services Plan of B.C. for employees working in either province.
•Maintain proper records for all the above as defined within each of the governing acts. Records may be necessary to dispute claims for unpaid wages.
Internal communication issues
•Advise accounts payable, and staff involved in hiring, of the proper procedures for handling consultants or contractors. Support recommendations with documents from the applicable governing agency (for example, the CCRA’s T4001 Employers’ Guide to Payroll Deductions Basic Information, along with the publication titled, Employed — Self Employed?, CPT1 Form – Ruling, as to the status of a worker under the Canada Pension Plan Act and Employment Insurance Act.)
•Equally important is the determination of province of employment, not only from a taxation perspective but also for establishing proper employment and labour standards, workers’ compensation and health-care coverage. Those involved must be informed of all related compliance, which may involve providing guidance and interpretation of the many legislative provisions.
•Disclose full details on proper treatment of taxable benefits as this is key in an audit. One of the first stops in the audit process is finance or accounting to determine what types of invoices are being paid, and with what regularity. Careful scrutiny is given to “consultant and contractor” type invoices. Also given consideration are the payments to various benefit carriers and leasing companies. This assists auditors in determining whether or not taxable benefits are assessed appropriately.
•Establish a regular communication channel to continually advise appropriate individuals or departments of upcoming or pending legislative or regulatory changes that impact operations.
Kimberley Fiume is director of client services for LeadingEdge Payroll Group Inc. She can be reached via e-mail [email protected].
At some point, HR and payroll practitioners will likely work for an organization subjected to a government audit of some kind.
Perhaps you are one of the luckier ones who already lived through the experience and can now brag about it. But, an audit is something every organization should always be prepared for.
In today’s business world, organizations are striving to implement best practices across all business lines. Payroll experts need to ensure that any organizational changes do not compromise compliance rules. Whether determining an employment relationship under the Income Tax Act, deciding what earnings are assessable for workers’ compensation or advising the best way to handle termination packages, payroll has a pivotal role to play in compliance.
Though by no means exhaustive, the following list details some of the things an auditor will want to know. Keep in mind that responsibilities vary greatly from organization to organization, and regardless of where the responsibility lies, management must be informed of all related compliance issues to avoid heavy fines and penalties.
Federal responsibilities
•Ensure all employment relationships are defined correctly in accordance with the federal Income Tax Act and Quebec Taxation Act.
•Set up employees on payroll based on province of employment, not province of residence.
•Ensure all statutory deductions for Canada/Quebec Pension Plan contributions (C/QPP), Employment Insurance premiums and income taxes are being done properly. Make sure payments and taxable benefits are made on behalf of employees.
•Hold statutory deductions “in trust” and remit along with the employer’s share on the appropriate due date to Canada Customs and Revenue Agency (CCRA) and/or the Ministere du Revenu du Quebec (MRQ).
•Report employee earnings and deductions for the previous year on the appropriate information returns (T4/T4A/RL-1) to the CCRA and/or the MRQ by the end of February.
•Ensure pension plans are registered with the CCRA, if applicable, and complete and file required annual returns.
•Register sick leave, wage loss replacement and weekly indemnity plans with Human Resources Development Canada (HRDC) to qualify for a reduced employer EI premium rate.
•Keep records related to all the above for six years.
Provincial responsibilities
•Make sure all applicable employment or labour standards legislation in the employee’s province of work are being followed. (If the business is federally regulated, follow Part III of the Canada Labour Code.)
•Set up and register for workers’ compensation protection based on the jurisdictions in which employees work. Ensure assessable earnings are set up properly. Consult legislation for definitions of assessable earnings under each provincial board or agency to determine whether or not mandatory participation is required.
•Set up and register with any provincial pension governing body for the registered plan, if applicable.
•Set up and register for health care levies and payroll taxes where there are employees working and reporting to establishments in Manitoba, Newfoundland, Ontario and Quebec. Some jurisdictions have payroll dollar exemption thresholds before the levy or tax applies. Ensure earnings are properly set up for calculating the appropriate levies and taxes. Go back and check applicable legislation for definition of remuneration subject to the taxes and levies and the payroll exemption amount.
•Establish group plans, where required, for the Alberta Health Care Insurance Plan and the Medical Services Plan of B.C. for employees working in either province.
•Maintain proper records for all the above as defined within each of the governing acts. Records may be necessary to dispute claims for unpaid wages.
Internal communication issues
•Advise accounts payable, and staff involved in hiring, of the proper procedures for handling consultants or contractors. Support recommendations with documents from the applicable governing agency (for example, the CCRA’s T4001 Employers’ Guide to Payroll Deductions Basic Information, along with the publication titled, Employed — Self Employed?, CPT1 Form – Ruling, as to the status of a worker under the Canada Pension Plan Act and Employment Insurance Act.)
•Equally important is the determination of province of employment, not only from a taxation perspective but also for establishing proper employment and labour standards, workers’ compensation and health-care coverage. Those involved must be informed of all related compliance, which may involve providing guidance and interpretation of the many legislative provisions.
•Disclose full details on proper treatment of taxable benefits as this is key in an audit. One of the first stops in the audit process is finance or accounting to determine what types of invoices are being paid, and with what regularity. Careful scrutiny is given to “consultant and contractor” type invoices. Also given consideration are the payments to various benefit carriers and leasing companies. This assists auditors in determining whether or not taxable benefits are assessed appropriately.
•Establish a regular communication channel to continually advise appropriate individuals or departments of upcoming or pending legislative or regulatory changes that impact operations.
Kimberley Fiume is director of client services for LeadingEdge Payroll Group Inc. She can be reached via e-mail [email protected].
