Payroll in Canada: How do I select a payroll system for my Canadian business?

Starting a new business in Canada? Payworks’ five-part “Payroll in Canada” series is here to guide you through each step of the payroll process – from registering your business to generating T4s and beyond. Here’s where to find the full series:

• Part 1: How do I register my Canadian business to run payroll?
• Part 2: How do I select a payroll system for my Canadian business?
  

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All right, so you’re up to speed on how and where to register your business (psst: if not, check out the first article in this series!); what’s next?

In this second entry of our “Payroll in Canada” series for new businesses just like yours, we’ll cover:

• How should business owners evaluate payroll processing systems?

• What are the main payroll processing options?
• What should business owners know about manual, in-house payroll processing?
• What should business owners know about in-house payroll with basic processing software?
• What should business owners know about payroll solution provider processing with in-house administration?
• What should business owners know about managed payroll services?

Be sure to keep your eyes open for the upcoming articles in our series – because we’re here to help take the guesswork out of payroll and get you back to focusing on your growing business. In future installments, we’ll be going over what information you need to set up your payroll, how to run your first pay and generate your first T4s/RL-1s and ROEs, and how to remain legislatively compliant in the process!

How should business owners evaluate payroll processing systems?

You’ll want to keep a few key points in mind when considering the various available payroll processing options. Reflecting on the following should help you focus your attention in the most effective places, and should also help you in the selection process of the best final system.

• Your business and workforce:
  1. Do you expect to scale up the size of your workforce quickly, such that your payroll process should be able to do the same?
  2. Are your employees paid at different frequencies?
  3. Will your employees be in one or multiple legislative jurisdictions?
• Legislative compliance and data protection:
  1. How comfortable are you or your payroll administrator with pay schedules, deductions and staying up-to-date on legislative compliance?
  2. How experienced are you in correcting errors in calculations, remittances and the possible costs associated with rectifying errors?
  3. Where and how will payroll information and very sensitive data be stored?
• Resources:
  1. Do you currently use any systems or software (accounting, time clocks, etc)?
  2. How much time do you or your payroll administrator have to dedicate to payroll processing?
  3. How much payroll support might your business need and where will it come from?
• Features and functions:
  1. What payroll tasks would you like automated, if any (payroll and tax calculations and filing, employee payments, error notifications, etc)?
  2. Do you want to offer your employees a self-service option for tracking time and viewing work calendars?
  3. Are you interested in reporting capabilities that could offer you statistical insights into your workforce and business?

What are the main payroll processing options?

There are four main payroll processing options available, and the questions you answered above will help you determine which category might best fit your business! We’ll go into more detail for each category so you can feel more confident in making your selection, but as a starting point, the four main options for payroll processing are:

• Manual, in-house payroll processing: completed entirely by you or your own team without the use of dedicated software.
• In-house with the use of basic software: completed entirely by you or your own team with the help of some software to automate calculations and reporting.
• Payroll solution provider with in-house administration: partnering with a third party to streamline complex calculations and reporting, leverage direct deposit and self-service functionality, and gain access to knowledgeable support.
• Managed payroll service: payroll processing partially or fully outsourced to a third party.

What should business owners know about manual, in-house payroll processing?

DIY-ing your payroll means just that: all the responsibility falls upon you and your crew. What does this look like in practice? Typically, a business owner or a dedicated administrator would compile calendars and time sheets, generate calculations, process deductions and remittances, and remit payments. And if you’re not using payroll software, this means paper forms, spreadsheets, and calculators would be the primary tools in your toolkit.

Benefits: As you might imagine, this option offers the lowest financial cost! And it empowers owners to take complete control of the whole process. This approach is best suited to very small or simple payroll situations, or to owners with a substantial working knowledge of the ins and outs of Canadian payroll.

Challenges: While this option might save you money upfront, it does have its own cost: your time (which is particularly valuable when you’re running your own business). This method is the most time-consuming and carries the highest risk for delays and errors. It can also be hard to scale your payroll operations as your business grows (multiply the current payroll administration time for every employee!), including limits on e-transfers when paying employees through online banking. Another cost to factor in: compliance mistakes, which can be costly not only in government fines, but also in employee morale, particularly in cases of miscalculation. Payroll administrators need to be well informed to remain accurate and compliant, including around the storage of sensitive employee data.

