Commission payments

You may make commission payments to your employee (instead of, or in addition to regular pay to your employee) or to a self-employed worker (an independent agent).

Commission payments are normally a percentage of sales or a fixed amount that can be paid regularly or irregularly.

On this page

• Steps
• References

Steps

1. Determine if the worker is an employee or self-employed

   Workers who are receiving commission payments can either be:

   • An employee
   • A self-employed worker
   If you are not sure if the worker is an employee or self-employed for CPP/EI purposes

   It is important to determine if a worker is an employee or self-employed. Employment status has direct impacts on your reporting and withholding requirements for the worker under the Canada Pension Plan (CPP), Employment Insurance Act (EIA) and the Income Tax Act (ITA).

   You need to consider multiple factors to determine if the worker is an employee or is self-employed. You can use the CRA guidance to help you gather the facts based on your situation.

   Learn more: Employee or Self-employed.

2. Determine which deductions you need to withhold

   Depending on the worker's employment status, you must withhold the following deductions relating to the commission payments:

   • Employee

     • Income tax
     • CPP contributions
     • EI premiums

      If you make commission payments to your employee, you have to report the payments on a T4 slip. Continue to Step 3 – How to calculate deductions.

   • Self-employed worker

     • Income tax (do not withhold)
     • CPP contributions (do not withhold)
     • EI premiums (do not withhold)

     A self-employed worker is responsible for remitting income tax and CPP contributions in the same way as other self-employed individuals.

      If you make commission payments to a self-employed worker, you have to report the payments on a T4A slip. Continue to Step 4 – Report the payment on a slip.

   • Non-resident self-employed worker

     • Income tax at the rate of 15%
     • CPP contributions (do not withhold)
     • EI premiums (do not withhold)

      If you make commission payments to a non-resident self-employed worker, you have to report the payments on a T4A-NR slip. Continue to Step 4 – Report the payment on a slip.

3. How to calculate deductions

   If you make commission payments to your employee, you have to calculate the income tax, CPP contributions and EI premium deductions.

   1. Calculate income tax

      Your calculation of the income tax deductions for commission payments made to your employee depends on your employee's situation:

      • Employee receives commission payments and claims employment expenses

        If your employee, who you pay in whole or in part by commission, will be claiming employment expenses, and you received a copy of a filled out Form TD1-X, Statement of Commission Income and Expenses for Payroll Tax Deductions, in addition to Form TD1, Personal Tax Credits Return, use the estimated annual net income amount your employee calculated on this form to calculate the amount of income tax to withhold.

        Learn more on how your employee can elect to use or to revoke the TD1X, how to fill it out and send it: Find information about completing the TD1X form.

        When you need to fill out Form T2200

        If the commission payments have been included in your employee's income, your employee may be eligible to deduct employment expenses if certain conditions are met and you complete Form T2200, Declaration of Conditions of Employment.

        You must complete Form T2200 and give it to your employee in order for them to claim employment expenses on their income tax and benefit return. It is your employee's responsibility to claim the expenses on their income tax and benefit return and to keep records to support the claim.

        Learn more on allowable employment expenses: Commission employees.

        Learn more: Calculate income tax deductions.

      • Employee receives commission payments and does not claim employment expenses

        If you make commission payments to your employee and they will not be claiming employment expenses, you have to calculate the income tax depending on when the commission payment is made:

        • Same time you pay salary

          You must add the commission payments that you pay regularly to your employee's basic pay to calculate the income tax to withhold.

          Example

          A salesperson who receives commission payments on a set schedule such as:

          • The last Friday of every month
          • With every salary pay cheque
          • At the end of every fiscal quarter

          Learn more: Calculate income tax deductions.

        • Irregularly or the amounts fluctuate

          You can calculate using the bonus or irregular payments method to calculate the income tax to withhold.

          Example

          A salesperson who receives a commission payment based on their sales could receive two payments in one month and not have any the next month.

          Learn more on how to calculate using the bonus or irregular payment method: Calculate income tax deductions.

   2. Calculate CPP contributions

      If you make commission payments to your employee, you have to calculate the CPP contributions depending on when the commission payment is made:

      • Same time you pay salary

        You must calculate the CPP contributions in the same manner as you would for regular salary.

        Learn more: Calculate CPP contributions deductions.

      • Irregularly or the amounts fluctuate

        You must prorate the basic exemption based on the number of days since the last commission payment using the regular payments at irregular intervals calculation method.

        Learn more on how to calculate using the regular payments at irregular intervals: Calculate CPP contributions deductions.

   3. Calculate EI premiums

      If you make commission payments to your employee, you have to calculate the EI premiums in the same manner as you would for regular salary.

      Learn more: Calculate EI premiums deductions.

4. Report the payment on a slip

   You must report payments on a T4 or T4A slip depending on the worker's employment status:

   • Employee – T4 slip

     You must report the following amounts on a T4 slip:

     • Box 14 – Employment income
     • Box 24 – EI insurable earnings
     • Box 26 – CPP/QPP pensionable earnings
     • Code 42 – Employment commissions

     Learn more: T4 slip – Information for employers.

   • Self-employed worker – T4A slip

     You must report the following amounts on a T4A slip:

     • Box 020 – Self-employed commissions

     Learn more: T4A slip – Information for payers.

   • Non-resident self-employed worker – T4A-NR slip

     You must report the following amounts on a T4A-NR slip:

     • Box 18 – Gross amount

     Learn more: T4A-NR slip – Payments to non-residents for services provided in Canada.

References

Legislation