Overview

As a business, discovering that a payroll error has triggered a CRA review—or worse, penalties, can feel like a nightmare scenario. Whether it’s missed remittances or employee misclassification, at Accountants-BC Ltd., we understand how quickly these issues can snowball without expert oversight.

This blog outlines the exact mistakes that raise red flags with the CRA, why they happen more often than you’d think, and how professional accounting support can stop the damage before it starts.

Highlights

Introduction

Payroll errors can show up as penalties, audits, or unexpected notices. Knowing where businesses most often go wrong gives you a real advantage: You can fix weak points before they cost you.

With a clear look at the patterns that lead to CRA scrutiny, you know what can be done to avoid them. You don’t need to become a payroll expert, but you do need to recognize potential vulnerabilities.

The next section explains what most businesses miss—and why it matters.

Why Accurate Payroll Accounting Matters for Businesses

A late remittance, a missing T4, or a misclassified contractor might seem like minor, forgivable errors. To the CRA, however, they reveal a breakdown in compliance, and that’s often all it takes to trigger a review. Once that happens, the burden shifts to you to prove everything is in order.

When payroll is managed precisely, your reporting stays aligned with CRA expectations. That means fewer questions, no corrective filings, and no avoidable fees. Every transaction supports the integrity of your financial records and reinforces your position if the CRA ever reviews your file.

Accurate payroll also helps you avoid operational setbacks. Errors can delay tax filings, disrupt employee payments, or force last-minute corrections during year-end reporting. A history of inconsistencies can lead to compliance flags, strained internal workflows, and reduced confidence in your financial systems.

What Happens With Missed or Late Payroll Remittances?

Payroll remittances can be missed for simple reasons—cash flow issues, incorrect due dates, or administrative oversight. The CRA doesn’t consider intent, however. If a payment is late, even by one day, it’s subject to penalties.

The CRA applies a tiered penalty system based on how late the remittance is and whether it’s a repeated offence. Penalties start at 3% for remittances one to three days late and increase up to 10% for anything more than seven days. Repeated failures can trigger a 20% penalty.

In addition to penalties, compound daily interest is charged on the outstanding amount starting from the due date. The CRA may also view chronic lateness as a sign of broader non-compliance, which can increase the likelihood of further scrutiny or an audit.

Classifying Workers in Your Payroll System

Misclassifying your workers involves labeling them as self-employed when they legally qualify as employees. The CRA looks at control, ownership of tools, chance of profit, and risk of loss to determine a worker’s true status—not what the contract says.

To classify workers correctly, you must assess the actual working relationship. Employees typically follow company schedules, use company tools, and have limited financial risk. Self-employed individuals operate independently, set their own hours, and can profit or lose based on how they manage work.

The consequences of misclassification can include:

  • You may owe back payroll deductions for CPP and EI.
  • Workers may be entitled to unpaid vacation or holiday pay.
  • You risk triggering a broader payroll or tax audit.
  • The CRA can charge interest on unpaid amounts.

Understanding Remuneration in Worker Classification

How a worker is paid also helps determine whether they’re considered an employee or self-employed. Employees typically receive a fixed wage on a regular schedule—weekly, biweekly, or monthly—and may also receive benefits like vacation pay, bonuses, or reimbursements. These structured payments are a strong indicator of an employer-employee relationship.

Self-employed individuals are usually paid per contract or project, invoice for their services, and handle their own expenses. They don’t receive paid time off, and their income can fluctuate depending on how they manage their work. The more control a worker has over how and when they’re compensated, the more it suggests a business relationship rather than employment.

Which T4 Slip Errors Can Lead to CRA Audits?

The T4 slip is a summary of employment income and deductions issued to employees and the CRA. It’s used to confirm that payroll remittances match what was reported and withheld throughout the year. Since it ties directly to both employee tax returns and employer filings, accuracy is essential.

