In Canada, there are federal and provincial laws that govern employee remuneration. Any violation of these laws on behalf of the employer can result in non-compliance penalties that damage their bottom line and ultimately put their business at risk. Payroll compliance can undoubtedly be a minefield for businesses (particularly the owner or individual in charge of payroll and HR); however, knowing how to apply such HR regulations can protect the company from the risk of non-compliance. Below is a general overview of some important compliance matters that business owners should be aware of.
Employer Responsibilities
First and foremost, an employer must collect the employee’s social insurance number (SIN) within three days of when the employee begins their employment with the business in accordance with The Social Insurance Number Code of Practice.
Under federal laws, the employer must deduct CPP contributions, EI premiums and income tax from remuneration. Such deductions must be remitted along with an employer’s share of CPP contributions and EI premiums, which is 1:1 and 1:1.4, respectively.
Employers must also report the employee’s income and deductions on the appropriate T4 slip, which is an employee’s year-end tax form that summarizes their earnings and deductions for the calendar year. Notably, this must be filed by the employer on or before the last day of February of the following calendar year in accordance with federal legislation.
A Record of Employment (ROE), which shows the employee’s work history with a company, must also be prepared by the employer when an employee stops working or has had interrupted earnings. This must be submitted within five calendar days of the first day of an interruption of earnings or the day the employer becomes aware of an interruption of earnings.
Records (both paper and electronic versions) pertaining to the above information must be kept for at least six years after the year to which they relate, as outlined by the CRA. The rules for the record retention period are similar under several other federal statutes, including the Income Tax Act, the Excise Tax Act (includes the GST/HST), the Employment Insurance Act and the Canada Pension Plan.
Rates for Various Types of Gross Earnings
Overtime Pay: In Ontario, the threshold for overtime pay is 44 hours per week, as set out in the Ontario Employment Standards Act. The value for overtime is 1.5 times that of regular time, meaning that 1 hour of overtime worked entitles an employee to 1.5 hours of their regular pay. In other Canadian provinces, the threshold is 40 hours.
Statutory Holiday Pay: Under the Employment Standards Act, Ontario has nine public holidays: New Year’s Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving Day, Christmas Day, and Boxing Day. Employees who qualify are entitled to these days off from work and to be paid public holiday pay. The formula for employers to calculate the amount of public holiday pay an employee is entitled to is: all regular wages earned in the twenty days before the work week with the holiday divided by twenty. Vacation pay payable to the employee can also influence the amount of holiday pay the employee is entitled.
Vacation Pay: The pay provisions of the Employment Standards Act set out that vacation pay must be at least four per cent of an employee’s gross wages (excluding any vacation pay) earned in the 12-month vacation entitlement year. Employers have the option to provide an employee with two weeks of paid vacation time, the four per cent can be accrued to be paid out at a later date, or an employee can be paid out the four per cent every payroll.
CRA Payroll Tax Remittances
As noted above, CPP contributions, EI premiums and income tax from remuneration must be remitted to the CRA along with the employer’s share. The frequency of payroll tax remittances depends on the size of the business. Generally, companies are required to remit monthly, but other frequencies exist:
· Quarterly: payroll taxes due every three months
· Monthly: remittances due the 15th of the following month
· Threshold 1: 25th of same month & 10th of the next month
· Threshold 2: 3rd working day after payroll week
Penalties and Consequences for Non-Compliance
There are several government fines for payroll-related non-compliance. Specifically, the CRA can issue the business a penalty or fine for late remittances, failure to deduct taxes or incorrect deductions, late or failure to provide employees with T4s, and late or failure to provide employees with or file an ROE.
Penalties for late remittances:
· 3% if the amount is one to three days late
· 5% if it is four to five days late
· 7% if it is six to seven days late
· 10% if it is more than seven days late or if no amount is remitted
· 20% if a late remittance occurs a second time in a calendar year
Penalties for incorrect tax deductions or failure to deduct taxes:
· 10% of the incorrect or missing amount
· 20% if an incorrect tax deduction or a failure to deduct taxes occurs a second time or more in a calendar year, where the failure was knowingly made or under circumstances of gross negligence
Conclusion
Payroll regulations are constantly evolving, making it easy to see how payroll errors can occur. Employers are encouraged to enter all relevant data into HR carefully and payroll software, double-check wages, tax codes, working hours, and any other relevant details, and ensure remittances are on time and correct. The effort a business spends on payroll proficiency is advantageous overall, both for employee satisfaction and the company's longevity.
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