Webinar: Payroll 101
Hello, my name is Russell and I'll be your presenter today.
Welcome to the Canada Revenue Agency's webinar, Payroll 101.
If you're a new employer or new to doing payroll, this webinar will teach you what you need to know.
The webinar should last approximately 30-40 minutes. It will be recorded and published in the CRA Multimedia Library, so you can stop and come back to it if you need to.
If you have questions on other tax-related matters, please call the Canada Revenue Agency's business enquiries line at 1-800-959-5525.
In this webinar we'll be discussing:
- How to determine if you're an employer
- Using a payroll program account
- Getting employee information
- Types of income
- Employer's responsibilities, including withholding, remitting, and reporting
- Calculating source deductions
- The payroll deductions online calculator
- Actions taken after you file, including reviewing slips, dealing with applicable penalties, or paying interest
Before we get to the basics, let's discuss how to decide if you're an employer
To be an employer, you need employees. It seems straightforward, but not everyone who works for a business is an employee. They could be self-employed or working for an agency. This difference is extremely important.
Generally, an employee is under the direction or control of a payer, which is usually their employer. That means the payer controls a worker's activities and determines how workers are compensated. The more control the payer has over what the worker does, the more likely the worker is an employee.
On the other hand, if a worker controls what work they do, when and how they do it, and uses their own tools or equipment, then it's more likely that the worker is self-employed.
If you aren't sure if your workers are employees, our guide can help you decide. The guide is called the Employer's Guide RC4110 – Employee or Self-employed?
For this webinar, we'll assume you're an employer with employees. And as an employer, you have certain payroll responsibilities.
As an employer, you need to open a payroll program account and get a business number. You also need an account if your business is incorporated and you plan to pay yourself.
The payroll program account is used by the CRA and your business to coordinate payments to the CRA. These are called remittances, that is, the amounts you pay to the CRA. You have to register for a payroll program account before your first payment to the CRA is due. We'll discuss remittance due dates later.
For more information on remittances, see T4001 Employers' Guide - Payroll Deductions and Remittances
A payroll program account has a 9-digit Business Number followed by the letters RP to indicate that it is a payroll program account. Then, there are four more digits that indicate the number of the payroll account.
You can have more than one payroll account. For instance, you may want to keep two branches separate, or have one account for managers' pay and one for employees' pay.
To register, you can go to the Taxes section on Canada.ca. Or you can phone 1-800-959-5525 and ask a CRA business enquiries agent to help you. You can also print form RC1 - Request for a Business Number, fill it out, and send it to the CRA by mail or fax. Please allow 7 to 10 business days for a response from the CRA.
If you already have a business number, we'll add your payroll program account to it.
After you've registered for a payroll program account, you'll need some information from your employees.
First, you'll need your employee's social insurance number, or SIN. If your employee doesn't give you their SIN, you have to make a reasonable effort to get it. The information slip preparers should keep any documents they need to prove they made a reasonable effort to get their employee's SIN.
Make sure you keep a record of what you've done to get the employee's SIN, or you could be subject to a penalty of up to $100 per missing SIN.
Each employee also has to fill out a TD1, Personal Tax Credits Return form. We'll go over this form when we talk about income tax deductions later in the webinar.
As an employer, you need to withhold, remit, and report source deductions such as CPP, EI, and Income Tax from all of an employee's taxable, pensionable, and insurable income. This can include:
- Salary and wages
- Taxable benefits and allowances, and
- Tips and gratuities
One thing to note is that when we say "pensionable" and "insurable," we mean that the payment to the employee is subject to CPP and EI.
Salary and wages are generally the bulk of an employee's regular income. Employers pay employees regular payments for their work.
However, an employee can receive other forms of income, most notably taxable benefits and allowances.
A taxable benefit is generally when an employer gives the employee something personal in nature.
A benefit is a good or service you give, or arrange for a third party to give, to your employee.
An example is giving your employee free use of property that you own such as a parking space. Benefits include when an employee is given an allowance or a reimbursement for a personal expense.
