The key to focusing on your business? Keeping your payroll precise

The key to focusing on your business? Keeping your payroll precise

A great business is often sparked by a great idea, but that doesn’t mean entrepreneurs instinctually understand all aspects of running a business. Many of the moving parts of starting and maintaining a business require a lot of learning, and payroll is no exception. It may not be the reason you started your business, but payroll plays an important role in keeping it running, which is why a strong record keeping system is so important.   

What is payroll record keeping?

Payroll record keeping includes the storing of all documentation related to paying employees. This includes everything from pay statements to hiring documents and direct deposit forms. 

And while proper payroll record keeping may not be the most interesting aspect of managing a business, giving it the attention it deserves is time well spent.

That’s because payroll and compensation are deeply sensitive and personal subjects to employees. As such, they require high levels of care, privacy and confidentiality. It is the employer’s responsibility to ensure employees are paid accurately and on time as well as to guarantee their compensation information is safe and confidential. To achieve this, you need to have proper systems in place to collect and store accurate employee data. 

The reality is that many business owners are unaware that there are federal, provincial, territorial and ministerial laws that guide the collection and storage of employee data. Staying on top of these legal requirements in your record-keeping practices will not only save time, but also reduce frustration in the long run.

How do you meet federal requirements?

While keeping payroll records may seem straight forward, there are a few federal requirements for employee information to keep in mind. 

Besides basic employee information like name, address and SIN number, other federal requirements for record keeping include logging:

  • Daily hours of work 
  • Actual earnings, wage rates and basis 
  • Payments made after deductions and details of deductions 
  • Information on annual vacation, legislated leaves or statutory holidays 
  • Information on averaging, if appropriate, employer pay periods 
  • Information on notice of termination or intention to terminate, 
  • Information on notice of work schedules that exceed either the standard or maximum hours of work 
  • Information on absences due to work-related injury or illness in addition to any changes to the rate of pay and effective dates 

Why does payroll record keeping matter?

Proper payroll record keeping not only ensures the wellbeing of your employees, but of your business too. That’s because the government conducts regular payroll audits, which will depend on your data to verify your records. Payroll audits, which can randomly target any business at any time, differ from traditional business tax audits, which most employers anticipate. A payroll audit is an inspection by a third party to confirm compliance with payroll administration, accounts payable and receivable, and the recording of taxable benefits.  

When it comes to audits, being aware of the following processes will set you up for success when the next one comes:

  • You’ll receive a written notice of audit in advance with a designated time (note: it can be rescheduled, if needed)  
  • Your audit notice will include a list of all the information your auditor expects to see in print or digital form  
  • When the auditor arrives, you should ask them to produce their ID  
  • The auditor will conduct the audit and ask questions, as necessary. It’s up to you to provide certain details and, some cases, make determinations, such as who your key stakeholders are 
  • The auditor will likely pinpoint certain issues they want to focus on   
  • At the end of the audit, you will be given a written recommendation report  
  • If you are non-compliant, you will be given time to fix your errors. It is also possible to appeal the auditor’s ruling  

No matter where you are in your record keeping, understanding how it impacts both the short and long-term success of your business is key. To learn more about how to properly maintain your records or nail your next audit, check out the National Payroll Institute’s  Payroll Wellness Check-up for Small and Growing Businesses.

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