Payroll Information

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How payroll works

You have to make deductions on amounts you pay if you are an employer, a trustee or a payer. After you have made the deductions, you have to remit these deductions, plus your share, to Canada Revenue Agency. You then report the employee's income and deductions on the appropriate information return.

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Are you employer?

CRA will generally consider you to be an employer if:

• - you pay salaries, wages (including advances), bonuses, vacation pay, or tips to your employees; or
• - you provide certain taxable benefits or allowances, such as board and lodging, to your employees.

 

In these situations, an employer-employee relationship or employment under a contract of service may exist if you have the right to control and direct the person or people who perform the services.

Although a written contract might indicate that an individual is self-employed or working under a contract for services, CRA may not consider the individual as such if there is evidence of an employer-employee relationship.

In all situations, the written contract (if applicable) and working conditions must be examined to determine if an employer-employee relationship exists. If you're not sure of your status, see What you need to consider to determine a worker's employment status.

If you or a person working for you have any doubt about whether an employer-employee relationship exists, you can request a ruling. Alternatively, you can request the ruling by accessing "My Business Account" (MyBA).

 

Are you an employer, a payer, or a trustee?

• If no, payroll will not apply.
• If yes, you have to follow the payroll requirements. See Opening a payroll account.

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Opening a payroll account

Once you have determined that you are an employer, trustee or payer you will need to open a payroll account so you can remit your deductions.

 

A payroll account is an account number assigned to either an employer, a trustee or a payer of amounts related to employment to identify themselves when dealing with the Canada Revenue Agency. 

 

This 15-digit payroll account number contains the 9-digit business number (BN). The BN is a unique federal government numbering system that identifies your business and the various accounts you maintain. It consists of:

• - the 9-digit BN;
• - 2 letters for the type of account
  (For payroll the letters are "RP"); and
• - 4 numbers for the specific account reference.

 

Depending on the type of business you have, you may need to register other types of programs accounts. The 9-digit registration number will not change, but other letters will be added to the BN.

 

You have to register for a payroll account before the first remittance due date. Your first remittance due date is the 15th day of the month following the month in which you began withholding deductions from your employee's pay. 

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Hiring an employee

 

When you hire an employee, you have to:

• - get his or her social insurance number (SIN); and
• - have him or her complete Form TD1, Personal Tax Credits Return.

If the employee works for you and you cannot get the SIN or TD1, you are still responsible to start calculating payroll deductions.

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Calculating deductions

 

You have to calculate the CPP contributions, EI premiums, and income tax deductions based on the amounts you pay your employees. You also have to calculate your share of CPP and EI.

 

Canada Pention Plan (CPP)

 

You have to deduct CPP contributions from an employee's remuneration if that employee:

• - is 18 years or older, but younger than 70;
• - is in pensionable employment during the year; and
• - does not receive a CPP or QPP retirement or disability pension.

Use the CPP contributions rates, maximums and exemptions chart, to determine how much CPP contributions to deduct.

As an employer, you must also contribute the same amount of CPP that you deduct from your employees' remuneration. 

 

Employment Insurance (EI)

 

You have to deduct EI premiums from your employees insurable earnings on every dollar up to the yearly maximum.  As an employer, you must also contribute 1.4 times the EI premium withheld for each employee.

Insurable earnings include most employment in Canada under a contract of service (employer-employee relationship).

There is no age limit for deducting EI premiums.

 

Income tax

 

As an employer or payer, you are responsible for deducting income tax from the remuneration or other income you pay. 

There is no age limit for deducting income tax and there is no employer contribution required.

