How do I handle payroll on closing day when I buy a business?

On closing day the same employees have two employers within a single day. The seller employed them until closing and the buyer employs them afterwards, and the money, remittances and filings follow that line. A pay period that straddles closing is the usual trouble spot, so the agreement should name a cut-off rather than leave each side to assume one.

What the seller has to close out

The CRA says that before a payroll account is closed the business must remit all payroll source deductions, file its final payroll information returns and give T4 slips to former employees. In Saskatchewan the Workers Compensation Board asks a seller to tell it right away when a business has been sold, and that notice is separate from anything filed with the CRA.

What the buyer has to open

A buyer that will run payroll under its own entity has to register for a payroll program account with the CRA before its first remittance due date. In Saskatchewan the buyer is also told to obtain a clearance certificate from the board, because without one the buyer becomes responsible for the outstanding balance if the previous owner owes money.

Service and vacation carry across

Employees do not start from zero. Ontario’s Ministry of Labour explains that an employee hired by the purchaser gets credit for past employment with the seller when entitlements are worked out, and British Columbia’s Employment Standards Branch says that where employment is continuous the seller is not required to pay out vacation pay on the sale. Whether accrued vacation is paid out, credited or priced into the deal differs by province and by agreement, so it belongs in writing.

Agree the cut-off in the documents

The cut-off follows the same logic as other adjustments. The closing-day proration answer shows how a straddling item is split, and payroll is one of them. Settle the last pay date, who funds wages earned before closing and who issues year-end slips before the day arrives.