Payroll Mistakes, Switching Problems and Official Sources
Switching payroll software or providers mid-year in Canada: YTD balances, T4s, ROEs and parallel runs
How to switch payroll software mid-year in Canada without double deductions or duplicate T4s: start dates, YTD balances, ROEs and parallel runs.
You can switch payroll software at any point in the year, but a mid-year switch only works if the new system starts with accurate year-to-date (YTD) balances for every employee: gross earnings, pensionable and insurable earnings, CPP, CPP2, EI and income tax deducted, and Quebec equivalents. Without them, the new system will restart CPP and EI as if no one had contributed, over-deduct for employees near the maximums, and produce T4s that cover only part of the year. The cleanest dates to switch are 1 January, then the start of a quarter. Plan at least one parallel run, migrate vacation and other balances, decide which system issues ROEs and T4s for the old periods, and keep access to the old system's records.
This guide is part of common payroll mistakes and official sources. The timeline and costs below are illustrative.
Choosing the start date
| Start date | YTD balances needed? | Pros | Cons |
|---|---|---|---|
| First pay date of January | No (new year) | One T4 from each system for its own year; simplest | Busy season: year-end on the old system at the same time |
| Start of a quarter (April, July, October) | Yes | Quarterly totals line up; easier reconciliation | Still need YTD import |
| Any other pay date | Yes | Flexibility | More reconciliation work; risk of partial-period errors |
What decides the year is the pay date, not the period worked. If your first pay date on the new system is 9 January, all of the new year's pay is in the new system.
What to migrate
| Data | Why | Common error |
|---|---|---|
| Employee master data: SIN, address, province of employment, hire and service dates | Payroll and T4s | Service date reset to migration date |
| Pay rates, salaries, pay codes and their pensionable, insurable, taxable flags | Correct calculations | Flags not reproduced for custom pay codes |
| TD1 and TP-1015.3 claim amounts | Income tax withholding | Defaulting everyone to basic amounts |
| YTD earnings and deductions by type | Maximums and T4s | Missing CPP2 or QPP2 YTD; insurable earnings omitted |
| Vacation, sick and banked-time balances | Employees' entitlements | Balances not loaded, or loaded as hours instead of dollars |
| Recurring deductions: benefits, union dues, garnishments, RRSP | Continuity | Garnishment balances not carried over |
| Pay history for recent periods | ROEs need the last pay periods' insurable earnings | ROE built without the old system's periods |
| Banking details for direct deposit | Paying people | Re-keying errors; fraud risk |
Illustrative example of what goes wrong. An employee earning $120,000 a year has earned $90,000 by the end of September, so the old system has already deducted the full $4,230.45 of CPP, $416 of CPP2 and $1,123.07 of EI. If the new system starts in October without YTD, it deducts CPP and EI again on the $30,000 paid from October to December: about ($30,000 − 3/12 of $3,500) × 5.95% = $29,125 × 0.0595 ≈ $1,733 of CPP and $30,000 × 1.63% = $489 of EI over-deducted, plus matching employer amounts. The employee may get a refund at tax time, but the employer's share is generally not refunded, and the T4s will be confusing. Both systems' T4 totals must still reconcile to remittances.
T4s and ROEs after a switch
- One T4 per employee from the new system (if it holds the full-year YTD) is the cleanest for employees. Make sure the old system does not also issue T4s for the same year.
- Two T4s (each system for its part of the year) is acceptable if done correctly, but CPP and EI may look over-deducted per slip, and employees will have two slips to file.
- ROEs need insurable earnings for the most recent pay periods. For an employee leaving soon after the switch, the new system must include the old system's periods, or you must build the ROE in ROE Web with combined data. See Records of Employment.
- For Quebec employees, the same logic applies to RL-1 slips.
The parallel run
Run at least one pay period in both systems before going live, and compare employee by employee:
- gross pay, each deduction and net pay;
- employer CPP and EI;
- vacation accrual;
- general ledger entries.
Differences above a few cents need an explanation. Common causes are custom pay codes with wrong flags, TD1 amounts not migrated, and different rounding. Fix the set-up, not the result.
Illustrative cut-over timeline (start of a quarter)
| When | Task |
|---|---|
| 8 weeks before | Sign; agree implementation plan; request data export from the old provider |
| 6 weeks before | Load employee master data, pay codes, deductions, GL mapping |
| 4 weeks before | Load YTD balances as at the last pay date of the quarter you are leaving (update after the final old run) |
| 3 weeks before | Parallel run 1; fix differences |
| 2 weeks before | Parallel run 2 if needed; employees invited to the new portal |
| 1 week before | Final YTD update after the last old pay run; sign-off by payroll and accountant |
| Go-live | First live run in the new system; old system kept read-only |
| After go-live | First remittance reconciled; first ROE from the new system checked |
Costs to budget
Switching costs are mostly time: data extraction, mapping, YTD loading, parallel runs and training. Vendors may charge setup or YTD import fees; some old providers charge for data export or archive access. Put these in the one-time cost line of the three-year TCO or the payback calculator. Exit terms to negotiate with the old provider are in contract renewal and exit terms, and the most common go-live problems in implementation failure patterns.
Keep the old records
Payroll records generally must be kept for six years (Income Tax Act s. 230; Service Canada for ROE records). Before the old contract ends, export pay registers, YTD reports, T4 and ROE history and remittance reports, in readable formats, and store them securely. See record retention and employee privacy.
FAQ
Do I need to tell the CRA I changed payroll software?
No. Your payroll account (RP) stays the same. If the new provider will file or remit for you, you may need to authorise it as a representative in the CRA's online services.
Can employees' CPP over-deductions be refunded by the employer?
If the over-deduction is found during the same year, the employer can usually correct it in a later pay run. After year-end, the employee generally recovers excess contributions through the tax return, and the employer may be able to request a refund of its overpaid share in specific circumstances; check the CRA's guidance.
How long does a switch take?
For a small employer with clean data, often four to eight weeks. Multi-province employers, Quebec, benefits integrations and union rules add time.
Is switching during year-end a bad idea?
Switching on 1 January is the cleanest for YTD, but it means running year-end in the old system while starting the new one. Plan staff time for both, or switch at 1 April instead.
Sources
- Canada Revenue Agency — T4 guide, overpayment of CPP and EI, representative authorisation
- Employment and Social Development Canada — ROE guide and ROE Web
- Revenu Québec — RL-1 slips and Quebec YTD balances
- Justice Laws Website — Income Tax Act, s. 230 (records)
