Dealing with the Canadian payroll compliance can be a little tricky, especially considering the fact that new changes are being rolled out on a regular basis. But, compliance is a necessity if you don’t want any unwanted visits from the CRA. With a little bit of preparation and some planning, you will be able to deal with the payroll compliance guidelines.
Relationship between employer/employee
The first step when dealing with payroll compliance is to understand the relationship between the employer and the employee. It is important to determine who particularly counts as an employer or employee. Although, this may seem very straight forward, the rise of freelancers, along with independent contractors and consultants has convoluted the mater to no end. It is important to determine if some one is self employed or an employee because the status of being employed bestows certain rights to the workers and also helps determine if the employer should make certain payroll deductions.
Certain factors that proves that a worker is an employee are:
- The payer is providing for the tools and is paying for the expenses
- The payer directly exerts control over the worker’s duties
- The payer determines the working hours for the worker
- Salary is paid to the worker or the worker is hired on an hourly wage
- The worker is paid for vacation pay
- The worker is obliged to perform the duties assigned to them
Registration and Payroll Records
As a new employer, you are required to register with the appropriate government agency. Initially, all employers are required to have a business number (BN), and they also have to register with the CRA for a payroll program. This is important because this is then used to report deductions, GST, along with other annual payroll information, which is used for taxation purposes. An an employer, you will also have to register for the Worker’s Compensation Board. If you are from Ontario, then you will also be required to have an Employer Health Tax number. Employers are expected to keep individual records for their employees. These records will include information relating to the employee’s day of joining, salary, vacations, time-off taken, and overtime earned. This will also include personal information like the employee’s name, address and social insurance number. Since these records have a lot of personal information related to the employee, employers are expected to keep these records confidential, unless they are requested for by a supervisor, the CRA or Revenue Quebec. Employers also have to keep payroll records with them for up to six years.
Paying wages and compliance
An important part of payroll compliance is understanding the appropriate deduction along with the remittances, that need to be made from the employee wages. A salary or wage is defined differently for every province in the Employment/Labour Standards, but still, employers are expected to pay the minimum hourly rate to employees, with a few expectations. Most provinces and territories in Canada have a minimum wage around $10 per hour. Each province and territory has its own legislation governing when and how frequently employees are to be paid. To be compliant, it is best to setup a regular pay period for your employees from the start. For organisations that are regulated federally, employees are required to be paid on a regular basis i.e. per day. Employees for federally regulated organisations must be paid no later than 30 days after wages were earned.
When an an employee leaves the organization or is terminated, the CRA advocates calculating the respective employee’s earnings along with the deductions for the respective year and creating a T4 slip for the employee. Give a copy to the employee and keep a copy for yourself to file with your T4 Summary. As an employer, you are also required to prepare an employment record for the employee. This should be sent to the employee within five calendar days of the employee’s earnings being interrupted.
The compliances related to payroll are many and vary depending on the circumstances and the provinces and territories involved. To know more about the payroll compliances in Canada, get in touch with Prowse Chowne. Our team of expert lawyers will help you out with any questions that you might have.