TORONTO, ON–Canada’s current web of payroll requirements is costly and complex, and without changes, the Canadian economy will struggle to recover from the worst economic downturn in nearly a century.
Payroll in Focus: The cost of employer compliance and public policy implications, a new report from PwC Canada indicates that the present payroll compliance regime, laden with hundreds of rules and with a lack of intergovernmental regulatory harmonization, is hurting Canadian employers.
Commissioned by the Canadian Payroll Association, PwC estimates the annual cost of payroll compliance to Canadian employers to be $12.5 billion. But it notes that the full costs to the economy are likely higher due to the government’s need to audit such a complex system as well as missed economic opportunities.
The challenges faced by employers with regards to payroll compliance may make Canada less attractive for investment, including for international companies considering entering the Canadian market, warns the report. For Canadian businesses, especially small businesses that have been hit very hard by the COVID-19 pandemic, the high costs and complexity of compliance are diminishing their ability to innovate and to expand into new Canadian markets.
The report highlights the fact that employers operating in multiple provinces spend more time on payroll compliance than those operating in a single jurisdiction. And it acknowledges there to be many other unspoken costs associated with compliance, including those incurred by governments in administering audits and policing noncompliance, as well as additional costs arising from the pandemic.
Under the current system, businesses of all sizes found it challenging to access government support programs during the pandemic, highlighting the need for harmonization and for a digital, more accessible payroll system. Part of the challenge, according to the report, stems from the large number of announcements impacting businesses since the pandemic — more than 300 since March — which have increased payroll’s complexity.
In response the report calls for a more user-friendly payroll system, particularly in the business environment created by the COVID-19 pandemic, wherein telecommuting and cross-border hiring are becoming more and more prevalent.
The Canadian Payroll Association believes that, with the urgent need to “build back better” outlined in the federal government’s September 2020 throne speech, there are actions governments across Canada can take now by working with employers and payroll experts.
These moves will reduce compliance costs and help build a better, more resilient economy. Doing so will deliver a “triple win outcome”, benefiting employers, individuals, and the government, said the organization. Reducing the costs of compliance will unlock capital and resources for businesses to invest in innovation and expansion. This, in turn, will support individuals by way of a robust labour market, opening up new opportunities for workers both nationally and internationally. Streamlined and modernized operations will also provide stronger data integrity, increased transparency, and better delivery of social programs from the government.
The Canadian Payroll Association supports the movement to a more efficient payroll framework in Canada through the following actions described in the PwC report:
1. Simplifying the taxation system, starting with taxable benefits. Currently, the accurate identification and valuation of taxable benefits is one of the most onerous responsibilities for payroll professionals. The government can help by reviewing and updating policies that are outdated or lack clarity and by reviewing tax-free benefit thresholds that have not been indexed with inflation in recent years, such as the $650 tax-free allowance for moving expenses which has not changed since 1984.
2. Harmonizing payroll policy. Presently, businesses in every province and territory are operating under different rules. Greater harmonization of payroll policies across Canada would decrease the complexity and costs associated with compliance and create a business investment climate more conducive for Canadian businesses and international companies wishing to expand into Canada.
3. Implementing a digital payroll system. A digital payroll system would enable employers to input payroll data into a system that would then be securely accessed by governments and agencies to calculate benefit entitlements and remittance obligations. As a long-term objective, digital payroll would significantly reduce the costs of compliance and increase data integrity, transparency, and pave the way for more effective delivery of Canada’s social programs.
“At a time when we can least afford it, the labyrinth of legislative requirements governing payroll is impeding our economy’s growth: forcing Canadian businesses to invest billions of dollars and thousands of hours just to be compliant,” said Peter Tzanetakis, president of the Canadian Payroll Association. “It’s troubling that the economic recovery of Canada, its businesses and people, might be hindered by compliance requirements that are actually fixable.”