As an employer in Canada, you are responsible for remitting Employment Insurance (EI), Canada Pension Plan (CPP) and income tax payroll deductions to the Canada Revenue Agency regularly for your employees, along with your employer contributions.
Before hiring anyone, you have to complete registration formalities and then have employees fill out the information forms that determine how much income tax they will pay. Based on factors provided by the CRA, you then calculate each deduction, add the employer contributions and submit the totals every month.
- To remit your contributions and payroll deductions, you need to open a CRA Payroll Account. This program account consists of your CRA Business Number, the letters RP indicating a payroll account, and a four number identifier, usually 0001. Example: 99235 7543 RP0001
- When hiring, create a file for each employee that contains current contact information (phone, email, address, etc) and personal statistics such as their Social Insurance Number (SIN) and banking information if you pay them by Direct Deposit. It is the obligation of both the employee and employer to keep this contact information current so documents such as the T4- Statement of Remuneration Paid reach the employee on time.
- Each employee has to fill out Federal Form TD1, giving information for income tax, and a similar form for provincial income tax.
Calculating the Payroll Deductions
EI and CPP deductions are fixed rates, and employers deduct the amounts according to the CRA Payroll Tables, most often using the Payroll Deductions Online Calculator, or up-to-date payroll accounting software such as Intuit QuickBooks. For income taxes, they deduct amounts based on the TD1 forms and the tax tables provided by the CRA.
The employee deductions for CPP and EI are added to the employer contributions, plus any income tax deductions held from the employee and sent to CRA as the Payroll Remittance. The remittance to the CRA is due by the 15th day of the month after the month which the employee was paid.
- For example, your employee’s pay period ends on January 31st, but you do not pay them until February 7th. You will include this pay period on your February remittance, due March 15th.
Calculating the Employment Insurance (EI) Contribution
The Government of Canada finances Employment Insurance (EI) through employer contributions and through deductions from employee salaries up to a maximum insurable amount.
To calculate the amount you should deduct from a salary:
- Multiply the annual salary up to the maximum amount by the factor provided by the CRA.
- Divide the result by 12 to get the monthly deduction.
The employer contribution is currently 1.4 times the employee deduction. In addition to submitting the required amounts each month, keep records for each employee for which you make deductions and contributions and the hours worked to earn those amounts.
Canada Pension Plan (CPP) Contributions
- Employees who are at least age 65 but under age 70 and still employed can choose to stop making CPP contributions. Employees will need to complete Form CPT30, Election to Stop Contributing to the Canada Pension Plan and give one copy of the form to your employer (or employers if more than one) and send another copy to the CRA. The employer needs to keep a copy of this form in the employee’s file and be sure to note on the employer’s T4 that the employee is now “CPP Exempt”.
- Employees who earn less than $3,500 in a year don’t have to pay pension contributions. The employer still needs to deduct the CPP from the employee’s pay even if they make less than the $3,500 threshold. When the employee files their income tax return, if they have “overpaid CPP” they will receive a refund of that overpayment on Line 44800 – CPP Overpayment.
The pension contribution is 4.95 percent. To calculate the monthly contribution, take the annual salary, subtract the $3,500 exemption on which no contribution is due, and multiply the result by 0.0495, taking into consideration that there is a maximum salary which is adjusted annually.
Divide the annual contribution by 12 to get the amount to deduct every month. Add the employer contribution, which is the same amount as that of the employee, to get the amount you have to remit.
Payroll Income Tax Deductions
The CRA provides tax deduction tables for federal tax and for each province except Québec. Revenue Québec publishes its own tables. Tax tables are available online, as paper forms and as formulas that you can plug into spreadsheets or payroll programs.
You need the TD1 employee tax credit form, which each employee has to fill out, to determine the federal payroll deduction and a corresponding form for provincial income tax. Don’t forget to include taxable benefits such as company cars in total income.
Remitting the Deductions
The deadlines for making the payments to the CRA depend on the amounts you have to remit. The Average Monthly Withholding Amount, or AMWA, is the average amount you paid two years ago, over the course of that year.
- If you had no employees two years ago or have an AMWA of less than $15,000, your deadline for payment is the 15th day of the month following the month in which you pay the salaries.
- If your AMWA is between $15,000 and $50,000, your deadlines are the 25th of the month for salaries paid in the first half of the month, and the 10th of the next month for salaries paid the second half of the month.
- For employers with an AMWA of over $50,000, the deadlines are three working days after the end of the week in which they pay salaries. Penalties are 10 percent for the first and 20 percent for subsequent late payments.