Keeping payroll on course during crisis

Of the many business challenges that have emerged from the disruption of the COVID-19 crisis, the human resources implications have been some of the most difficult to manage. Organizations that once handled basic administrative and compliance duties with relative ease are encountering new hurdles due to rapid legislative and economic changes. But that pales in comparison to the predicament facing other businesses — even entire industries — that remain under full or partial lockdown.

Their ability to deliver products and services is limited by social-distancing measures that are being lifted in some jurisdictions while being strictly maintained (or enhanced) in others. Many organizations are struggling to hold on to valued employees and are relying on programs such as the Canada Emergency Wage Subsidy and the Canada Emergency Business Account to stay afloat, all while reducing work hours and slashing executive pay.

Still, others have managed to adapt and pivot their business model to not only survive but thrive in the face of the global pandemic. We’ve seen organizations retool their assembly lines from making auto parts to ventilators and distilleries exchange spirit production in favor of hand sanitizers, while countless companies have turned to video conferencing and online project management platforms to enable their workforces to work remotely, all in a span of just a few months. An embrace of workplace change is the new norm in the COVID-19 era.

That brings us back to a standard HR task that used to be relatively straightforward to manage but is now burdening already-taxed HR departments: payroll deductions. As employers lay off staff and bring them back to work — in many cases at reduced hours and reduced compensation — there is a far greater chance that HR professionals could make payroll errors that will have negative tax and employment law compliance consequences. At the same time, much-needed COVID-19 relief measures that are providing companies with critical financial aid are also complicating payroll deduction procedures. Of course, getting payroll deductions right takes on new urgency as employers ramp up return-to-work plans in the months ahead.

It’s wise for employers to prepare and be diligent in their approach to managing payroll remittances and deductions because even as the Canada Revenue Agency (CRA) and provincial treasuries are offering leniency with tax deadline delays and late-penalty deferrals, they will eventually be conducting audits to ensure that remittances have been made as required. When that time comes, you want to ensure that your organization has its books in order and isn’t suddenly subject to costly back payments, penalties, or fines when it may have limited financial resources.

The first step is to understand your organization’s payroll remittance obligations. As you know, the deductions that employers can make from wages depend on applicable federal/provincial/territorial law. Generally, they can make the following deductions:

• Deductions required by federal/provincial/territorial legislation (taxes, EI premiums, etc.)
• Deductions authorized by law or by a collective agreement (court-ordered garnishment of wages, union dues, etc.)
• Specific amounts authorized by the employee in writing
• Overpayment of wages

It’s important to note that when it comes to payroll deductions to recoup overpaid wages, each province has varying rules as to how the process should be managed. In Ontario, for example, the Employment Standards Act, 2000, specifies that an employer must obtain an employee’s written permission to deduct an overpayment from regular wages, even if it’s the result of a clerical error, or unless authorized by a court order or statute. In Quebec, on the other hand, overpayments can be deducted if the employer can prove that the overpayment has occurred.

Failure to obtain written authorization from employees to make payroll deductions may mean that employers can’t make certain standard deductions such as for benefits or vacation that’s used but not earned at the time of termination. There are some deductions employers can’t make, even with a signed authorization. For example, in Ontario, an employer cannot deduct wages for a loss due to “faulty work,” such as where equipment is damaged, if there is a mistake with a credit card transaction, or where there is a cash shortage or lost/stolen property when an employee did not have sole and total control over the property in question. These rules are designed to protect employees from unfair wage clawbacks stemming from circumstances that may be outside of their control.

Also, employers must make the following payroll deductions and remit to the CRA:

• Canada Pension Plan contributions (except in Quebec, which has its own pension plan)
• Employment Insurance premiums
• Federal income tax
• Provincial income tax

Employers may also be required to make additional payroll deductions (such as for pension plans or union dues) based on negotiated agreements.

Payroll tax deductions can be complicated in certain circumstances. For example, if an employee lives in Manitoba but works in Ontario, payroll deductions to Ontario must be made on the employee’s behalf.

Government relief measures can complicate payroll
Factor in compliance requirements stemming from recently introduced COVID-19 relief measures and the task becomes even more complex. As part of the Canada Emergency Wage Subsidy (CEWS) — currently in effect until Aug. 29, 2020 — eligible employers can reduce payroll remittances of federal, provincial, and territorial income tax sent to the CRA. But with increasingly variable staffing and revolving layoffs in some organizations, understanding what to remit can be confusing. Those difficulties aside, employers still must continue remitting payroll deductions by their remittance due dates. The CRA provides an online payroll deductions calculator (https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/payroll-deductions-online-calculator.html) to assist employers with payroll deductions and remittances.

With a return to work imminent across some industries and workforce staffing levels shifting dynamically in others, the best practice is to be proactive and conduct a regular review of your organization’s payroll deduction processes and requirements. That could involve working with a labor and employment lawyer to fully understand an organization’s obligations, but certainly with HR and accounting teams to ensure remittances are meeting government-mandated deadlines and that payroll deductions are accurate.

The last outcome your organization needs is to persevere through COVID-19 only to have an intrusive CRA audit and potential penalties due to payroll deduction errors. Organize and manage this responsibility carefully now to protect your bottom line later — and save your HR team a great deal of stress and time in the process.