Payroll expenses are a significant part of a business’s expenses. Canadian businesses that pay salaries or other forms of compensation such as bonuses, vacation pay, or employment benefits may be required to deduct and remit taxes, pension contributions, and other payments to the Canada Revenue Agency (CRA).
Based on the federal and provincial laws in British Columbia (B.C), employers are required to deduct income and benefits taxes, employment insurance, Canada pension plan (CPP), and union dues, where applicable.
Keep reading to understand your responsibilities regarding these payroll deductions and remittances.
Employer Payroll Deduction Responsibilities
Canadian businesses that make payroll payments must register for a payroll program account. All new employees receiving salary, wages, commissions, employment insurance benefits, and pensions are required to fill and submit the federal Form TD1, Personal Tax Credits Return, and the BC TD1 British Columbia Personal Tax Credits Return.
Employees who receive commissions or claim expenses can decide to fill out Form TD1X, Statement of Commission Income and Expenses for Payroll Tax Deductions.
The personal tax credits return forms provide tax information that allows businesses to calculate, file, and remit accurate federal and provincial payroll taxes. Income tax deductions do not have age limits and apply to all employees. Also, employers are not required to make employer contributions for tax deductions.
As a business owner in BC, you must deduct EI premiums up to the yearly maximum from your employees’ insurable earnings, provided they are in insurable employment. The maximum annual insurable earnings amount for 2023 is $61,500.
As an employer, you must also contribute to Employment Insurance. An employer’s contribution is 1.4 times the employee’s EI premium payroll deduction. The employer’s EI contribution rate can be reduced if a wage-loss replacement plan for short-term disability that complies with Employment Insurance Regulations is provided to an employee.
Certain employment types are not insurable, and businesses do not need to deduct Employment Insurance. Examples are casual employment unrelated to your business or trade, employment with no arm’s length transactions, such as with family members, employment that involves an exchange of work or services, agricultural or horticultural employment with less than seven working days, or no cash remuneration.
Depending on your type of business, a worker who is not an employee may have insurable earnings and require Employment Insurance deductions. Examples of such workers are taxi drivers, hairdressers, and barbers.
You can find business employment scenarios that do not require Employment Insurance here. If you are unsure about if you are required to make Employment Insurance for your employees or casual workers, you can fill and submit Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act to the CPP Rulings Division at the Tax Services office.
As a business owner, you may deduct Employment Insurance for salaries, payroll advances, commissions and bonuses, cash taxable payments and benefits, some employer contributions to an employee’s registered retirement savings plan (RRSP), specific tips and gratuities, and vacation pay.
For self-employed business owners, EI contributions are voluntary.
If your business is required to make EI deductions, use the Payroll Deductions Online Calculator (PDOC) to calculate your Employment Insurance deductions.
Canada Pension Plan contributions
Your business must deduct CPP contributions from eligible employees’ pensionable earnings, and you are required to contribute the same amount of employee CPP contributions.
When calculating CPP contributions, your business must use the employee’s pensionable earnings minus a basic exempt amount based on the employment period.
The maximum pensionable earnings amount to calculate CPP contributions for 2023 is $66,600.The basic exemption amount is $3,500.
To determine if you need to deduct CPP contributions from your employee’s pensionable earnings, you must check that the employee meets the following requirements:
- is employed in a pensionable employment
- is not considered to be disabled under the CPP
- is between 18 to 69 years old, even when receiving a Canada Pension Plan payment.
However, if your employee is at least 65 years old but not up to 70 and submits Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election, with parts A, B, and C completed, you do not need to deduct CPP.
Generally, your business needs to deduct CPP on payments, such as regular salaries and wages, payroll advances, bonuses and commissions, cash and non-cash taxable benefits and allowances, specific tips and gratuities, and benefits from specific wage-loss replacement plans.
Certain employment types do not require Canada Pension Plan contributions. This includes casual employment not related to your usual trade or business, employment involving a spouse or common-law partner whose salary is not considered a deductible expense under the Income Tax Act. See employment situations and payments that do not require CPP deductions here.
The employer and employee CPP contribution rate for 2023 is 5.95%. If you are self-employed, your CPP contribution rate is 11.9%. Use the Payroll Deductions Online Calculator to determine how much Canada Pension Plan contributions to deduct.
Employee Health Tax
Starting in 2019, B.C. employers are required to pay the BC Employee Health Tax (EHT) on employee remuneration. Eligible B.C. remuneration does not include pay to employees working outside of B.C. for most of the year.
The estimated Employee Health Tax depends on the business’s total remuneration.
Employee Health Tax payment is required when the employer’s B.C remuneration exceeds $500,000 ($1,500,000) for charitable organizations.
Below is the summary of applicable Employee Health Tax rates.
|B.C. Remuneration Threshold||Employee Health Tax Rate|
|Less than or equal to $500,000||Not Applicable|
|Between $500,000 and $1,500,000||2.925% x (B.C. remuneration – $500,000)|
|Greater than $1,500,000||1.95% x total B.C. remuneration|
Another payroll-related payment B.C. employers need to factor into payroll payments is the WorkSafeBC (WSBC) insurance. This insurance is mandatory for all employers in British Columbia to cover employees when they get injured. The WorkSafeBC premium varies across employers and depends on factors such as size, injury history, and workplace risks.
Payroll Deduction Penalties
It is essential to follow the CRA’s guidance when calculating and remitting payroll deductions. Some payroll calculators may be inaccurate. Ensure to use CRA-provided payroll calculators.
Businesses risk paying penalties for inaccurate payroll calculation or deductions, late remittances, failure to remit payroll deductions, late information return filing, or inaccurate payment or information return filing methods.
Contact the DW & Associates, Chartered Professional Accountants team to assist your business with complete payroll accounting and taxes and avoid payroll tax penalties.