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The payroll year end

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Payroll year end is not a single task but a sequence, and most of the trouble in it comes from things that were true all year and only become visible in January. The cycle is: close the year's payroll, account for anything that never went through payroll, reconcile what was withheld against what was remitted, file the information returns and distribute copies, then deal with whatever the reconciliation exposed. An employer who treats year end as "produce the T4s" has skipped the two steps either side of it, and those are the steps where errors are found while they can still be corrected cheaply. This tutorial puts the sequence in order and covers what to do when the reconciliation does not balance.

How to work through this tutorial

This is the annual cycle in the order an employer actually works it: 1. See the sequence as a whole before any single step. 2. Close the payroll year and identify the last pay of the year. 3. Account for benefits and anything that never passed through payroll. 4. Reconcile withheld against remitted, and act on the difference. 5. File the information returns and distribute copies. 6. Handle what the reconciliation and CRA's reviews expose. 7. Work through an example of a year end that found a year of errors. 8. Check your work against the common errors. 9. Verify every specific against CRA's published guidance before relying on it.

The sequence

Set out plainly, so the steps that get skipped are visible: 1. **Close the payroll year.** Establish which pay periods belong to the year. 2. **Sweep in what never went through payroll.** Taxable benefits, adjustments, amounts paid outside the ordinary cycle. 3. **Reconcile.** Compare total withheld per the records against total remitted per CRA's account. 4. **Resolve any difference** before filing, or at least know what it is. 5. **File** the T4 slips and summary by the deadline, using the required method. 6. **Distribute** employee copies by the same deadline. 7. **Respond** to what follows — a reconciliation balance, a pensionable and insurable earnings review, an employee querying their slip. Steps 2 and 3 are the ones employers skip, and they are the ones that make steps 5 and 7 either routine or painful.

Closing the year

A payroll year is the calendar year, and what determines which year a payment belongs to is generally when the employee was **paid**, not the period the work was done in. So a pay period ending in late December but paid in early January generally belongs to the new year. Employers who think in terms of work performed get this backwards, and it shifts income between years for every employee at once. The number of pay periods in a year is not always what an employer expects either. A biweekly payroll produces an extra period in some years, which affects the periodic calculations and the annual maximums. Any amounts paid outside the ordinary run — a final payment to someone who left, a correction, a bonus — need to be identified as belonging to the year before totals are struck.

Sweeping in what never went through payroll

This is the step that catches employers, and it follows directly from the benefits tutorial: a taxable benefit provided during the year is employment income even though no cash moved. At year end an employer has to identify everything of that kind — vehicles, employer-paid premiums, gifts and awards above the applicable conditions, low-interest loans, parking, anything provided to employees that was not run through payroll — value it, and include it. Doing this in January means the withholding on those amounts was never made during the year. The income still has to be reported, and the CPP that should have been withheld is still owing, with the employer's share. So the honest advice to an employer is that this step belongs in the autumn, not in January, and that an employer doing it for the first time should expect to find something. The same sweep should pick up anything paid to a former employee after they left, which is the other commonly missed category.

Reconciling

Take the total of each deduction from the payroll records for the year, and compare it with what CRA's account shows was remitted. They should agree. When they do not, the common causes are a remittance directed to the wrong account or period, a remittance missed entirely, an arithmetic or setup error in the payroll system, or benefits swept in at year end for which nothing was ever remitted. Each of those has a different fix, and identifying which one it is before filing is worth the effort — the summary is where the difference becomes a balance owing, and an employer who files without knowing the cause receives a notice they cannot explain. A difference in the employer's favour matters too. Over-remittance is recoverable, but not by simply reducing the next remittance without following the published route. The advice worth giving every employer: reconcile monthly, not annually. It is the same work spread out, and it turns an eleven-month error into a one-month one.

Filing, and what comes after

Filing and distribution are both due by the end of February, and both are obligations. Filing is electronic above the threshold, which has been lowered. Afterwards, three things commonly arrive. A **balance or credit** from the reconciliation of reported withholding against remittances. A **pensionable and insurable earnings review**, where CRA's comparison of reported CPP and EI against reported earnings shows a discrepancy. That has its own tutorial at level 3 and is a normal event rather than an accusation. **Employee queries.** An employee whose slip looks wrong asks the employer, and the answer is either an explanation or an amended slip — and where it is an amendment, the employee's own filing is affected. An employer who has completed the sequence properly meets all three from a position of knowing what happened. An employer who produced T4s from the payroll software and filed them meets all three by finding out.