An allowance or an advance is any periodic or lump sum amount paid to an employee on top of salary or wages. Advances help employees pay for anticipated expenses so they don't have to pay for them out of pocket. An allowance or advance is:
- Usually a predetermined amount chosen without using the actual cost
- Usually for a specific purpose
- Or used however the employee chooses. The employee doesn't provide receipts.
Benefits may be paid in cash, such as a meal allowance, or provided as non-cash items or services, such as a parking spot.
Employment income must include the value of any benefits or allowances you provide to an employee.
CPP, EI, and income tax will usually have to be deducted from this additional income.
Whether a benefit is taxable generally depends on if an employee receives an economic advantage that can be measured in money.
For more information on taxable benefits and allowances, see Employer's Guide – T4130 Taxable Benefits and Allowances.
You have payroll responsibilities as soon as you remunerate (that is, pay amounts to an employee or provide them with a benefit).
As an employer, you must correctly calculate each employee's income, including salary, wages, taxable benefits, allowances, and other remuneration.
Then, you will have to determine what you need to withhold, including Canada Pension Plan (CPP) contributions, Employment Insurance (EI) Premiums, and income tax.
Whenever you withhold amounts from an employee, including the employer's share of CPP and EI, you have to pay those amounts to the CRA. These payments are due by a certain date that is specific to each employer. I'll provide more on dates shortly.
At the end of each year, you also have to tell the CRA what you paid your employees, what benefits or allowances you provided, and what you withheld from their pay. This is usually done on a T4 slip.
We'll talk more about how and when to remit amounts and how to file information returns a little later.
I mentioned your due date is the date you must pay amounts to the CRA. It's determined by the average monthly witholding amount you withhold from employees every month.
To determine the average monthly withholding amount (AMWA), the CRA adds up all the CPP, EI, and income tax you sent in the last two calendar years. It divides this amount by the number of months you made payments that year.
For more information on due dates, and the dates that apply to you, see Guide T4001 or log on to "My Account" found under Taxes on Canada.ca.
Let's talk next about some important deductions and remittances. These include CPP contributions, EI premiums, and income tax.
First, we'll look at the CPP.
All employees who receive pensionable earnings must contribute to the CPP. An employee who holds pensionable employment makes contributions to the CPP through withholdings on the salary and wages paid by the employer. This amount is obtained by multiplying the contribution rate by the contributory salary and wages (subject to the maximum contributory earnings). The employer must also pay an equivalent contribution.
Employers have to withhold, or deduct, CPP contributions from an employee's pay up to a maximum annual employee contribution that is determined by the government of Canada each year, except in Quebec, where employees contribute to the Quebec Pension Plan or QPP.
For 2019, the maximum amount is $2,748.90.
However, not all employees will have enough pensionable earnings to contribute the maximum.
To calculate an employee's 2019 CPP contributions, multiply their total pensionable earnings, up to a maximum amount of $57,400 by 5.10%.
The calculated amount is what employees have to contribute. Employers must match this contribution and remit both amounts to the CRA.
It's important to note that each employee is entitled to a basic exemption of $3,500 of earnings. The employer doesn't have to deduct CPP from this amount.
We'll show you later how to calculate CPP contributions, along with all other source deductions.
The CPP is mandatory for workers in all provinces and territories except Quebec, where employees contribute to the Quebec Pension Plan or QPP.
Generally, an employee must contribute to the CPP if they're in pensionable employment and are 18 to 70 years old. This is true even if they receive a CPP or QPP retirement pension.
However, there are some exceptions.
If an employee is considered to have a disability under the CPP, employers shouldn't deduct CPP from their earnings.
If an employee is between 65 and 70, they may elect not to contribute to the CPP. They'll have to complete Form CPT30, and submit it to their employer.
If you're unsure whether to deduct CPP contributions, you can refer to Guide T4001 which is available under Taxes on Canada.ca.
Employers must deduct CPP contributions based on what an employee earns from a job. If an employee has another job with a different employer, the CPP deducted by the other employer doesn't affect the amount you must deduct.
If you fail to deduct CPP contributions, you'll be liable to remit the amounts you should have deducted. You may also face a penalty of 10% of the amount you didn't deduct.
