Payroll is like riding a bike

BY GREG TONER

Originally published in OVMA Focus Magazine Nov/Dec 2023

This year, I got to teach two things that I love to do: I taught my daughters how to ride a bike, and I taught practice owners and their administrators how to run payroll using cloud tools.

Like riding a bike, payroll is easy until something unexpected happens. Riding a bike on a flat path with no cars, potholes, cracks, hills, puddles, wind, pedestrians or other cyclists is easy. Riding a bike on a city street during rush hour in a rainstorm is an entirely different experience.

Similarly, running payroll on a regular cycle, where no one was sick, no one took a vacation, every- one showed up on time, there were no statutory holidays and there were no banking holidays to mess with processing timelines, is easy. Get your hours, enter them into your system and go. No problems at all.

With the holidays approaching, payroll is about to start looking like biking down a city street, during rush hour, in the rain.

There are four big issues to watch out for:

Statutory holiday pay

In Canada, there are designated holidays where employees are entitled to a day off with pay. Two of them fall in December: Dec. 25 (Christmas Day) and Dec. 26 (Boxing Day). Shortly after, there’s also New Year’s Day.

Depending on how your pay periods land, all three may be in the same pay cycle.

In Ontario, statutory holiday pay is calculated as 1/20 of the hours that an employee worked in the preceding four weeks. Essentially, the average length of their workday over the last four weeks. Some software automatically calculates this for you, while others require that you do it on your own, and if you’re calculating payroll manually, you’ll obviously need to calculate this as well.

Vacation pay

With so many holidays in such a short period of time, it’s likely that you’ll have staff off during the two weeks leading up to the end of the year. It’s a good idea to have a calendar and know who’s on and who’s off throughout those two weeks and figure out who is using vacation days and who might have run out of vacation days.

Most software can track your staff’s accrued vacation time, so it’s easy to know how many hours your team members have that can be used over the holidays.

If you don’t have up-to-date calculations, determine the year-to-date vacation entitlement and how many hours are left. Compare this to your team’s vacation plans to see if there’s anyone who doesn’t have enough vacation time, and then decide whether you’ll let them carry a negative vacation balance into the beginning of the next year.

Sick pay

As kids go back to school and winter descends, it’s inevitable that you’ll have staff members off. Depending on your policies, some will use sick days or vacation days, and some will have unpaid time off, adding another level of complexity to your payroll around the holidays.

Bank holidays

If you’re paying your team through direct deposit, you know that your payroll provider will need several business days to withdraw the funds from your account and deposit them into your staff members’ bank accounts.

Over the holidays, with the statutory holidays outlined previously, you’ll need to make sure that you don’t miss deadlines, as the banks will be closed, meaning you’ll need to run payroll earlier. Take a moment in early December to note your payroll processing deadlines and mark those dates in your calendar.

Payroll around the holidays can be messy, but if you’re paying enough attention to what’s going on around you, it can be just like a solo ride down a bike path on a sunny day.

Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org

Let’sTalk Turkey

BY GREG TONER

Originally published in OVMA Focus Magazine Jul/Aug 2023

What you need to improve your practice

Running a business is a lot like cooking a turkey. I love turkey—it’s my favorite meal to have with a large group, or a small group and eat leftovers for a week. Cooking a turkey is a challenge. For the first few years of my adult life, I always seemed to be cooking it in a different scenario—using various cooking methods (ovens, smoker, barbecue), a range of sizes from four to 12 kilograms (nine to 28 pounds), and room temperature or straight from the fridge because we forgot to take it out early enough. 

Balancing those factors and capturing the data along the way to figure out when dinner will be ready for your hungry family can be difficult.

I started a turkey diary about 12 years ago and made notes on the turkeys I cooked. Size, room temperature or straight from the fridge, brined or not, what else was in the oven, cooking time, resting time, etc. It was a game-changer. Now I have notes on all those turkeys, and I can accurately predict how long they will take to cook.

And my family is always generous with their feedback on our annual turkey, so I can make notes for future turkeys.

To make a great turkey, I found that I need five things:

1. Data on my current turkey.

2. Data on past turkeys.

3. A target to aim for (generally 165°F or 74°C).

4. Feedback from my family on what went well and what didn’t go well.

5. Data along the way to help me pivot as needed.

Your veterinary practice is a lot like a turkey:

1. You know a lot about your current client base, staff and facility.

2. You know how your staff have performed in the past to support your client base using the facility that you’ve provided for them.

