This article will explain the WCB annual return mistakes companies commonly make when filing. We will share the information we use with our clients to avoid these mistakes.
This is the time of year that WCB determines how much you really owe them for WCB premiums.
Some things to remember:
- WCB is an insurance company and they insure payroll
- Higher payroll = Higher Premiums
- The WCB annual return is to confirm payroll to confirm actual premiums owed.
- You may have made payments over the course of the previous year.
- This was based on an estimate
What is a WCB Annual Return?
WCB/WSIB/Worksafe uses an annual return each year to figure out premiums for the previous year. It does this by looking at the “assessable” or “insurable” earnings.
What is assessable / insurable earnings?
This is the payroll you paid to workers the previous year. As I mentioned earlier, when you purchase WCB, you are insuring the payroll. Therefore, they ask for an estimate of what you will pay your workers in that year.
Often, it’s the items listed on the T4 statements that are assessable.
What is the Due Date of My WCB Annual Return?
It depends on the province, but typically the due date of your WCB annual return is the last day in February or within a week or two of it.
I would recommend contacting your provincial WCB for more information. For a contact list you can go HERE.
Why is filing a WCB Annual Return on time important?
Like anything doing it on time means saving on interest and penalties.
In addition, it’s good to get things like this out of your way so you can focus on your business.
Does it Matter How Much I Pay My Employee?
WCB does have a maximum for each employee. This means if your employee makes more than this amount, you do not include it in your assessable earnings.
If they make less than the maximum, then you report their earnings below the maximum amount.
Mistake #1 | Do I Need to Report What I Pay a Contractor to WCB?
Did you follow the proper procedure? There is a process to protect yourself from having to pay premiums for subcontractors you’ve hired.
Let’s say you hired a cleaning company to come in and clean your workplace. They did not provide you with a clearance letter. You did not confirm that they had their own WCB coverage for the time they worked for you.
The WCB will consider them your employees, and you will be on the hook for the invoices you paid to them as assessable earnings.
This is why it’s critical to get a clearance letter before any contractors do any work for you AND when they submit their invoice.
For more information about clearance letters and how to protect your company, check out the article we did called “What is a WCB Clearance Letter?”
Mistake #2 | Deducting Wages from Employee to Pay WCB Wages
WCB Premiums are paid because you a company is insuring itself from lawsuit. It is illegal to deduct wages from the worker for WCB coverage.
I can remember when I was a case manager, I had to deny a worker’s claim. This injured worker called me and said: “I pay into this WCB thing, it’s time I get my money now that I’m hurt.”
I had to explain that in fact they do not pay for WCB coverage the employer does. The worker had confused long-term / short-term disability benefits which is payable by the employee.
If your company is deducting wages (directly/in-directly) for WCB coverage, this is illegal and you could face strict penalties and legal issues.
Mistake #3 | What Happens if I Underestimate My Payroll?
You could have opened yourself up to penalties and major “balloon payments”.
If you reported an estimate to WCB of $500,000 in assessable earnings, but really at the end of the year you had $1.2 million, likely you would be facing an underestimating penalty.
In addition, you would have a balloon payment at the end of the year to make up the difference.
What is a balloon payment?
When you estimate your payroll at the start of a year, many WCB’s will draw payments throughout the year. The frequency (Monthly, Quarterly, Annually) is determined by WCB.
The idea being that they would pay most of your premium payment in equal chunks.
When you put together your annual return, there would be a small and manageable adjustment or credit.
However, when you underestimate, you wouldn’t have paid as much in the year, so you would have a major payment in the end.
How Can I Avoid a Penalty on My WCB Premiums?
The obvious response is to begin with a proper estimate on your payroll.
If you’re not sure what a good estimate is, I would suggest the following:
- Count up the number of employees you intend to hire.
- Figure out how much you will pay them in the rate year.
(The rate year is the year you are paying premiums to WCB. Eg. In Alberta it’s from January 1- December 31.)
- Some WCB’s will give you what I call a “grace zone.” Meaning if you underestimate within a certain percentage, you won’t have a penalty against you.
- Choose a percentage that above what you calculated under bullets 1 and 2 of this list.
- This is what you will report to WCB as your estimate for the year.
It’s important to REMEMBER that in most provinces you can adjust your payroll estimate prior to the end of the rate year (Eg. December 31) to avoid penalties.
We suggest setting a reminder to review your payroll a month before the end of your rate year and advise WCB of any adjustments.
What If I Am Hiring Someone for a Short-Term Job?
There are some situations and companies where they will hire a person for 3 months to help them with a project. We see this in construction or manufacturing.
In this case, follow the same steps:
- How many employees?
- Are you paying them hourly or for the project?
$30/hour X 40 hours/wk X 12 weeks
$14,400 cost for one employee for the working period.
10 employees = $14,400 X 10 = $144,000 in payroll.
- You would call WCB before the job starts. Tell them you’re hiring 10 employees for a 3 month project and you expect an estimated payroll of $150,000.
You’ve just done your due diligence, protected your workers, and protected your company from penalties, fees, and headaches.
What If I Have Workers that Work In / Out of the Province?
We have an entire article on what to do if you have out of province workers. Check out “What You Should Know About Employees Working Out of Province and WCB.”
How Can I Get Help With My Annual Return?
Get in contact with us today!
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