Guide to Canadian Payroll Deductions for Employers
How to Do Payroll in Canada
Once you've hired people to work for you, one of your responsibilities as an employer is to pay them properly. In Canada, this means complying with the requirements of the Canada Revenue Agency (CRA) and making and remitting the correct payroll deductions. This article will guide you through the process of how to do payroll in Canada.
How to Do Payroll in Canada
For Canadian employers, there are five steps to running payroll:
- Opening and operating a payroll account with the CRA
- Collecting required information from employees, such as their social insurance number (SIN) and a completed federal and provincial TD1 form
- Making the appropriate Canadian payroll deductions from employees' pay each pay period.
- Remitting these payroll deductions, along with the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, to the CRA as required.
- Reporting each employee's income and deductions on the appropriate T4 or T4A slip and filing an information return on or before the last day of February of the following calendar year.
Let's look at each of these steps in detail.
1. Open a Payroll Account
You will need a CRA payroll deductions program account to remit your payroll deductions to the CRA.
If you already have a business number (BN) and have previously registered for other CRA program accounts (such as GST/HST), you will just be adding a payroll deductions account to your existing program accounts.
If you don't already have a BN, you will have to get one first, which you can do in one of several ways:
Once you have a BN you can register for program accounts through the BRO service, including payroll deductions.
2. Collect Required Information From Employees
As part of the hiring process, you should have examined each new employee's SIN card and recorded the employee's name and SIN exactly as they appear on the card. Remember to watch for social insurance numbers that start with the number "9" because this number signals a person you can't hire. They're not a Canadian citizen or permanent resident and are only authorized to work for a particular employer with a valid employment authorization issued by Immigration, Refugees and Citizenship Canada.
You should also have already had the new employee fill out the appropriate federal and provincial Form TD1, which determines how much tax is to be deducted from a person's employment income.
3. Make the Appropriate Payroll Deductions
Before you make deductions, be sure you have added any taxable benefits to your employees' pay. Do you provide an employee with board and lodging, the use of a company car, parking, or a low-interest loan? Anything you provide an employee in addition to their cash wages may be considered a taxable benefit.
And if an employee's pay involves taxable benefits, these need to be added to their income each pay period before you make any payroll deductions. The total income determines the total amount that is subject to CPP contributions, EI premiums, and income tax deductions.
The CRA's Guide T4130 gives details on how to calculate the value of these benefits and which taxable benefits are subject to GST/HST.
Once you have all taxable wages and benefits accounted for, you're ready to make your Canadian payroll deductions. Generally, employers need to make the following three government program deductions from employees' pay:
- Income tax: Use the provincial or territorial tables for the province or territory where the employee reports to work. The easiest way to do this is to use the CRA's online calculator, which will calculate all the other payroll deductions you need to make, too. You can also find all the payroll deductions tables that you need on the CRA's payroll page.
- Canada Pension Plan contributions: Generally, you have to deduct CPP contributions if an employee is between age 18 ad 69, in pensionable employment, not disabled, and not currently receiving a CPP or QPP (Quebec Pension Plan) pension. Contributions rates, maximums, exemptions, and other useful information are on the CRA's Canada Pension Plan page. Quebec employers should visit Revenu Quebec.
- Employment Insurance premiums: Normally, you deduct EI premiums from employees' pay on each dollar of insurable earnings up to the yearly maximum. The employer's EI contribution is 1.4 times the EI premium withheld for each employee (but you may qualify for a reduced rate if you offer your employees a short-term disability plan). Unlike the CPP, there is no age limit for deducting EI premiums. When your employee EI deductions reach the yearly maximum amount, you stop deducting them.
Refer to the CRA's chart of EI premium rates and maximums to determine the EI deductions for a given year. Note that there is a separate chart for Quebec, which has a different rate structure.
|2020 EI Rates and Maximums|
|Max. Annual Insurable Earnings||Rate %||Max. Annual Employee Premium||Max. Annual Employer Premium|
As with other payroll deductions, you can use the CRA's online calculator to determine the amount of Employment Insurance you need to deduct for any pay period. Note that some benefits and payments you give to employees are not subject to Employment Insurance.
As a Canadian employer, there may also be special situations that affect your EI deductions. See the CRA's Employment Insurance page for information on topics such as employment outside Canada, special payments, and hiring a family member.
You may have other employee deductions specific to your organization, such as extended health benefits, life insurance, and retirement plans.
4. Remit Deductions to the CRA
You can either remit electronically or use paper remittance vouchers and receive statements of account by mail. If you remit electronically, you can view your statements and transactions via your online My Business Account.
New employers are classed as regular remitters, which means you have to remit your deductions so the CRA receives them on or before the 15th day of the month following the month you made the deductions. Later, once you have established a remittance history, you may be reclassified as a quarterly or accelerated remitter and have to complete less paperwork.
For more information on remittance, including how to correct payroll remitting errors, see the CRA's page on remitting payroll deductions.
5. Complete All T4 Slips and Information Returns
Lastly, as an employer, each year you need to complete a T4 slip for each employee and complete the T4 summary form. You must file the T4 information return and give the T4 slips to the employees on or before the last day of February following the calendar year to which the information return applies.
T4 slips may be filled out electronically using the CRA's T4 web forms application (which lets you file one to six original or amended T4 slips) or filled out in an online PDF. For more information on T4 slips, see the CRA's T4 - Information for Employers page.
You may also file the T4 Summary form electronically or in paper form, in which case you will need to send the original summary and related T4 slips to the Jonquière Tax Centre. See the previous link for more information.
More Information on Running Payroll in Canada
All of your business records, including your records relating to payroll, must be kept at your place of business or at your residence in Canada unless the CRA has given you permission to keep them elsewhere. Note too that business records and supporting documents needed to determine your tax obligations must be kept for a period of six years.
The penalties for noncompliance with Canadian payroll requirements range from fines of $1,000 to $25,000, imprisonment for up to 12 months, or a combination of both. The CRA provides the details for particular offenses and omissions from failing to make the appropriate payroll deductions to filing information forms late.