Correcting Payroll Mistakes – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Payroll mistakes happen in every business—whether small, growing, or well-established. But when payroll errors occur in Canada, the consequences can be serious. CRA and Revenu Québec treat payroll deductions as trust funds, meaning employers are legally responsible for withholding and remitting accurate amounts of income tax, CPP/QPP, EI/QPIP, and other deductions. Mistakes such as under-remitting, over-remitting, misclassifying employees, using incorrect tax tables, missing taxable benefits, or filing incorrect T4/RL-1 slips can trigger payroll audits, penalties, and interest. Understanding how to correct payroll mistakes quickly and properly is essential to protect your business from financial exposure and government scrutiny.

Legal and Regulatory Framework

Payroll corrections must follow strict federal and provincial rules under the:

• Income Tax Act – governs income tax withholding and T4 reporting
• Canada Pension Plan Act – governs CPP contributions
• Employment Insurance Act – governs EI premiums
• Excise Tax Act – governs payroll remittances
• Tax Administration Act (Québec) – governs QPP, QPIP, RL-1 slips, HSF
• Labour Standards Acts – govern wage corrections, overtime, and vacation pay

Employers must ensure corrections include:

1. Correcting source deductions (CPP/QPP, EI/QPIP, taxes)

2. Amending payroll records and accounting entries

3. Filing amended T4 and RL-1 slips when needed

4. Recalculating payroll remittances with CRA and Revenu Québec

5. Reimbursing or collecting amounts from employees if necessary

6. Paying penalties or interest if applicable

These rules create the legal framework for fixing payroll errors in Canada.

Key Court Decisions

Courts consistently confirm that employers bear full responsibility for payroll accuracy.

1. Hickey v. Canada

The employer used incorrect payroll withholding rates. The court upheld CRA penalties, ruling that payroll compliance cannot rely on “administrative mistakes.”

2. Soper v. Canada

Directors were found personally liable for unpaid payroll deductions—even after the company ceased operations—reinforcing the seriousness of correcting errors immediately.

3. Caron v. Québec

The employer’s RL-1 slips contained errors in taxable benefits. Revenu Québec imposed penalties, fully supported by the court.

4. Royal Winnipeg Ballet v. Canada

Misclassified contractors resulted in retroactive CPP/EI remittances and amended T4 slips.

These rulings emphasize that payroll mistakes must be corrected quickly and accurately.

Why CRA and Revenu Québec Target This Issue

Payroll is one of the most heavily audited areas because mistakes are common and involve trust funds. Authorities focus on:

• remittances that do not match reported T4/RL-1 totals
• errors in CPP/EI/QPP/QPIP calculations
• missing or incorrect taxable benefits
• over- or under-remitted payroll deductions
• incorrect year-end slips
• misclassified employees vs contractors
• retroactive adjustments not filed properly
• delays in issuing amended slips

CRA and Revenu Québec cross-check payroll filings with:

• bank deposits
• GST/HST filings
• T2 corporate returns
• ROEs
• CNESST/WSIB reports
• employment agreements

Any inconsistency triggers review.

Mackisen Strategy

At Mackisen CPA Montreal, we correct payroll mistakes through a precise, compliant, and audit-proof system:

1. Comprehensive Payroll Review

• verifying pay periods, wages, deductions, benefits
• checking remittances against CRA/Quebec statements
• confirming CPP/QPP, EI/QPIP accuracy
• confirming taxable benefits and allowances

2. Correcting Under- or Over-Remittances

• recalculating deductions using CRA PDOC and Revenu Québec formulas
• preparing adjustments for remittances
• arranging employer and employee recovery or reimbursement
• communicating with tax authorities when needed

3. Amending T4 and RL-1 Slips

• filing T4A/T4 amended forms electronically
• filing RL-1 amended slips through Revenu Québec
• correcting pensionable/insurable earnings
• updating taxable benefit codes

4. Correcting Employee Records

• reissuing pay statements
• adjusting YTD totals in payroll software
• updating vacation balances and statutory pay calculations

5. Preventive Payroll Controls

• implementing checklists and approval workflows
• training staff on payroll rules
• configuring payroll software correctly
• quarterly payroll reviews to prevent future errors

6. CRA & Revenu Québec Audit Defence

• preparing supporting documents
• responding to payroll audit letters
• negotiating penalty relief when warranted

This structured system ensures full compliance and protects your business from further payroll issues.

Real Client Experience

A Montreal café miscalculated EI contributions for part-time staff. CRA issued a discrepancy letter. We recalculated deductions, corrected remittances, and amended T4s, preventing penalties.

A construction company failed to report taxable vehicle benefits. CRA required amended T4s for multiple employees. We corrected all slips and implemented a proper benefit-tracking system.

A health clinic over-remitted payroll deductions due to software errors. We processed refund adjustments and reconciled CRA account balances.

A marketing agency misclassified a worker as a contractor. CRA required backdated CPP/EI and amended T4s. We restructured the relationship and updated all payroll filings.

Common Questions

Employers often ask whether payroll mistakes can be ignored if small. No—CRA requires exact amounts.

Others ask whether employees must repay payroll overpayments. Yes—overpayments can be recovered if documented correctly.

Some ask whether amended T4s trigger audits. Not always—but accuracy matters more than fear of amendment.

Another question: Can CRA reverse penalties for honest errors? Sometimes—through the Taxpayer Relief Program.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps employers correct payroll mistakes accurately, efficiently, and with full audit protection. Whether errors involve remittances, taxable benefits, worker classification, or year-end slips, our experts ensure precise compliance with CRA and Revenu Québec rules.