By Mohammad Karim
December 14, 2023
15 Min Read
Payroll involves more than simply ensuring your employees are paid promptly. Many business owners may not realize the significance of accurately deducting and remitting the appropriate amounts from their employees' paychecks. This piece will clarify the concept of pay deductions and remittances, outline the necessary payments to the Canada Revenue Agency (CRA), discuss the connection between employee benefits and this process, and more.
Understanding Payroll Deductions
When an employer takes a specific amount of money from an employee's gross wage to cover a service or government program, it's called a payroll deduction. The remaining amount after these deductions is the net wage, which the employer pays to the employee.
Deductions can be either mandatory or voluntary. Mandatory deductions are for government programs that all businesses with employees must contribute to, such as pension plans (CPP), insurance (EI), and taxes. Voluntary deductions include healthcare benefits, savings bonds, charitable contributions, and social funds. Before deducting any money, you need to consider all taxable benefits on your employees' pay. Once you've done that, you can make the necessary deductions.
Every tax season, the Canada Revenue Agency provides a payroll deductions table for each province to ensure that businesses calculate the correct reductions in their employees' wages.
Illustrations of Payroll Deductions
Payroll deductions refer to the amounts subtracted from an employee's total earnings before they receive their paycheck. These deductions play a crucial role in managing finances, contributing to various funds and benefits. Here are some examples of payroll deductions:
The most common payroll deductions in Canada are:
- The Canadian Pension Plan
- Quebec Pension Plan
- Employment Insurance
- Federal Income Tax
- Provincial/Territorial Income Tax
Canada Pension Plan (CPP)
The Canada Pension Plan (CPP) is a crucial component of Canada's social security system, providing financial support to eligible individuals during retirement or in certain situations of disability.
The Canada Pension Plan (CPP) is obligatory for employees aged 18 to 70 engaged in pensionable employment, excluding those already receiving CPP or disability benefits. CPP contributions apply nationwide, except for Quebec, which has its distinct Quebec Pension Plan (QPP).
Employers are required to utilize the yearly CPP contribution rates and maximums to compute accurate deductions. The deducted amount contributes to each employee's pension plan, ensuring they receive fundamental benefits upon retirement or in the event of disability.
In 2024, the maximum pensionable earnings have been increased to $68,500 from $66,600 in 2023, while the basic exemption amount remains at $3,500. Additionally, for the first time in 2024, earnings between $68,500 and $73,200 will be subject to a second tranche of CPP contributions.
Employment Insurance Premiums (EI)
Employment Insurance (EI) premiums are a vital aspect of Canada's social safety net, providing financial support to individuals during periods of unemployment or in specific situations.
Employment Insurance (EI) constitutes another mandatory deduction, a program administered by the Canadian federal government to safeguard workers facing circumstances like illness, pregnancy, maternity leave, or the care of a seriously ill family member, providing them with essential benefits.
Each employee deducts EI premiums from every dollar of their earnings, up to the annual maximum. Employers also contribute to EI, at a rate 1.4 times the premium withheld for each employee. Employers can utilize the yearly EI premium rate and maximum to accurately calculate payroll deductions.
For employees based in Quebec, they are obligated to contribute to the Quebec Parental Insurance Plan (QPIP) while simultaneously adhering to a reduced EI premium rate.
In 2024, the maximum annual insurable earnings for federal Employment Insurance (EI) will be $63,200, an increase from $61,500 in 2023.
Federal Income Taxes
Income taxes constitute the third major mandatory deduction, payable at both federal and provincial or territorial levels. Employers bear the responsibility of deducting income taxes from their employees' earnings, taking into account the applicable provincial employment taxes to ensure accurate withholding. Here are the federal income tax rates as of 2023:
- 15% on the first $53,359 of taxable income
- 20.50% on the portion of taxable income over $53,359 up to $106,717
- 26% on the portion of taxable income over $106,717 up to $165,430
- 29% on the portion of taxable income over $165,430 up to $235,675
- 33% on taxable income over $235,675
To precisely calculate income taxes, employers should utilize Form TD1, commonly known as the Personal Tax Credits Return. Individuals are required to complete this form and furnish it to their employer for record-keeping. Residents of Quebec should use a distinct form, the TP-1015.3-V, Source Deductions Return. It's crucial to recognize that separate federal TD1 forms and provincial or territorial forms exist. Charts may be employed as necessary for a clearer understanding.
Provincial and Territorial Income Tax
Canadians are required to pay both federal and provincial income taxes, which vary based on where they live and work. Unlike the fixed percentage of federal taxes, provincial tax rates are divided into different portions with varying rates. For example, if you earn $50,000 in British Columbia, you may face a 5.05% tax rate on the first $40,000 and 7.7% on the remaining $10,000. To find out the specific tax rate for your province, you can check it here.
Outsource your payroll
"Ease the burden of payroll responsibilities with Cloudium Payroll Service ? your trusted partner in outsourcing payroll tasks. By choosing Cloudium, you gain access to a dedicated team of experts committed to handling your payroll efficiently and accurately. Outsource your payroll to us and free up valuable time and resources, allowing you to concentrate on your core business activities. Our seamless processes and commitment to compliance ensure that your payroll is in safe hands. Elevate your business by entrusting your payroll needs to Cloudium ? because outsourcing with us means payroll made easy."
Calculating payroll deductions involves several steps.
When it comes to figuring out your employees' payroll deductions, the first step is to take a close look at their total earnings, which includes any taxable benefits they may have received. For example, if you provide your employees with room and board, that counts as a taxable benefit. You'll need to add the value of that benefit to your employees' pay before moving on to calculate payroll deductions.
Once you've tallied up their total earnings, you can determine how much income tax to withhold using either the Payroll Deductions Online Calculator or Guide T4127 (Payroll Deductions Formulas). Additionally, you'll need to subtract CPP or QPP (for Quebec employees) from your employees' paychecks. All employees aged 18-70 are required to make these contributions. It's important to note that you must match your employees' CPP/QPP contributions as well. Lastly, don't forget about calculating EI premiums and withholding them from your employees' payments ? keep in mind that you're responsible for remitting 1.4 times each employee's payment.
Discover everything there is to know about remittance.
What does the term "Remittances" refer to?
After deducting the source amounts, the balance is regarded as a remittance that needs to be paid (i.e., remitted) to the CRA. Generally, any sum of money transferred from one entity to another in the form of an invoice, bill, or for any other reason is considered a remittance.
Submitting Payroll Deductions
Once you have issued paychecks to your employees, it is important to submit the withheld payroll deductions by the 15th of the following month to the CRA. For example, if you pay your employees in January, you must submit the deductions by February 15th. Meeting these specific remittance deadlines each year is essential for employers, as it includes income taxes, CPP contributions, and EI premiums. Failure to remit your source deductions on time may result in penalties from the CRA. Remittances can be made online through your CRA My Business Account using the My Payment portal or by arranging a pre-authorized debit from your bank account. Alternatively, with an original remittance voucher, you can also make payments at your bank or mail a payment to the CRA.
Businesses have the option to send their payroll deductions to the Canada Revenue Agency either through traditional mail or by using the online platform. My Business Account serves as the CRA's portal for businesses to enroll and submit their source deductions electronically. Employers are required to adhere to particular deadlines for remitting payments each year. If they fail to do so on time, which includes income taxes, Canada Pension Plan contributions, and Employment Insurance Premiums, they may face penalties imposed by the CRA.
Submitting Payroll Deductions
Failure to accurately file taxes or submit them late could lead to the imposition of fines by the CRA. The penalties for delayed or non-payments are as follows:
- 3% if payment is one to three days late,
- 5% if payment is four to five days late,
- 7% if payment is six to seven days late,
- 10% if payment is more than seven days late or no amount is paid at all, and
- 20% for recurring penalties in a calendar year.
If you neglect to settle these payments and fines, the CRA has the authority to garnish wages or other sources of income, seize and sell business assets, or utilize relevant statutes and laws to recover the outstanding amount, potentially resulting in prosecution, fines, and imprisonment. To avoid fines and other consequences, it's crucial to ensure that all payment due dates are met.
Remittance Schedule
Employers are required to adhere to the payroll remittance timetable specified by the Canadian government.
