As of 2017, small businesses in British Columbia accounted for nearly 1.1 million jobs, representing 44% of the province’s total employment.
If you're a small business owner based in BC and have chosen to handle your own payroll, it's vital to ensure you pay your employees accurately. Equally important is having a thorough understanding of payroll deductions and knowing how much you should be remitting to the Canada Revenue Agency (CRA).
Here's what you need to understand about payroll deductions and remitting employee payroll contributions from your business account.
What Are Your Duties as an Employer?
As an employer, you must accurately calculate the mandatory employee deductions and employer contributions from your employees’ salaries. Additionally, you are responsible for timely remittance to the CRA.
To begin, you will need to obtain the employee's Social Insurance Number (SIN) and a completed TD1 form. This form is used to determine the amount of tax to be deducted from their employment income.
If the employee claims more than the federal basic personal amount, they will also need to complete a provincial TD1BC (British Columbia) form. These completed forms should be kept for your records and not submitted to the CRA.
If you encounter issues with validating Social Insurance Numbers (SINs), you can use this SIN verification tool to ensure your employees' SINs are valid before using them.
You will also need to establish a CRA payroll program account for your business. This account will identify your organization with the CRA and enable you to remit the necessary payroll deductions to them.
The next step is to calculate and apply the required deductions.
What Payroll Deductions Are Legally Required?
Typically, you will remit employee deductions and contributions to the CRA on a monthly basis as part of your payroll procedures.
For each employee, you will need to calculate:
Canada Pension Plan (CPP) contributions
Employment Insurance (EI) premiums
Income tax deductions
How Much Tax Is Withheld from an Employee's Paycheck?
These deductions are based on an employee's earnings, so the amounts will vary for each individual employee.
CPP Contributions
The CPP program provides a pension to contributors upon retirement and can also offer partial earnings replacement to the families of contributors in cases of disability or death.
The CPP contribution rates, maximums, and exemptions table provide precise guidance on the CPP deductions required for each employee. Additionally, as an employer, you're accountable for matching the employee's pension plan contributions with an equal amount.
Employment Insurance (EI) Contributions
EI contributions enable employees to access financial assistance from the Canadian Government during certain unforeseen circumstances when they are unable to work for extended periods. This assistance covers situations such as personal illness or caring for seriously ill family members.
Premiums are determined according to a rates and maximums table. However, as an employer, you're also accountable for contributing 1.4 times the amount deducted from each employee's salary.
Deductions for Income Tax
Income tax should also be deducted from your employees' paychecks. It's crucial to take into account both federal and provincial income tax rates to ensure accurate deduction amounts.
While federal tax rates are uniform throughout Canada, each province has its own provincial or territorial rate. For instance, in Alberta, the provincial income tax rate is 10% on the initial $131,220 of income, whereas BC's provincial income tax rate is 5.06% on the first $40,707.
You can utilize an online payroll calculator such as the CRA’s Payroll Deductions Online Calculator to determine the correct amounts for your CPP contributions, EI premiums, and income tax deductions.
However, it's important to note that maximum earnings and contributions for CPP and EI change annually. Therefore, a payroll deduction calculator must be updated with this information accordingly.
To stay compliant, it's advisable to review the CPP and EI rates and maximum tables annually in December. This helps prepare your organization for any forthcoming changes in the new year and ensures the accuracy of your calculations.
Health Tax for Employers
If you operate a small business in British Columbia with an annual payroll exceeding $500,000, you must pay the Employer Health Tax (EHT), which became effective on January 1, 2019. The EHT is a payroll tax calculated based on employment income. Additional details can be found on the gov.bc.ca website.
What Other Deductions Are There?
In British Columbia, mandatory payroll deductions are not the only ones to consider. Alongside CPP, EI, Income Tax, and Employer Health Tax, there are additional deductions you should be aware of.