 

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Remuneration subject to income tax

 

You have to deduct income tax at source from the following types of remuneration:

• - salary, wages, bonus, commissions or other remuneration (including payroll advances or earnings advances), overtime, and wages in lieu of termination notice;
• - most cash/non cash taxable benefits and allowances including certain rent-free and low-rent housing, the value of board and lodging (other than an exempt
  allowance paid to an employee at a special work site or remote work location), interest-free and low-interest loans, personal use of a motor vehicle that you as the employer own or lease; allowances you pay to employees to use his or her own vehicle, holiday trips, gifts, subsidized meals or any other taxable benefit you pay for or provide to your employee;
• - honorariums from employment or office, a share of profit that an employer paid, incentive payments, director’s fees, management fees, fees paid to board or committee members, and executor’s, liquidator’s, or administrator’s fees earned to administer an estate (as long as the executor, liquidator, or administrator does not act in this capacity in the regular course of business);
• - certain tips and gratuities received for services performed;
• - remuneration received while on vacation, furlough, sabbatical, or sick leave, or for lost-time pay from a union, vacation pay, payments received under a supplementary unemployment benefit plan (SUBP) that does not qualify as a SUBP under the Income Tax Act (for example, employer paid maternity and parental top-up amounts), and payments for sick leave credits and accrued vacation;
• - wage-loss benefits that an employee receives from a wage-loss replacement plan (these benefits are taxable but you may not have to deduct tax;
• - pensions, retiring allowances (also called severance pay), certain amounts received for wrongful dismissal, and death benefits;
• - distribution from a retirement compensation arrangement (RCA);
• - additional amounts that you as an employer pay while participating in a job creation project that HRSDC has approved; and
• - benefits under the Employment Insurance Act.

 

Note
Salary or wages include payroll advances or earnings advances, cashed-out sick leave credits, the value of free board and lodging, and any other taxable allowances or benefits that you should prorate to your pay period.

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Methods of calculating deductions

 

There are numerous versions of the Payroll Deductions Tables to help you calculate CPP contributions, EI premiums, and the amount of federal, provincial (except Quebec), and territorial income tax that you have to deduct.

Before you decide which method to use, read: Which provincial or territorial tax tables should you use?

 

For income tax deductions, make sure you have your employee's or recipient's claim code that corresponds to the total claim amount on Form TD1. Also, if you pay bonuses and retroactive pay increases, or you pay employees who earn commissions (without expenses) periodically, use the bonus method.

 

• Payroll Deductions Online Calculator (PDOC)
  This easy to use interactive Web application calculates payroll deductions for all pay periods, provinces (except Quebec), and territories.
• Tables on Diskette (TOD)
  TOD is a stand-alone computer program that calculates payroll deductions for any pay periods, provinces (except Quebec), and territories.
• Payroll Deductions Tables (T4032) and Payroll Deductions Supplementary Tables (T4008)
  You can use these tables to calculate payroll deductions. The electronic versions are usually available three weeks before the printed copies are available.
• Payroll Deductions Formulas for Computer Programs (T4127)
  You may want to use these formulas instead of the printed tables to calculate your employees' payroll deductions. This publication contains formulas to calculate CPP contributions, EI premiums, and federal, provincial (except Quebec), and territorial income tax. If the computer formulas you want to use are different from ours, you have to submit them to any tax services office or tax centre for approval.
• You can use one of the manual calculation methods for detailed calculations.

 

 

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Remitting payroll deductions

 

As an employer, you have to remit the CPP contributions, the EI premiums, and income tax deducted from your employees' income, along with your share of CPP contributions and EI premiums.

Remittances are deemed to have been made on the day on which it is received by the Receiver General, and as such, you should choose the appropriate remittance method to meet your due date.

These deductions, along with your remittance form, must be received by CRA on or before your remittance due dates.  Due dates vary depending on the type of remitter you are.

 

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Forms and publications

• T4001, Employer's Guide - Payroll Deductions and Remittances
• T4130, Employer's Guide - Taxable Benefits
• RC4120, Employer's Guide - Filing the T4 Slip and Summary
• RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary
• RC4110, Employee or Self-Employed?
• Forms and other publications related to payroll
• Business Consent Form (RC59)