Chapter 11
Payroll
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The records for every employee will be used to create a year-end tax form called a T4.The T4 will
report total gross earnings by the employee, and total CPP, EI and income tax deducted. These
tax forms must be sent to the employees and the government by the last day of February of the
following year.
Payroll records will also be used when an employee terminates their employment or has their
employment terminated by their employer. Once an employee is no longer employed, the business
must issue a Record of Employment (ROE) within five days. The ROE will show earnings and
hours that the employee has worked over a specified period.
Payroll Controls
The payroll system must be carefully monitored to
prevent abuse. There must be rules established by the
business to ensure that an employee actually exists and
is getting paid properly.
• Ensure the person hiring employees is not the
same person paying employees. An employee start
package should be created to collect important information about the employee, including the
employee's social insurance number (SIN). This package should be passed to the person who
prepares payroll cheques. If the person hiring employees also pays them, it is possible to create
a phantom employee and collect the phantom’s paycheque.
• Monitor the hours worked by employees. Management should be responsible for ensuring that
employees work the hours they claim they work. A time clock with punch cards or electronic
swipe cards can track exactly how much time employees work. It would be a good idea for
managers to physically see the individuals checking in and out to ensure that they are actually
starting work after checking in and that one person is not checking in many people.
• There should be proper authorization for pay increases or employee termination.
• If manual cheques are being created, the person creating the cheques should not be the same
person who signs the cheques.
• An
imprest bank account
could be set up for payroll.This is a separate bank account from the
main bank account of the business. All payroll cheques are cashed against the imprest account,
and only enough cash is available in the imprest account to cover the payroll cheques.This will
make reconciliation easier and help prevent theft through payroll.
Controls are often in place to protect the
assets of a company, such as cash.
WORTH REPEATING