Deductions for Union Dues
If you have employees who are members of a union, you may need to deduct and remit union dues or other fees on their behalf. Union dues, determined by bargaining agents, are typically calculated using either a fixed rate or a percentage of the employee’s salary.
You should be ready to collect dues directly from employees' paychecks if they have authorized you to do so. Subsequently, you will remit these amounts to the relevant bargaining agents on a monthly basis.
As an employer deducting union dues, you are also required to itemize the withheld amounts on each individual pay stub. Additionally, when filing the T4 for a unionized employee, you must report the total dues paid annually.
Navigating the tax framework related to union payments can be complex. If your business operates in a unionized setting, it's advisable to seek assistance from a payroll expert. This ensures that your organization accurately handles the deduction, remittance, and reporting of union dues, fees, and associated taxes.
Legal Deductions and Garnishments
Garnishment serves as a method for creditors to recover a debt. If one of your employees owes money, making them a debtor, the creditor may reach out to you via third-party communication to retrieve the owed funds. This process is known as garnishment.
Initially, the creditor will seek a court order, requesting the money owed to them by the debtor.
When the creditor issues a garnishing order, you are required to send a portion of the debtor’s wages to the court. The court will then, upon confirmation, transfer the money to the creditor.
Laws exist to protect the debtor by limiting the amount of money a creditor can demand. Generally, no more than 30% of the debtor’s net income can be collected. However, if the creditor is seeking money for child support, the limit increases to 50%.
Note: According to the provincial and territorial laws in BC, an employer is prohibited from dismissing or discriminating against an employee because of their outstanding debts or after receiving a garnishing order.
Mandatory Company Deductions
Required company deductions are obligatory according to the company's policy and are a condition of employment. While mandatory, they still necessitate the employee's written consent before any deductions can be made from their wages. Some of these deductions may be tax-deductible.
Examples of mandatory company deductions may include:
Provincial healthcare plan premiums
Contributions to a Registered Pension Plan (RPP)
Contributions to a Registered Retirement Savings Plan (RRSP)
Premiums for group benefit plans
Voluntary Deductions
Employees have the choice to opt for a portion of their wages to be automatically directed towards a charity of their choosing. Within a month of the request, the designated portion of wages must be transferred to and received by the specified organization.
Deductions for social club memberships are not eligible for tax benefits. However, they essentially offer deductions upon an employee's enrollment in the company's social club. If the primary function of the club is recreational, deductions are not permitted. Examples of clubs where fees are deductible include boards of trade or business associations.
What Are Your End-of-Year Payroll Obligations?
Typically, you will remit employee payroll deductions and contributions to the CRA monthly as part of your payroll procedures.
You must conduct a payroll reconciliation to verify that you have remitted the accurate amount to the CRA. This involves using a T4 Summary to reconcile the amount you actually remitted with the amount you were supposed to remit. Any deficiencies must be paid to the CRA, while any excess payments will be refunded.
You will also need to produce a T4 Slip for each employee, detailing their individual payroll information for the year. These slips must be filed and distributed to every employee by the end of February of the following year of remuneration. For instance, T4 slips for 2019 must be filed and distributed to your employees by the end of February 2020.
You can also refer to this Employer's guide provided by the Canadian government to gain further insight into payroll deductions and remittances.
Require assistance with your payroll?
As a small business owner based in BC, it's your duty to determine the accurate deduction and remittance amounts for your employees. To fulfill this obligation, it's essential to maintain up-to-date and reliable payroll systems and processes capable of handling the necessary calculations, adhering to regulations, and meeting remittance requirements.
For numerous entrepreneurs with busy schedules, handling payroll and its deductions can swiftly evolve into a perplexing, time-intensive endeavor that adds minimal value to their business's expansion. At Bluemount Backoffice Solutions, we offer business proprietors in Vancouver, Kelowna, Victoria, and beyond dependable, comprehensive Payroll Management services, affording you tranquility as you concentrate on advancing your business.
Get in touch with us today to discover how we can simplify your payroll procedures and assist you in managing your payroll effectively.