3. You’re working toward something (growth, fewer owner hours, a more cohesive team, etc.).

4. You have feedback from your staff, your clients, your family and your bank account.

5. You have data that your practice generates continuously that you can aggregate to help you achieve your goals.

The key to making a good turkey is understanding how your turkey relates to your experience; understanding what it will take to get to your target; having data along the way to help pivot; and feedback to improve next time.

Improving your practice in any way needs the same: understanding where you’re going and what you have; how it’s gone in the past; where to look for data along the way; and how to measure your success.

If you don’t already have one, I recommend starting a practice journal. Take some time to:

1. Describe your current client base, facility and staff.

• Do you mostly work with one species?

• Are there any niches in your practice?

• Does your facility need work?

• Is your equipment ready to be replaced?

• How do your fees compare to OVMA’s Fee Guides?

2. Reflect on how the last six months have gone.

• How was your spring?

• Did you get burnt out?

• Did your staff get burnt out?

• What has your turnover been like?

• How profitable were you?

3. Summarize your goals and objectives for your practice.

• What do you want the rest of the year to look like?

• How profitable do you want to be?

This will give you an overview of where you are today and what you’re striving to achieve.

Define your budget and scorecard

Now the numbers part. You really should have a monthly budget, and monthly financials, to assess your progress toward that budget. Your journal will provide context to those numbers. The budget and budget versus actual analysis will anchor your practice scorecard. Other things that make sense to have on your initial scorecard are:

1. OPERATIONAL

• Appointments booked per day.

• Appointments booked more than 48 hours in advance.

• Missed appointments.

• Surgeries per day.

• How many hours you’re physically in your practice.

2. FINANCIAL

• Revenues by day, month and appointment type (consult versus surgery).

• Expenses: start with your three biggest expense items and add any that you want to watch.

• Profit.

• Cash flow.

Staff happiness is incredibly important, too, but it’s hard to assign a number to it. Make a point of talking to your staff and having casual conversations with them. Know what’s going on with them and get close enough to understand their frustrations and what brings them joy. Add any insights you gain here to your practice journal.

With this scorecard, you can start to convert your goals from your journal to numerical targets for your practice. 

Measure

This should be the easy part, but it may take some time to get the processes set up. You’ll need data from your practice management system and monthly financials from your bookkeeper.

Compare your budget to your actual performance in a spreadsheet. Highlight any major variances, and figure out what can be done to improve on shortfalls and take advantage of areas you’re excelling in. Add your appointment statistics at the top and take it all in.

Reflect

Look back in your journal to remind yourself about what was going on. What should you be changing? What’s working and what isn’t? Where are you spending too much? Where should you be spending more? Are there numbers that you should add to your scorecard?

Make notes in your journal on first impressions of what needs to change. Then talk to your staff about making those changes a reality, and document what the processes are to make those changes. Make sure everyone follows those processes.

 Improve

This is the time to layer in your plans for your practice. What do you want to change? Do you want to add new equipment? Do you want to extend your hours? Is it time to hire a new team member?

If it feels like every day, month and year is completely new and uncharted territory, it’s time to find the commonalities. They’re likely there, but you’re losing sight of them in the day-to-day of practicing veterinary medicine. By defining what success looks like with a budget and scorecard, you’ll give yourself a yardstick to measure yourself, your team and your practice against.

With mechanisms to surface the important data, you’ll have insight into how your practice is really running and be able to reflect on those results. With that, you can decide what needs to change and what needs to be done more.

Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org

CRA My Business Payments - Online banking

Here are the instructions on how to proceed.

1. Sign in to your financial institution’s online banking account.

2. Navigate to the ‘Tax Filing Services’ and select.

a. If this is your first time using this service, select Register, and enter your name and phone number.

b. Verify your business bank account(s), and continue.

3. Select ‘Add Payment Type’ and select the tax payment type you’re making:

a. Federal – Corporation Tax Payments – TXBL (balance owing) or TXINS (to set an instalment payment).

b. Federal – GST/HST Payment, etc.

4. Enter your 15 digit CRA business number (9 digits followed by the program account reference number - e.g. RC000X Corporate Income Tax, RT000X GST/HST, RP000X Payroll deductions).

5. Select the Pay option and which account you would like the payment to come out of.

6. Fill in the Period ending, Payment amount, and Payment date.

7. Verify all of the information for accuracy and submit.

8. You will have the option to print a receipt, or alternatively, you can use the other features such as ‘View/Cancel future transactions’ to show the pending payment or the History tab to view any transactions from the Tax Filing Services.