If you're assessed this penalty more than once in the calendar year, the CRA will apply a 20% penalty to the second or later failures. The penalty is applied if the failures were made knowingly or under circumstances of gross negligence.
The penalty applies to both CPP and EI.
Next, let's talk about Employment Insurance, or EI.
Employees who receive insurable earnings must contribute to EI.
Unlike the CPP, there is no basic exemption, so withholdings start on the first dollar of insurable earnings. Employers have to withhold the employee's EI premiums up to the maximum annual employee premium.
For 2019, the maximum amount is $860.22.
Employers determine the amount to withhold for EI by multiplying the employee's insurable earnings by 1.62%. In 2019, the maximum insurable earning for an employee is $53,100. Employers must contribute 1.4 times the amount contributed by the employee.
Generally, an employee must contribute to EI if they're in insurable employment. There is no age limit and no basic exemption. So, whether your employee is 15 or 92, you have to withhold EI premiums from the first insurable dollar you pay them.
EI is mandatory in all provinces and territories. However, if you're a Quebec employer and employees contribute to the Quebec Parental Insurance Plan (or QPIP), you will deduct EI premiums at a lower rate.
Note that non-cash taxable benefits aren't subject to EI premiums. The only exception to this is board and lodging benefits when an employee also receives cash earnings in the same pay period.
If you're unsure whether to withhold EI premiums, refer to Guide T4001 under Taxes on Canada.ca.
Like the CPP, each employer must deduct EI premiums based on the employee's earnings. If an employee has a second job with a different employer, the EI deducted by the other employer doesn't affect what you deduct.
Also, like the CPP, if you fail to withhold EI premiums, you'll be liable for what you should have withheld.
We've looked at CPP and EI. Now, let's move on to income tax.
As an employer, you're responsible for deducting income tax from your employee's taxable income. The taxable income includes regular pay as well as taxable benefits and allowances you may provide to your employees.
There is no age limit for deducting income tax, no basic exemption, no employer contribution, and no maximum.
An employer must determine an employee's taxable income to calculate the income tax to deduct. Then, the employer must deduct income tax as a percentage corresponding to the employee's taxable income. The amount to be deducted depends on provincial, territorial and federal tax rates, as well as the claim code on an employee's TD1. I will explain what this is shortly.
To determine the amount of income tax and other source deductions to withhold from an employee's pay, employers can use the payroll tables for their province or territory, or the CRA's online Payroll Deductions Calculator. You'll find the payroll deductions tables and the Payroll Deductions Calculator under Taxes on Canada.ca.
To calculate an employee's taxable income, add up the gross income. This includes salary, wages, bonuses, cash and non-cash taxable benefits, and any other amounts the employee receives from you. Then, subtract any amounts that reduce the income where you withhold tax. This could include union dues, employee contributions to a registered pension plan, or an amount that a tax service office has authorized.
Employees are entitled to tax credits which can change what tax they owe. The TD1 form allows employees to claim these tax credits. Employers use it to determine how much of an employee's remuneration is subject to income tax.
You have to deduct tax according to the claim code that corresponds with the total personal amount the employee claims on the TD1. These codes and their corresponding claim amounts are listed in the payroll deductions tables for your province or territory.
Next, you look up the tax for the employee's pay under the claim code in the federal, provincial or territorial tax tables for the pay period. For example, every employee is entitled to the basic personal amount. If an employee only claims the basic personal amount, you will use Claim Code 1 to calculate the amount of income tax to withhold.
If an employee states that their total expected income from all sources will be less than the total amount claimed, don't deduct any federal, provincial, or territorial tax.
Keep in mind that the personal tax credits can only be claimed once. So, if an employee has more than one employer, they should fill out a TD1 for each employer, but only claim the personal tax credit amounts on one of those forms. On the TD1 they will check the box on page two "more than one employer or payer at the same time" and enter claim code "0" on the front page.
If an employee claims more than the basic personal amount on their federal TD1, they should also fill out the TD1 for their province or territory.
Employees don't have to fill out a new TD1 unless there is a change that may affect their personal tax credit amounts. If there is a change, they should complete and return to the employer, a new form within seven days.
