Payroll is one of the most vital elements of any business. It is basically the sum of all financial records of an employee, which include salaries, bonuses, wages and deductions. In accounting, payroll refers to the amount employees receive for providing their services over a certain timeframe.
In Canada, businesses must act in accordance with the Canadian Payroll Association, an organization that’s known as an authoritative source of payroll information. It represents the payroll interests of employers in the country. Its actions and decisions influence the various processes of payroll software providers, employers, tax authorities and service bureaus.
Whether you are an employer, payer or trustee, you must know your payroll responsibilities. Understanding it and its intricacies will help you avoid consequences, such as interests and penalties. Fortunately, there are plenty of payroll software and systems that can help.
As an employer, you must provide employees with appropriate remuneration. The first step is opening an account for payroll program. Up next are the deductions, which include Employment Insurance premiums, Canada Pension Plan contributions and income tax, all of which are based on the salaries of employees. These deductions should be remitted to the Canada Revenue Agency (CRA) at least 24 hours before the due date and reported on a T4 or T4A slip.
Opening and operating a payroll account with the CRA is required for the remittance of your payroll deduction. If you have a Business Number, the account will be added to it. If you still need to register for a number, you should contact the CRA.
Obtaining the required information from employees should always be part of the hiring process. Ask for their SIN card so you can record their social insurance number, and have them fill out the provincial and federal TD1 form. Known as Personal Tax Credits Return, it determines the amount of tax that should be deducted from one’s employment income.
Deducting the appropriate amount from employees’ pay is perhaps the most tedious part of the process. You must first add the taxable benefits, which may be a low-interest loan, board and lodging, or anything provided to the employees other than money. These should be added to the income before deductions are made. The total amount is subject to pension contributions, insurance premiums and income tax deductions.
- To deduct income tax, use the provincial or territorial tables for the province or territory where the business is located. The CRA has a Payroll Deductions Online Calculator which can be used for this. You can turn to the CRA’s Payroll page to see the necessary deduction tables.
- For the Canada Pension Plan (CCP) deduction, you can go to their website to see the contribution rates, exemptions and other essential info. Generally, contributions are deducted from the pay of employees who are between 18 and 70 years of age, have a pensionable job, have no disability and is not currently receiving pension from Quebec Pension Plan (QPP) or CPP.
- For the EI premium deductions, there is no age limit. The deductions stop only when they reach the yearly maximum amount. You can also use the online calculator to determine the amount that must be deducted for Employment Insurance. Keep in mind that EI premiums are deducted from each dollar of insurable earnings.
When the payroll deductions and contributions are due for remittance, the CRA sends a remittance form. This is not the case for new Canadian businesses that must send cash or a cheque payable to the Receiver General. It should include a letter that states that the remitter is new, its name and contact info, its business number, and the period covered by the payment.
A T4 slip for each employee must be filled out so it can be given to all employees before the last day of February. It may be completed using the T4 Web Forms Application or a PDF fillable T4 form.
Keep in mind that essential payroll documents and other business records must be kept at your office or place of residence in Canada. Be aware of the penalties for failure to comply with the payroll requirements, which can range from thousands of dollars to years of imprisonment or both. Lastly, get the necessary help you need especially with new payroll services so you are spared from any inconvenience non-compliance will bring.