A worked example: a year end that found a year

Teaching example. The figures below are invented to show the method. They are not CRA figures, and no amount here should be used for a real taxpayer.

The figures in this example are invented for teaching. Nothing here should be quoted as CRA's position. Suppose Brightside Ltd runs a small payroll and has never done a year-end sweep. In January the bookkeeper produces T4s from the payroll software and prepares to file. A reconciliation is done for the first time, and three things surface at once. **One.** Two employees have company vehicles. No benefit has ever been included. Suppose the benefit is $6,800 each per year. **Two.** An employee who left in August was paid out in September, outside the ordinary payroll run. No slip has been produced and the payment is not in the totals. **Three.** The reconciliation shows withholding of, say, $88,400 against remittances of $84,000. The difference is one missed remittance in June — not misdirected, simply never made, because the person who normally does it was away. Each of these has a different shape. The vehicles are an under-reporting and an under-withholding running all year, with CPP owing and the employer's share on top. The leaver is a missing slip, fixable by filing one. The missed remittance is a straightforward arrears with penalty and interest from June. What matters for the call is that none of these is a reason not to file. Filing late adds a penalty to problems that already exist. The sequence is: fix what can be fixed, file on time, and deal with the balance. And the advice that would have prevented two of the three: reconcile monthly, and review benefits before the autumn ends.

Common errors

Treating year end as "produce the T4s". The steps either side are where errors are found. Assigning a payment to the year the work was done rather than the year it was paid. Overlooking an extra pay period in a biweekly year. Skipping the benefits sweep, or doing it for the first time in January. Forgetting amounts paid to former employees after they left. Reconciling only at year end, so a January error is found thirteen months later. Filing without knowing the cause of a reconciliation difference. Recovering an over-remittance by reducing the next remittance instead of following the published route. Delaying filing in order to fix problems first. Late filing adds a penalty to problems that already exist. Treating a pensionable and insurable earnings review as an accusation. It is a routine comparison.

What to verify this tutorial against

This was drafted without a source document. The sequence here is a working description rather than a published procedure, so confirm each step against the guides. CRA's employers' guide to payroll deductions and remittances is the primary reference for the year-end obligations, the reconciliation, and the treatment of over-remittances. CRA's employers' guide to filing the T4 slip and summary carries the deadline, the filing method, the electronic filing threshold and the amendment process. CRA's employers' guide to taxable benefits and allowances is the reference for the year-end sweep, and its benefits chart is the practical checklist for it. CRA's guidance on when remuneration is considered paid is the reference for the year-boundary rule described here, and is worth confirming precisely — it decides which year every payment falls in. CRA's guidance on pensionable and insurable earnings reviews describes what is compared and what an employer receives; this line's level 3 tutorial covers it, and the two should be kept consistent. CRA's guidance on recovering an over-remittance sets out the route, which is not simply reducing a later remittance.

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Claims to confirm

These are the checkable specifics from this tutorial — the details most likely to be wrong in a drafted page. Confirm each against CRA guidance. 0 of 10 confirmed.

deadline
The T4 information return and the distribution of employee copies are both due by the last day of February following the year.
other
A payroll year is the calendar year, and remuneration is generally assigned to the year in which it is paid rather than the year in which the work was performed.
other
A biweekly payroll produces an additional pay period in some years, affecting periodic calculations and the annual maximums.
other
Taxable benefits provided during the year must be included in the employee's employment income for the year even if no withholding was made on them at the time.
other
Amounts paid to a former employee after they have left the employment are reported for the year in which they are paid.
other
An employer reconciles the total source deductions withheld per its payroll records against the total remitted per CRA's records for the year.
other
A difference between reported withholding and remittances received results in a balance owing or a credit on the employer's payroll account.
other
An employer who has over-remitted recovers the excess through the route CRA publishes and not by reducing a subsequent remittance.
other
Filing an information return late attracts a penalty regardless of whether the underlying amounts have been corrected.
other
A pensionable and insurable earnings review arises from CRA comparing the CPP and EI reported on an employer's information return against the earnings reported on it.

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