Processing payroll is one of the most important — yet administratively burdensome — business tasks. for clinics. Payroll compliance requirements continue to evolve, and ensuring you are on top of the rules can be challenging.
We look at some of the common payroll challenges that clinic owners face, as well as tips that will help improve your payroll process and ensure you use your time efficiently to stay focused on growing your clinic.
Common Payroll Challenges for Clinics
1. Payroll Errors Due to Manual Processes
For many clinics, payroll can be a highly intimidating task. There are numerous rules and regulations, forms to file, and deductions to withhold. Missed deadlines or mistakes can result in financial penalties and disgruntled employees. Despite the error-prone nature of manually processing payroll, many clinics still rely on physical timesheets and Excel spreadsheets because they are readily available!
Common payroll processing errors include:
- Miscalculating Payroll: If your clinic uses physical timesheets to calculate payroll, you’re leaving it open to human error. With all the payroll data to track time and attendance, vacation pay, overtime, and commissions, the occasional mistake will inevitably be made.
- Misclassifying Employees: There’s much to remember when processing payroll, even more so when done manually. Employee classification, for example, can have a big impact. Contractors are usually responsible for their own payroll deductions and require T4As instead of T4s.
- Missing Payroll Deadlines: Payroll must be processed several days in advance to ensure employees are paid on time, and deductions are processed without remittance penalties and late fees. If you leave it too late, banks won’t have time to process the deposits, negatively impacting your team members.
2. Payroll Legislation Can Be Complex
Clinic owners have neither the time nor the interest in learning about employment legislation and its associated regulations. Payroll is one of the tasks that should be taken off your plate as soon as possible.
Some of the common complexities that come with payroll legislation include:
- How much should you, as the employer, deduct CPP and EI from the paychecks of full-time employees, and how much CPP and EI should you contribute?
- How to calculate vacation pay and when to issue termination pay (which can differ from province to province and lead to legal ramifications if not done properly).
- How and when to file the Record of Employment (ROE) of employees who leave.
- How and when to issue T4s (or T4As for contractors) and handle vacation rollover.
3. Allocating Employee Wages to Departments
Allocating employees to different departments in your organization is important. Payroll is your most significant expense, and to generate correct and useful data, you need team members assigned appropriately.
Most payroll software today will generate a journal entry that you can customize based on these classifications so that employees are allocated accurately to the appropriate general ledger account, giving you an accurate monthly profit and loss statement.
Typical classifications may include administration, facility, front desk, management, and marketing. From time to time, you may feel it is important to reallocate team members to different departments as roles evolve. Your payroll service provider should be able to accommodate these changes in your payroll software. That said, you want to prevent frequent changes in departments as this can make period-to-period comparisons less meaningful.
Tips To Improve Your Clinic’s Payroll Processing
1. Use Cloud-Based Payroll Software
Ditch the pen and paper, the calculator, even the spreadsheet! Instead, use cloud-based payroll software like QuickBooks Online or Payworks to manage your payroll. There are many benefits to cloud-based payroll software, the main one being that there’s one central location for all your employee payroll data.
In addition, cloud-based payroll software usually has direct deposit capabilities and can automatically generate employee T4s and ROEs. Some even can generate and remit payroll taxes directly to the CRA.
2. Use Payroll Software With Integrated Time Tracking
Having time-tracking software means you can also ditch the physical spreadsheets. Instead, employees and contractors can track and submit their time electronically, allowing for easier and more accurate tracking of time allocated to a specific project.
We recommend clinic owners use Payworks as their payroll platform, integrating the Time & Attendance module for hourly staff. This will help you get away from manual timesheets. You can also consider Payworks’ Time & Attendance module to track employee vacation. This is especially relevant for clinics that allow employees to accrue vacation rather than pay it out each pay period.
3. Hire a Payroll Compliance Practitioner (PCP) to Manage Your Payroll
Some clinic owners might feel that running payroll is the only option they can afford and that paying for payroll services (whether an accountant, outsourced contractor or payroll software) is out of budget.
