Setting up payroll can be confusing for small- or medium-sized businesses. Employers must make deductions from amounts paid to employees, report them on the applicable slips and send the payments to Revenue Canada.
HOW IT WORKS
In BC and the rest of Canada (with some exceptions in Quebec), employers have to deduct Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax from the amount they pay employees. Throughout the year, employers send these deductions to Revenue Canada on their employees’ behalf, along with their share of contributions. At the end of February, the following year, employers report an employee’s income and deductions on the appropriate information slip — like the T4 or T4A.
REGISTERING FOR AN ACCOUNT
If you are an employer paying salaries, wages, advances or other benefits, you need to register for a payroll account with Revenue Canada. Companies need to attach the payroll account to their Business Number (BN). Companies that don’t yet have a BN need to obtain a BN and then a payroll account.
Companies have to register for a payroll account before the 15th day of the month following the month in which they began withholding deductions from their employees’ pay.
HIRING AN EMPLOYEE
When you hire an employee, one of the first things you need to do is obtain the person’s Social Insurance Number (SIN). Employees have to show their SIN card to their employer, and the employer has to always use the correct name and number as shown on the employee’s SIN card.
The employee must then complete a TD1 and Personal Tax Credits Return Form. These forms tell the employer how much federal and provincial or territorial tax to deduct from his or her income.
HOW MUCH TO DEDUCT
As an employer you calculate the CPP, EI and income tax deductions based on the amounts you pay your employees. These amounts are determined with the help of various guides published by Revenue Canada. Some of these guides may be T4001, Employers’ Guide — Payroll Deductions — Basic Information, T4130, Employers’ Guide — Taxable Benefits or T4032, Payroll Deductions Tables. A complete list of downloadable guides can be found on Revenue Canada’s website.
You hold these payroll deductions in trust for the Receiver General and must keep these amounts separate from the operating funds of your business. You then remit these funds to Revenue Canada using the remittance forms and following the procedures and due dates outlined on the Revenue Canada website.
The final step consists of filing employer information returns that summarize the numbers. The summaries and slips are due on the last day of February for deductions from the year before. Companies can use the Internet to file T4 slips. More information about filing employer information returns can be read in the guide titled, Employers’ Guide – Filing the T4 Slip and Summary Form.
When an employee leaves your employment, you have to prepare a Record of Employment (ROE). Revenue Canada suggests calculating the employee’s earnings and deductions for the year to date, and giving the employee a T4 slip. Then you can keep a copy of their slip and include it with your T4 Summary when you file it with Revenue Canada by the end of February of the following year.
Payroll is an extensive and sometimes complex area of running a business. This article is not meant to be a comprehensive guide. The Canadian Revenue Agency website contains instructions, news, forms and resources to help your business set up payroll. You can also contact Revenue Canada’s information number at 1-800-959-5525 if you have any inquiries about payroll.
Information provided by HARRIS & COMPANY. For more information about HARRIS & COMPANY, please visit harrisco.com.