Securing Your Financial Health - Payroll
You are likely the only person in your business who has a full-time salary with benefits. I have always paid myself as though I was an employee so that I would have a regular income, accurate records and the ability to contribute to government pension programs. Besides it feels good to get a regular cheque! The business classes my salary as an expense. The only thing that I do not pay is Unemployment Insurance contributions because I would not be entitled to file a claim at any time due to the fact that I actually own the business.
By setting up the Payroll Program to issue a cheque for me every second Friday, I receive 26 cheques per year. In the early years or in times when I have extra expenses, I might print my cheque but not cash it for a couple of days. That way, the business has a little leeway, but the paperwork is accurate.
Remittances for Income Tax and government pension must be paid either monthly or quarterly (as defined by the government). Penalties can be levied for late payment.
You can work with your accountant to determine if adjustments should be made to your source deductions. You can increase them to avoid having to pay additional taxes at year end or decrease them to allow for RRSP contributions or additional deductions.
Having salaried employees is a very expensive proposition and I discourage it. A full-time staff member gets paid even if you are away from the office. You are also required to pay employer contributions for them which usually adds at least 17% to your expenses. Holidays and sick leave are paid even though you do not have productivity during those hours.
I prefer to hire contracted employees who do not receive any benefits. They submit timecards only for the hours worked which are defined by you and can therefore be controlled.
One of the benefits of owning your own business is that you can hire family members for tasks. The double benefit is that they have some income, and you have a write-off for income tax. Win/Win!
Government policies and procedures usually change each year as due Income Tax laws. It is therefore important that you have a good accountant and software program that will update you and help to make the necessary adjustments as they occur.