What should business owners know about in-house payroll with basic processing software?

Looking to empower yourself with better tools? In this option, a business owner or administrator takes on payroll tasks… but rather than having the process be entirely manual, they use software or various systems to help automate certain aspects along the way.

Benefits: Owners maintain considerable control of this process and costs are still fairly low, depending on the software used. While functions may vary depending on the software chosen, some popular automations include time tracking, calculations, basic reporting, easier journal entries, etc. These can help save time and reduce errors – during both the regular pay cycle and year-end. This approach is most appealing to situations in which payroll is still relatively simple, and where owners are considerably knowledgeable about payroll legislation and comfortable using different administrative tools.

Challenges: Drawbacks are similar to those of the manual in-house option, as this still requires a decent amount of time and in-house compliance knowledge. You’re still on the hook for remittances, year-end and other forms and filings, paying employees accurately and on time, making sure integrated software or tools communicate with one another, and the correction of any errors along the way (along with any fines for said errors).

What should business owners know about payroll solution provider processing with in-house administration?

When you partner with a payroll solution provider, they’ll take on certain tasks related to payroll (more on that below), but the employer still maintains control of the day-to-day and decision-making. That’s one of our specialties here at Payworks: we take on the background work to free up time for strategic management and running your business!

Benefits: Business owners retain all decision-making and are required to review and green-light payroll before its final submission (and pay). Payroll calculations are automated (including overtime, vacation and statutory holiday pay); statutory deductions and remittances are also taken care of (such as CPP/QPP, EI, WCB). Depending on the provider, they (and in this case, we mean “we”) can also handle submitting ROEs, T4s and year-end reporting – all while ensuring compliance with the latest legislation and providing you with easy access to dedicated payroll experts who’ll get to know your business and help answer your payroll questions. Employees also appreciate punctual payments thanks to direct deposit, along with quick, secure access to online pay statements.

Service providers may also offer additional tools that integrate with their payroll solution to provide a seamless workforce management experience from hiring onwards – such as scheduling and time tracking, absence management, applicant tracking and onboarding, and benefits administration just to name a few. You should also keep your eye out for providers that offer no-cost integrations with popular accounting software. This leads to a reduction in errors and miscalculations (and their related penalties), and significant time savings to inject back into the business.

This option is appealing for businesses with a growing workforce or with varying payroll needs, for owners who may not feel particularly confident in their payroll and legislation knowledge, or for those who prefer to invest their time and resources in other non-payroll aspects of their business.

Challenges: This approach is more costly than the first two in-house options… but these costs may very well be offset by lower chances of compliance or remittance issues and linked penalties (and again, the value of your own time!).

What should business owners know about managed payroll services?

Managed payroll services offer different levels of service with the end goal of offloading most tasks and outsourcing payroll. Providers can customize service to your preferred degree of involvement – just like we do for Payroll Assist and Payroll Complete – so that you can decide how much you want to be involved and when.

Benefits: You choose your level of involvement in your payroll – from hands-on involvement in day-to-day to simply signing off on final approvals. This option requires minimal internal resources and is highly accurate, thus reducing compliance risks and penalties. Filings are automated and reports can be customized to your company’s needs, and employees have easy online access to a self-service portal. You also have access to a dedicated expert taking care of your payroll in-and-outs, and this service can be scalable with the added bonus of simplified onboarding when your company grows. This option is popular with businesses wanting to minimize time spent on payroll administration (and the potential for costly errors) so they can focus their attention on the rest of the business.

Challenges: Some business owners may struggle with having less direct control over payroll and building that initial trust with a service provider – good communication is key. This is also the most expensive of the four options, but requires the least amount of active time and involvement.

The next installment of our “Payroll in Canada” series will cover payroll setup, including necessary employee information, deductions and benefits. Stay tuned to our blog so you don’t miss out on any important details!

Looking for a hand in getting your payroll going – from setup to getting things up and running, and supporting with knowledge and assistance? Payworks has been there for Canadian business owners for over 25 years… so let us help you manage payroll confidently and avoid costly mistakes.