Does this mean both Lord Shiva and Lord Krishna are Paramatma? I thought the Paramatma is one? Therefore how can both be Paramatma?
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The supreme being in hindu religion is the "Trimurti" comprising Lord Brahma, Lord Vishnu and Lord Shiva. Trimurti, meaning "having three forms", This Trimurti or triad represents all aspects of the Supreme Being. This symbolises the fact that the three forms are aspects of one Supreme Being. Nothing in the universe is created, preserved, or destroyed without the mutual agreement and approval of the three aspects of the Supreme Being, for they are unitedly essential for the production and reproduction of all forms of life.

Krishna being the incarnation of Vishnu himself, Krishna is Vishnu and since Vishnu is Shiva and Brahma - together forming the Trimurti, Krishna becomes Shiva.

So, if you pray to Krishna you pray to Shiva and vice-versa, because they both are One - The Supreme Being. Hence Krishna said, whomsover you pray with a good heart, you pray to me.