Guide to Canadian Payroll Deductions for Employers

Sep 15, 2023

When you have hired individuals to be part of your workforce, it becomes your duty as an employer to ensure their proper compensation. In Canada, this entails adhering to the guidelines set by the Canada Revenue Agency (CRA) and accurately calculating and submitting the necessary payroll deductions. This guide aims to assist you in understanding the procedures involved in managing payroll in Canada.

 

How to Do Payroll in Canada

Canadian employers need to follow a five-step process when running payroll:

1. Opening and operating a payroll account with the CRA.
2. Obtain necessary information from employees, such as their social insurance number (SIN) and a completed federal and provincial TD1 form.
3. Deduct the required amounts from employees’ pay on each pay period, following the guidelines set by the Canadian payroll system.
4. Submit the deducted amounts, along with the employer’s portion of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, to the CRA within the specified timelines.
5. Ensure that each employee’s income and deductions are accurately reported on the appropriate T4 or T4A slip. Additionally, file an information return on or before the last day of February of the subsequent calendar year.

Let’s now delve into the specifics of each of these steps.

 

1. Open a Payroll Account

To deliver your payroll deductions to the Canada Revenue Agency (CRA), you must possess a payroll deductions program account.

If you already obtained a business number (BN) and previously enrolled in other CRA program accounts like GST/HST, you would simply augment a payroll deductions account to your existing program accounts.

If you do not possess a BN, you must acquire one beforehand. There are several ways to do so:

– Register conveniently online using the Business Registration Online (BRO) service.
– Reach out to the CRA via phone at 1-800-959-5525.
– Send Form RC1, titled Request for a Business Number, via mail or fax to the nearest tax service office (TSO) or tax centre (TC).

Upon acquiring a BN, you can proceed to register for program accounts, including payroll deductions, through the BRO service.

 

2. Collect Required Information From Employees

During the hiring process, it was necessary to verify the SIN card of each newly hired employee and accurately record their name and SIN as presented on the card. It’s important to be vigilant for social insurance numbers beginning with “9,” as they indicate individuals who are not Canadian citizens or permanent residents. These individuals are authorized to work only until the expiry date specified on the document provided to them by Immigration, Refugees and Citizenship Canada.

Additionally, it was essential to have the new employees complete the correct federal and provincial Form TD1. This form determines the amount of tax that should be deducted from their employment income.

 

3. Make the Appropriate Payroll Deductions

Make sure to add any taxable benefits to your employees’ salary before making deductions. If you provide board and lodging, a company car, parking, or a low-interest loan, these additional benefits are considered taxable.

When an employee receives taxable benefits, you must include them in their income for each pay period before deducting any payroll amounts. The total income determines the portion subject to CPP contributions, EI premiums, and income tax deductions.

To calculate the value of these benefits and determine which ones are subject to GST/HST, refer to the CRA’s Guide T4130.

Once you have accounted for all taxable wages and benefits, you can proceed with making Canadian payroll deductions. Generally, employers need to deduct the following three government program amounts from employees’ salary:

  1.  Income tax: Utilize the provincial or territorial tables based on the employee’s workplace location. The easiest way to do this is by using the CRA’s online calculator, which can calculate all necessary payroll deductions. The required payroll deduction tables are also available on the CRA’s payroll page.

  2.  Canada Pension Plan (CPP) contributions: In general, deduct CPP contributions if the employee is between 18 and 69 years old, engaged in pensionable employment, not disabled, and not receiving a CPP or QPP pension. Details about contribution rates, maximums, exemptions, and other relevant information can be found on the CRA’s Canada Pension Plan page. Quebec employers should refer to Revenu Quebec.

  3.  Employment Insurance (EI) premiums: Normally, deduct EI premiums from employees’ salary based on their insurable earnings up to the annual maximum. The employer’s EI contribution is 1.4 times the withheld EI premium for each employee, though you may qualify for a reduced rate if you offer a short-term disability plan. Unlike CPP, there is no age limit for deducting EI premiums. When your employees’ EI deductions reach the yearly maximum, you can stop deducting them.

For the specific EI premium rates and maximums, consult the CRA’s chart of EI premium rates and maximums for the relevant year. Note that Quebec has a separate chart with a different rate structure.

The Employment Insurance (EI) premiums for 2023 have been increased to $1,002.45 (2022 – $952.74) for employees, and $1,403.43 (2022 – $1,333.84) for employers. Contributors who earn more than $61,500 in 2023 are not required or permitted to make additional contributions to EI.

Like most other withholdings from your employees’ pay, you have the option to use the Canadian Revenue Agency’s online calculator to figure out the precise amount of Employment Insurance that needs to be deducted during each pay period. Keep in mind that certain benefits and payments provided to your employees are not subject to Employment Insurance.

If you are a Canadian employer, there might be unique circumstances that impact your EI deductions. To learn more about topics like employment outside Canada, special payments, or hiring a family member, refer to the Canadian Revenue Agency’s Employment Insurance page.

Additionally, your organization may have other employee deductions that are specific to your company, such as extended health benefits, life insurance, and retirement plans.

 

4. Remit Deductions to the CRA

You have two options for sending payments: electronic remittance or using paper remittance vouchers and receiving account statements by mail. If you choose electronic remittance, you can access your statements and transactions online through your My Business Account.

When you’re a new employer, you fall under the category of regular remitters. This means you must send your deductions to the CRA by the 15th day of the following month. After establishing a remittance history, you might be reassigned as a quarterly or accelerated remitter, which requires less paperwork.

For more details on remittance, including guidelines for fixing payroll remitting errors, refer to the CRA’s webpage dedicated to remitting payroll deductions.

 

5. Complete All T4 Slips and Information Returns

As an employer, it is necessary to annually complete a T4 slip for each employee and the T4 summary form. The T4 information return should be filed, and the T4 slips must be given to the employees by the end of February of the following year.

To fill out T4 slips, you have the option to use the CRA’s T4 web forms application, which allows you to file up to 100 original, additional, cancelled, or amended T4 slips electronically. Alternatively, you can fill out the T4 slips as an online PDF. For additional information on T4 slips, refer to the CRA’s T4 – Information for Employers page.

The T4 Summary form can also be filed electronically or in paper form. If you choose the paper form, you should send the original summary and accompanying T4 slips to the Jonquière Tax Centre. For more details, visit the aforementioned link.

 

If you operate a business in Canada, it is important to store all your business records, including payroll-related records, at your business premises or residence within the country, unless you have obtained permission from the CRA to keep them elsewhere. Remember that you must retain business records and supporting documents required to determine your tax obligations for a period of six years.

Failure to comply with Canadian payroll regulations can result in penalties ranging from fines of $1,000 to $25,000, imprisonment for a maximum of 12 months, or a combination of both. The CRA provides specific information on the consequences of various offenses and omissions, such as not deducting the appropriate amount from payroll or submitting information forms late.

 

Need more information? CBES is here to assist you; feel free to contact us for expert guidance.

 

 

 

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