How to Handle a Payroll Correction

Payroll mistakes happen — wrong pay rate, missed hours, incorrect deduction calculations, a payment that went out for the wrong amount. The key is catching them early and correcting them properly rather than just adjusting the next paycheque without documentation.

Types of Payroll Errors

Error type	Examples
Overpayment	Paid too much, paid the wrong employee, paid for hours not worked
Underpayment	Missed hours, wrong rate used, deductions not applied
Wrong deductions	CPP or EI calculated incorrectly, wrong provincial tax rate
Missed payroll	Forgot to run a payroll run entirely

Normal Procedure

Step 1: Identify the error

Before correcting anything, confirm exactly what went wrong:

Which employee(s) are affected?
Which pay period does the error cover?
What was the actual amount vs. the correct amount?
Were source deductions affected (CPP, EI, income tax)?

Step 2: Determine whether the error is within the current calendar year

Within the same calendar year: Easier to fix. You can process a correcting payroll run, and the year-to-date totals on the T4 will reflect the corrected amounts.

Crossing into a prior calendar year: More complex — T4s may already have been filed. You will need to issue amended T4s and potentially correct your CRA remittance records. Involve your Mesa CPA team.

Step 3: Process the correction in QBO Payroll

For underpayment (you need to pay the employee more):

In QBO Payroll, run an off-cycle payroll for the affected employee.
Enter the correction amount as a supplemental or adjustment payment.
QBO will calculate the correct deductions on the additional amount.
Process and pay.

For overpayment (employee was paid too much):

Communicate with the employee — you are legally entitled to recover an overpayment, but you must notify them and, in most provinces, cannot deduct more than a certain amount per paycheque.
Agree on a repayment schedule if the amount is large.
In QBO Payroll, process a negative adjustment in a future payroll run, or record a repayment when the employee returns the funds.

Step 4: Correct the CRA remittance if deductions were affected

If the error resulted in the wrong amount being remitted to the CRA:

Under-remitted: Remit the shortfall with the next scheduled remittance, or make an additional payment through CRA My Business Account.
Over-remitted: The CRA will apply the overpayment as a credit to your next remittance. You can also request a refund through My Business Account.

Abnormal Procedures

The error crosses a calendar year-end and T4s have already been filed.

File an amended T4 for the affected employee. In QBO Payroll or through CRA My Business Account, you can submit a T4 amendment. Notify the employee — they may need to file an amended personal tax return.

The employee disputes the overpayment and refuses to repay.

This is a legal matter. You have the right to recover overpayments, but the process is governed by provincial employment standards. Get legal advice before withholding pay or taking further action.

The payroll correction creates a negative net pay.

This can happen with large deductions or adjustments. Do not process a paycheque with negative net pay — it confuses employees and creates accounting problems. Structure the correction as a repayment arrangement or offset over multiple pay periods.

FAQ

Can I just fix a payroll error by adjusting the next paycheque?

For minor errors within the same pay period or immediately after, a simple adjustment can work — but it needs to be documented. For anything more complex (crossing pay periods, affecting deductions, involving multiple employees), process a proper correction run.

How long does an employer have to recover an overpayment?

It varies by province. Most provinces allow recovery but regulate how it must be done (notice requirements, limits on per-period deductions). Some have statutes of limitations on wage recovery. Get advice before attempting to recover an old overpayment.

What if I discover a recurring payroll error affecting multiple past periods?

Compile the full scope of the error (total amount, all affected employees, all affected periods) before taking any corrective action. Present it to your Mesa CPA team — they will help you determine the most efficient way to correct it while managing any CRA exposure.

Do payroll corrections affect ROEs (Records of Employment)?

Potentially, yes — if the correction changes an employee's insurable earnings or hours, the ROE may need to be amended. Your Mesa CPA team can advise