Payroll is one of the most legally sensitive areas of running a business. Mistakes don't just cost money — they can damage employee trust and invite regulatory scrutiny. Here are the seven most common payroll errors and exactly how to avoid them.

Mistake 1: Misclassifying Employees as Contractors

This is the most expensive mistake. If you pay someone as an independent contractor but they function as an employee (set hours, directed work, single client, no business risk), the CRA can reclassify them retroactively.

The cost: You owe the employee's share of CPP and EI plus your employer's share, plus penalties and interest, for every year of misclassification. This can easily reach tens of thousands of dollars.

The test: The CRA uses a multi-factor test: control, ownership of tools, chance of profit/risk of loss, integration. When in doubt, consult an employment lawyer.

Mistake 2: Incorrect CPP and EI Deductions

CPP and EI rates change every year. Using last year's rates (or looking up the wrong rate for your province) leads to either over-deducting (frustrated employees) or under-deducting (you owe the CRA at year-end).

The fix: Use automated payroll software that updates tax tables automatically. Acculyt AI updates CPP/EI rates on January 1st each year without any action required from you.

Mistake 3: Missing Payroll Remittance Deadlines

You must remit CPP, EI, and income tax deductions to the CRA by the 15th of the following month (standard remitters) or more frequently for accelerated remitters. Missing this deadline triggers penalties starting at 3% and escalating to 20% for repeated violations.

The fix: Set calendar reminders or use a payroll system that shows remittance due dates prominently on the dashboard.

Mistake 4: Not Keeping Adequate Payroll Records

The CRA requires you to keep payroll records for 6 years from the end of the tax year. Records must include payroll registers, T4s, ROEs, and all deduction calculations.

The fix: Store all payroll records digitally in Acculyt AI. Records are retained indefinitely and can be exported for a CRA audit at any time.

Mistake 5: Forgetting to Issue T4s on Time

T4 slips must be distributed to employees and filed with the CRA by the last day of February each year. Late filing penalties range from $100 to $7,500 depending on the number of slips.

The fix: Acculyt AI generates T4 slips for all employees automatically at year-end. You can review, approve, and submit them to the CRA in minutes.

Mistake 6: Not Accounting for Non-Cash Benefits

Taxable benefits — company car, employer-paid cell phone for personal use, group life insurance over $25,000 — must be included in employees' T4 income. Many small businesses forget this, which leads to incorrect T4 slips and potential reassessment.

The fix: In Acculyt AI, each payroll run has a Taxable Benefits section where you can record non-cash benefits. They're automatically included in the T4 calculation.

Mistake 7: Paying Personal Expenses Through Payroll

Running personal expenses (owner's groceries, family vacations) through the business payroll or as business expenses is a red flag for the CRA and can result in a full audit.

The fix: Keep personal and business expenses completely separate. Pay yourself a reasonable salary or dividend through proper payroll or shareholder processes.

Acculyt AI's payroll module is built to prevent these mistakes — with automated rate updates, remittance reminders, and T4 generation. Run your first payroll free →