Weigh in by Jan 27: Payroll Remittance System Overhaul

Employers:  Do you have an opinion about your mandatory participation – by March 2024 -  in a new $43.9 million payroll remittance and EI benefits system overhaul which will result in a real time e-payroll system? The federal government has launched a consultation process and if you’re interested in responding, do so by January 27.

  For consideration:  what will it cost small business to adapt to the new system?  What will it cost taxpayers?

The goal of the new e-payroll system is to identify challenges in payroll reporting, and reduce duplication in reporting, remitting and receiving benefits from CRA and ESDC (Employment and Social Development Canada).  This initiative was first introduced in the April 2021 federal budget.

But since then, the Auditor General recently released startling numbers how the government has managed its resources.  An estimated minimum of $27.4 Billion in suspicious COVID-19 benefits need to be investigated and it is quite possible much of that will be unrecoverable. This mismanagement can make for a sound argument for a real-time e-payroll solution that reduces red tape, and increases the delivery, speed, and accuracy of services and benefits the government says are its implementation goals.

The government reports that countries with some form of a real-time payroll data reporting system had greater accuracy targeting pandemic support and benefits, and were able to deploy benefits rapidly.  As Canada’s implementation track record appears to have been so poor, a thorough testing of prototype options, reportable to the public will be an important part of the project’s future success.  A Central Agency Steering Committee co-chaired by the Privy Council Office and the Office of the Chief Information Officer (Treasury Board Secretariat) has been appointed to work with the CRA and ESDC to oversee the implementation plan.

However, there is another economic repercussion that must be carefully considered: the cost of participation by employers – particularly small business – who will need to spend time and money to adopt to the new system, at the same time when both CPP (Canada Pension Plan) and EI (Employment Insurance) premiums and remittances are rising. Consider:

• EI Premium Revenues. These are projected to grow at 11.7% for 2022-23 and then taper down to 4.2% based on built in premium rate increases:  $1.58 per $100 of insurable earnings in 2022, $1.63 in 2023 and $1.66 in 2024. These increases are on top of CPP increases in the forecast period, which will make the cost of labor more expensive for employers. 
• CPP Increases. For 2023, the CPP contribution rate increases from 5.7% to 5.95%.  Starting in 2024, a “second earning limit” will be added to the first (set at $65,700 in 2023).  The limit will be calculated at 7% of the pensionable earnings level in 2024, rising to 14% in 2025.  The pensionable earnings are indexed annually to reflect wage growth and therefore will rise annually, especially in light of the current inflationary environment and new minimum wage legislation recently enacted. The CPP commitment for higher earners will rise to over $4300 and for the self-employed to over $8600, as they pay both portions of the premiums.   

While the intent is to for Canadian businesses, especially small businesses, to save time, the reality is that it will require an investment by these private sector “tax collectors” who bear a heavy burden of proof for remittances and high costs for non-compliance of any kind.  The integration of any new technology processes requires infrastructure, highly skilled HR and training.  These new costs will come at a time when the business community continues to struggle with high interest rates, high labor costs and post-pandemic revenue recovery in a recessionary environment.

Meanwhile, the spend on the government’s side, has already started. Will the $43.9 million over three years, as allocated in the April 2021 budget, grow to billions of overspent dollars?  Quoting for the delivery of the project will need to address limits on performance and cost over-runs. 

Further, government needs to give consideration to the costs that will be incurred by business – especially small business – with a tax credit system to reduce the costs of implementation at the “on-the-ground” level and a sleek implementation system that minimizes onboarding costs. 

Finally, taxpayers will want to monitor the true costs of the project: consider the billions of wasted dollars in mismanaged pandemic support payments and the colossal overspend on the government’s own payroll system, Phoenix.  

The Importance of Making Recommendations:  The high-tech partnership between government and business is fraught with risks and high costs on both sides.  The private sector will have no choice but to participate as collectors and remitters of payroll taxes.  Here are our recommendations to help employers cope; what’s your take?

1. Provide a Payroll Remitters Tax Credit. Compensate small business for the costs of compliance with new systems and procedures with a temporary implementation credit whenever significant technological change is made at the CRA.  
2. Give a Cure Period. We know that new systems and procedures also result in gaps, glitches and the occasional failures.   Government should provide a grace period without penalty or interest to business owners when those issues arise on their side.
3. Release Refunds and forgive interest costs when mistakes occur. In these difficult times for the business community, CRA should be compelled to more rapidly return refunds owed to small business within each individual remittance category - overpaid payroll, corporate or instalment remittances.  Refunds should be issued within 30 days of the overpayment. Transferring the funds back and forth between accounts, a current practice, has been an accounting nightmare and adds significantly to the cost of red tape.  These refunds, once established, should not be held up longer under any circumstances and the new streamlined e-payroll system should enable this.   

Bottom Line: Here's how to weigh in: Provide comments, and/or volunteer to take part in a consultation session, by sending an email to ePayrollCWG-PaieelectroniqueGTC@cra-arc.gc.ca by January 27, 2023.

Evelyn Jacks is Founder and President of Knowledge Bureau, holds the RWM™, MFA ™, MFA-P™ and DFA-Tax Services Specialist designations and is the best-selling author of 55 books on tax filing, planning and family wealth management.  Follow her on twitter @evelynjacks.

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