However, payroll for clinics can be complex, and there are penalties for missed deadlines. It’s one of the critical functions that should be handled by an expert rather than being added to a clinic owner’s already full plate. Hiring a Payroll Compliance Practitioner is a smart move, making them responsible for some or all of the following:
- Calculating employer health tax and work-safe (WCB)/WSIB filings
- Withholding employee deductions and making government remittances - while the software will do the work, there can be adjustments required for employee-specific circumstances
- Processing direct deposits or paychecks for hours worked
- Submitting T4s for employee income tax filings
- Issuing ROEs (record of employment) for exiting employees
- Preparing bookkeeping entries to get employee costs into the appropriate accounts on your monthly profit and loss statement
4. Outsource Your Payroll
In many cases, hiring a full-time payroll compliance professional may not make financial sense for your organization. That’s when outsourcing your payroll to a service provider like Enkel might make more sense. Not only will you get access to payroll professionals well-versed in compliance and upcoming legislative changes, but it won’t add to your team headcount, eliminating the need to deal with payroll personnel turnover, training, or vacation coverage.
Payroll is one of those functions that you cannot afford to get wrong. Payroll legislation can be complex, and a payroll compliance practitioner should manage payroll to ensure compliance.
Tips on T4s and T4As for Clinic Owners
Before filing year-end information slips with the CRA (primarily T4s and T4As), it is important to have all the relevant information necessary to file the slips with the CRA.
First of all, make sure employee and contractor details are up to date. Key pieces of information include:
- Social Insurance Number (SIN) - This is CRA’s unique identifier for each taxpayer. Most tax software will not let you prepare T4s and T4As without this. But keep in mind that SINs can change for various reasons, so make sure the SIN you have on file is the most up-to-date SIN for your employee or contractor.
- Legal name
- Home address
You must file T4s and T4As for all employees and contractors who worked for you during the year, so make sure you also have this information for people who are no longer working for you.
T4s
The T4 is commonly referred to as the Statement of Remuneration Paid. Quite simply, an employer must file a T4 for all money paid by an employer to an employee during a calendar year if the employee was paid more than $500 during the year.
Box 14 is where employment income gets reported. This includes (but is not limited to) salaries and wages paid to the employee, bonuses, commissions, etc.
If you have been processing payroll through a payroll platform for a while, preparing T4s can be quite routine.
While there are a lot of details to include on a T4, make sure to consider the following:
- You and/or your relatives working there may be EI-exempt if you own the clinic. The exemption should be reflected in box 28. (More info on this below).
- All remittances made by the employee (or that you made to the CRA on their behalf) should be reflected on the T4. This includes Income Tax deductions, EI, and CPP.
- Taxable benefits - If you provide your employees with taxable benefits that are not included in any other box, they get reported in box 40. Note that each specific benefit will have to be considered separately as to whether it is to be a taxable benefit or not. Usually, your benefits administrator can provide you with a summary of this information on a per-employee basis.
The CRA requires that T4s be filed electronically. You can do this directly on the CRA website by uploading a file in the relevant format or directly from your payroll software.
T4s are due February 28 for the prior calendar year. Penalties for filing late are steep, so make sure you file on time!
T4As
T4As have caused a lot of confusion over the years. Yes, they are required filing!
Historically, CRA’s position on late filing/non-compliance was unclear. That has changed, and in recent years, we have seen the CRA issue late filing penalties if these are not filed on time.
T4As can be used to report a variety of different kinds of income.
In the context of your clinic, T4As are relevant for payments to contractors who are not delivering their services to your business through a corporation but rather as individuals or sole proprietors. To be clear, you DO NOT need to issue a T4As form to contractors invoicing you through a corporation. Make sure you are clear on exactly who your contract is with and who is invoicing you.
Amounts paid to contractors would generally get reported in box 48 Fees for Service.
One challenge with preparing T4As is that the amounts paid can be hard to track down if not done through a payroll system. (Note: This is why we encourage clients to pay contractors through the payroll system at Enkel.) If you have not paid contractors through your payroll system, you must pull records from your accounting system to determine the amounts paid to your contractor throughout the year. Watch out for duplicate vendor accounts in your accounting software. This can lead to the income being under-reported.
Other comments
If you own the clinic, you and/or your relatives who work at the clinic may be exempt from EI - If you paid it already, make sure you reflect what you paid on your T4, but you can claim amounts paid back. There are specific rules here, but here is a link to the CRA website with more guidance: EI special benefits for self-employed people.
A common question that Clinic owners have is whether they should pay themselves a salary or a dividend. This is outside of the context of this post, but it is something that you should plan for proactively. Plan for this each year with your tax advisor. The decision will depend on your circumstances, cash flow needs, and long-term goals. There is no “right answer” here.
If managing payroll is something you’re looking to outsource, Enkel’s experienced payroll team can work with you to streamline and automate this otherwise burdensome task. We combine the best in payroll technology (included in your service fee) with our experienced team to ensure timely, accurate payroll processing for our clients.
Learn more about our payroll services.