If your employee doesn't give you a TD1, you should use claim code 1. This means you calculate their pay, while only considering the basic personal amount.
If an employee wants extra tax deducted, they can show what they want to withhold in the "Additional tax to be deducted" section on page two of the form. You have to add that amount to the income tax you normally withhold from the employee's pay.
You should review forms to try to ensure they do not contain any obviously false or deceptive information.
Now, let's talk about making a payment to your payroll program account. This is what we call remitting. You have to remit what you withheld from your employees and you may also have to add employer contributions.
Let's go through an example on how to calculate the source deductions for an employee. We'll be looking at a weekly pay period. You can find examples for other types of pay periods in our employer guides and we'll discuss remitting and reporting these amounts later.
You pay your only employee, Fred, $1,000 every Friday in February, and you don't have any other employees. Fred is only claiming the basic personal exemption on his TD1 and he lives in Ontario.
By the end of February, you'll have paid Fred four times. And you will have withheld $204 in CPP contributions, $64.80 in EI premiums, and $643.80 in federal and provincial income tax.
The CPP withheld is based on the contribution rate, 5.1% for 2019, multiplied by the employee's income. Similarly, the EI premiums are based on the contribution rate, 1.62% for 2019, multiplied by the employee's income.
Fred's weekly income tax deductions are based on his taxable income for the year. His total tax payable is based on the combined Ontario and federal tax rates, with the amount payable spread over each pay period. To determine total tax payable, you should refer to your provincial or territorial tax tables and apply the rates listed for each employee's taxable income.
Now, let's figure out your share of the CPP and EI.
First, let's calculate your share of the CPP.
For this example, we'll assume you've already prorated the $3,500 basic exemption for Fred over his weekly pay periods. If we hadn't done this, then you would have to prorate the basic exemption to the number of pay periods for the employee. You would then reduce their pensionable earnings for each pay period by the amount of the prorated exemption.
For more information on prorating the basic exemption, see Guide T4001.
Employers have to match their employee's CPP contributions. In this case, you'll have to add $204 to your remittance.
EI is a little bit different. Generally, employers have to contribute 1.4 times the amount that the employee contributes. You will take the $64.80, and multiply it by 1.4, which gives you $90.72. That means you have to add this amount to your remittance.
*In some circumstances, the employer may be eligible for a reduced EI premium rate. For more information, see Guide T4001.
There is no employer portion for income tax. You'll include the total tax deducted from Fred's pay in your remittance. The income tax deducted in this example is based on Fred's income and the tax bracket calculations for the federal and Ontario provincial income tax.
Your total remittance is the sum of the employer and employee portions of CPP contributions and EI premiums as well as all income tax deducted from employees during the remittance period.
Assuming you're a regular remitter, you must pay the CRA $1,207.32 by March 15th. We must receive remittances from regular remitters on or before the 15th day of the month following the month of the deductions.
You are a regular remitter if you are a new employer, but do not qualify to remit quarterly as a new small employer, and if your average monthly withholding amount in the last two calendar years was less than $25,000, and the CRA has not advised you to remit at a different frequency. For more on remitter types and dates, see Guide T4001.
There are different ways to calculate an employee's payroll deductions. You can use commercial software or do it manually, using the CRA's payroll tables. We also have an online tool called the Payroll Deductions Online Calculator. It can be found under Taxes at Canada.ca.
This calculator allows you to verify the CPP and EI you've deducted based on an employee's pensionable and insurable earnings. It also allows you to calculate your source deductions for a particular employee based on their pensionable and insurable earnings. You'll be able to calculate your deductions for most pay periods, even for an employee you started paying part-way through the year.
Now that we know how much you need to pay the CRA for Fred in February, let's talk about how you can make a payment. You have a few payment options. You can pay using "My Account" for individuals or "My Business Account" for businesses on Canada.ca. You can also pay through internet banking with your financial institution. If you pay this way, you may have to check to see how the CRA is listed as a payee.
There are specific ways to remit for certain employers. For example, an accelerated threshold 2 remitter has to make payment at a Canadian financial institution. You are a threshold 2 accelerated remitter if you had an average monthly withholding amount of $100,000 or more in the last two calendar years.