Participating financial institutions:

● ATB Financial

● Bank of America

● BMO

● Canadian Western Bank

● CIBC

● Citibank

● Desjardins

● J.P. Morgan

● KEB Canada

● Laurentian Bank

● Meridian Credit Union

● National Bank

● RBC Royal Bank

● Scotiabank

● TD Canada Trust -

● Alberta Credit Union

● Atlantic Canada Credit Unions

Incorporation of a locum practice

BY GREG TONER

Originally published in OVMA Focus Magazine Jan/Feb 2023

I recently spoke with a veterinarian who had graduated a few years ago—let’s call him Steve. Steve started working as a locum three days a week in 2022, so he could spend more time with his newborn. Steve’s partner works for a major bank, and their salary was more than enough to fund the couple’s household expenses such as car and mortgage payments, groceries, and utilities. Steve loves working as a veterinarian, and he wanted to know more about what incorporating would mean for him as a locum or associate veterinarian. He admitted to having no idea about how to run a business. 

 We discussed how veterinarians could incorporate, provided their corporations meet several criteria established by the College of Veterinarians of Ontario (CVO). These corporations are called Veterinary Medicine Professional Corporations (VMPC). They are separate, legal entities that “sit” between the veterinarian and the practice they’re working for, either as a locum or associate. There are different billing arrangements—some VMPCs charge an hourly fee for their principal veterinarian’s time, others charge a percentage of the fees that their principal veterinarian produces.

 VMPCs have a business bank account and business credit card. All revenues are deposited to the VMPC bank account and expenses are paid out of the VMPC bank account or with the credit card. The VMPC pays all professional expenses for the principal veterinarian. 

 With the profits earned (fees billed, less expenses paid), the VMPC then pays the principal veterinarian with either a dividend or a salary. This is where Steve and I really spent some time understanding his personal situation. He shared that their hopes were to have one more child, and that he was hoping to take 15 months of parental leave, since he felt like he missed out on that time with their first child. Steve had questions about whether he should opt in to contributing to employment insurance as a self-employed veterinarian, whether a salary would be better than dividends, and if a corporation made sense. 

We discussed how dividends are paid from the corporation’s after-tax profit, and Steve would be entitled to a tax credit that approximates the amount of tax that was paid by the corporation, so that there’s no income tax difference between being paid a salary or a dividend. 

 There are several critical differences between salaries and dividends that factored into Steve’s decision making: 

• Dividends aren’t subject to Canada Pension Plan (CPP) contributions, resulting in a savings of $7,402 for 2023, but there’s no eligibility for the CPP in retirement. 

• Each $100 of salary generates $18 of RRSP contribution room ($171,000 of salary in 2023 creates $30,780 of RRSP contribution room), while dividends don’t generate any RRSP contribution room. 

• Some disability insurance plans don’t insure dividend income. 

• In certain cases, banks won’t consider dividend income when business owners apply for mortgages or loans. 

Steve is a quick learner and caught on that the main benefit of incorporating is the ability to defer the personal taxes on any income that you can leave in the company. Corporations pay tax at a rate of 12.2 per cent in 2023 in Ontario, compared to individual tax rates that are as high as 53.53 per cent in 2023 in Ontario. This creates an opportunity for tax deferral where a veterinarian doesn’t need all their income to fund their lifestyle. Any income that’s not drawn from the corporation as a salary or dividend will only be subject to the corporate rate of tax, deferring any personal level of tax until the corporation pays those funds out to the veterinarian shareholder.

The corporation can invest these funds in public company shares, mutual funds, exchange-traded funds, real estate, private investments, or even Bitcoin. Steve joked that Bitcoin might be too risky for them, but the couple have been on the lookout for their first duplex rental property, and that investing in that duplex through a corporation would allow them to invest sooner, since they wouldn’t have to pay personal tax on their down payment.

One of his partner’s biggest questions was about the cost. They are currently paying $750 a year for their personal tax returns, which includes Steve’s self-employment in- come. This is a standard rate. I told them it would be more expensive, as it typically costs about $3,000 in legal and accounting fees to establish a professional corporation and register it with CVO. On an annual basis, they’ll need to prepare financial statements and a corporate tax return and update the company’s minute book. This will cost $4,000 to $5,000 per year. 

 In the end, the couple decided that incorporating made sense. Being able to leave excess funds in the corporation and use the corporation to smooth Steve’s income out over his parental leave when he’s off with their next child suited their financial plans. From their perspective, the CPP savings outweighed the cost of setting up and maintaining the corporation, and they liked that they had the infrastructure set up to save corporately and start to build their real estate portfolio. 

 Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.

Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org