One error that can lead to an audit is reporting income that doesn’t match remitted amounts. If the CRA sees a mismatch between what was paid and what was reported, it may trigger a deeper review to determine whether remittances were short or deductions were miscalculated.

Here are a few other errors a professional can help you avoid:

  • Missing or incorrect employee Social Insurance Numbers
  • Failing to report taxable benefits
  • Using the wrong year for income earned or reported
  • Duplicate T4 slips for the same employee
  • Incorrect Box 14 totals that don’t match gross pay records

Can You Fix T4s After They’ve Been Filed?

If you’ve already filed T4 slips and discovered an error, you can submit amended, cancelled, or additional slips to correct the information. Each correction type—whether you’re changing a dollar amount, removing a slip, or adding a missing one—has a specific process.

Different correction types come with different requirements. For example, if you need to correct a box or code on a filed slip, the CRA expects you to submit an amended or canceled version, not just reissue a new one. These rules can be easy to overlook, which is why it’s best to hire a professional accountant to manage them.

What Are the CRA Payroll Recordkeeping Requirements?

The CRA requires employers to keep detailed payroll records that support all amounts reported, deducted, and remitted. This includes time sheets, pay stubs, T4 slips, remittance summaries, and more. Following best practices for organization and retention can reduce the risk of audit complications.

One specific requirement is that records must be kept at your place of business or residence in Canada. If you want to store them electronically outside the country, you must receive written permission from the CRA. Failing to meet location requirements leaves you open to penalties.

Here are some other requirements:

  • Keep records for at least six years from the end of the last tax year they relate to.
  • Maintain records in either English or French.
  • Ensure records are complete and legible at all times.
  • Be able to provide records upon CRA request without delay.

How Do CPP and EI Deduction Errors Affect Your Payroll?

CPP (Canada Pension Plan) and EI (Employment Insurance) are mandatory payroll contributions for most employees in Canada. Employers are responsible for deducting these amounts from employee wages and matching them as required by law, and the CRA monitors these closely.

Deduction errors happen when too much or too little is withheld from an employee’s pay or when the employer’s share is miscalculated. These mistakes can stem from incorrect setup in payroll software, outdated exemption status, or simple input errors.

Errors in CPP and EI deductions affect more than just individual pay; they can lead to discrepancies in year-end reporting, overpayment or underpayment of contributions, and penalties for non-compliance. Corrections can be time-consuming and may require amending multiple records and filings.

Reporting Taxable Benefits

Taxable benefits include any form of compensation beyond regular wages, such as cash bonuses, gift cards (near-cash), and personal use of a company vehicle (non-cash). These benefits must be accurately valued and reported on the employee’s T4 slip.

If taxable benefits aren’t reported correctly, they can result in underreported income, inaccurate deductions, and mismatches the CRA is likely to flag. Whether a benefit is taxable depends on whether the individual is the primary beneficiary and receives an economic advantage measured monetarily.

How an Accountant Helps Address and Avoid Payroll Mistakes

Payroll mistakes can happen easily with so many rules, deadlines, and reporting details to follow. If something does go wrong, an accountant knows how to make the proper corrections and deal with the CRA on your behalf.

Here are some of their key functions:

  • Review past remittances and identify missed or late payments.
  • Correct CPP, EI, and income tax deduction errors.
  • Amend, cancel, or refile T4 slips as required by the CRA.
  • Respond to CRA notices and manage audit correspondence.
  • Calculate and submit penalty or interest payments when necessary.
  • Provide guidance on taxable benefits and proper reporting.

Hire an Accounting Service for Payroll Compliance in Canada

If you’re unsure whether your payroll setup meets CRA expectations, Accountants-BC Ltd. can help you get clarity before problems arise. We work with businesses to tighten payroll processes, correct past errors, and stay ahead of changing requirements.

Reliable compliance starts with accurate systems and consistent oversight. Call (604) 683-2341 to hire an expert accounting service today.