If you're not an accelerated threshold 2 remitter, you may choose to remit by mail. If you do, make your cheque payable to the Receiver General and mail it and your remittance voucher to the Sudbury Tax Centre. A remittance voucher is a slip that provides the CRA specific account information and must accompany your payments.
If you don't have a remittance voucher, include the following information:
- Your payroll program account number
- That you're a new remitter (if applicable)
- Your business's complete legal name, address, and telephone number
- The period your remittance covers (if it covers more than one period, provide a detailed breakdown)
- Or that you didn't receive a remittance voucher (if applicable)
Employers hold funds withheld from employees in trust for the Receiver General of Canada. Also, you must keep them separate from your operating funds.
Now let's talk about what you need to report.
At the end of every calendar year, you have to total what you paid, deducted, and remitted during that year for each employee. These amounts are usually reported on a T4 slip.
A T4 slip – Statement of Remuneration Paid reports an employee's taxable, pensionable, and insurable income. Their CPP contributions, EI premiums, and income tax are also reported there, along with their employment income, including any taxable benefits and allowances.
Certain types of income, such as pension income issued by employers, may require a T4A slip. For more information, check the Employer's Guide RC4120 – Filing the T4 Slip and Summary and Employer's Guide RC4157 - Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary.
You have to fill out a T4 slip for each of your employees. Every amount reported on a T4 slip has a box, or ‘code.' For example, employment income is always reported in box 14. Enter the corresponding amounts into each box, and refer to CRA guide RC4120 if you're unsure what code to use.
Employers may distribute T4 slips electronically by making them accessible to their employees on a secured portal with a secured printer. Employers can only distribute T4 slips using email if they have expressed written consent from employees.
In all other cases, where the employee doesn't have access to a secured portal and printer, or when the employee requests it, employers must provide two copies of the T4 slip, in paper format, to the employee in person or by mail.
You also have to send one copy of each T4 slip to the CRA, along with a T4 summary. The summary is a form showing the sum of amounts reported on all T4 slips. And, you have to keep these copies for your records.
Your T4 slips have to be sent to your employees and to the CRA no later than the end of February of the following year.
Employers who have more than 50 slips have to file electronically, while employers with 50 slips or less can, if they choose, file their T4 returns on paper.
If you file your T4 slips late, you'll be subject to a late filing penalty.
You must keep all T4 slips and all other payroll records for at least six years from the end of the year they're for. Your records should include:
- Employee names
- Social Insurance Numbers
- Hours each employee worked
- Amounts withheld from each employee
- Form TD1, Personal Tax Credits Return
- Information slips issued (for example T4s) and returns filed
- Any other relevant information
After you file your information returns, the CRA will check the amounts you reported on the T4 returns against the amounts you remitted to your payroll account during the year. You'll be informed if there is a discrepancy.
Every T4 slip is reviewed to make sure that the CPP and EI amounts you reported agree with the CPP and EI amounts you should have withheld. This check is known as a pensionable and insurable earnings review, or PIER.
If there is a difference, we'll send you a list of any affected employees and the amounts we calculated. We'll also send you a PIER summary that shows any balance you may owe.
If you fail to deduct the appropriate amounts, or if you don't remit them on time, you may be subject to a penalty of up to 10% of what you should have deducted or remitted. If your failure to deduct or remit is a result of gross negligence, your penalty could be 20% of what you should have withheld or paid.
It's important to remember that you're responsible for withholding and remitting these amounts. If you should have deducted an amount, the CRA will hold you liable for both the employee and the employer shares. Remember that you're holding these amounts in trust for the Government of Canada.
If you don't file your information return by the due date, we may assess a late-filing penalty based on the number of late slips and how late you file them.
You could also face consequences for not meeting other obligations, such as failing to get an employee's SIN or failing to keep adequate books and records.
Here's a list of guides that will help you. The website also has payroll deduction tables for every province and territory and payroll deductions formulas for payroll programs.
We have now reached the end of our webinar. Thank you for joining me today. I hope that it was informative.
Thank you for watching, and stay tuned for more webinars in the coming months!
- Date modified: