The most important function of payroll is to pay employees accurately and on time but, in order to do this, it’s essential payroll professionals understand federal and provincial or territorial laws that affect payroll — and stay on top of any changes to the legislation.
This can be especially challenging for employers with workers in multiple Canadian jurisdictions. There are more than 100 laws across Canada that impact payroll.
One area where differences in legislation can have a large impact on payroll is statutory deductions — payroll deductions required by law. This is especially true for employers with Quebec payrolls. They must comply with federal laws and the policies of the Canada Revenue Agency (CRA), as well as Quebec laws and the policies set out by Revenu Québec (MRQ). The CRA and MRQ are two distinct government bodies that carry their own weight when it comes to the taxation of earnings, taxable benefits and the requirements for year-end reporting.
CPP/QPP: Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions are the first statutory deduction payroll must take from an employee’s earnings. Employers in all parts of Canada, except Quebec, deduct CPP contributions from employees’ pay and remit the amount (along with their employer contribution) to the CRA.
Employers with Quebec payrolls must adhere to the requirements of the QPP rather than CPP. The QPP covers all eligible employees employed and reporting for work (or who are paid from one of their employer’s business establishments in the province but do not actually report for work at their employer’s place of business in Quebec) in pensionable employment in Quebec.
Employment insurance: All employers must comply with employment insurance legislation to determine whether a certain type of employment or payment is subject to EI premiums and how much to deduct. Employers must calculate and deduct the required EI premium from payments made to employees and remit the amount (along with the employer premium) to the CRA.
Employers with Quebec payrolls are also subject to the EI legislation but they do not deduct or pay premiums relating to EI pregnancy or parental benefits. As a result, Quebec employers and employees pay different premium rates than other parts of Canada because they also have to pay premiums for the Quebec Parental Insurance Plan (QPIP). This plan provides benefits for maternity, paternity, parental and adoption leaves.
In general, the same types of payments that are subject to EI premiums are also subject to QPIP premiums, but there are important differences. For example, directors’ fees are not subject to EI premiums if no other salary or wage is being paid to the individual. However, they are subject to QPIP premiums if the director reports to one of the employer’s work locations in Quebec or, if not required to report to work, is paid from the employer’s business establishment in the province.
Income tax: Here, too, there are differences for employers with employees in Quebec. With the exception of Quebec, the federal government collects provincial or territorial income taxes on behalf of the provinces or territories. Employers must adhere to the CRA’s requirements for calculating, deducting and remitting employee income tax at source, according to the federal Income Tax Act.
Quebec is the only province that directly collects its share of income tax through separate source deductions. For payroll professionals, this means they have to calculate and deduct the correct amount of federal income tax while also calculating and deducting the proper amount of Quebec income tax. The deductions for each are sent to different bodies (the CRA and MRQ).
The CRA and MRQ have taken steps over the years to harmonize the rules so there are similarities between the two in terms of the types of payments and benefits that are taxable. But differences still exist.
One of the best examples concerns wages in lieu of notice payments. Federal income tax rules deem these payments to be regular earnings while Quebec views them as retiring allowance. As a result, Quebec payroll professionals must treat the payments differently for federal and Quebec tax purposes.
Each province or territory is responsible for establishing its own minimum standards for employment in areas such as minimum wage, hours of work, overtime, statutory holidays, vacation time or pay and notice of termination. (Employers under federal jurisdiction abide by the Canada Labour Code and are not subject to provincial or territorial standards.)
Employers with employees across Canada must apply the provincial employment standards legislation based on the province in which an employee works. For employers with employees in multiple jurisdictions, this can mean different rules for overtime pay, paid statutory holidays and vacations, and termination notice.
Employers are required to pay premiums for workers’ compensation coverage, based on an employee’s maximum insurable earnings. The types of earnings that are subject to workers’ compensation premiums are generally similar from jurisdiction to jurisdiction, but there can be differences, particularly in how taxable benefits are treated.
An employee’s health coverage is determined by the province or territory of residence, not the jurisdiction of employment. In most jurisdictions, the health-care system is funded through general government revenues. But in British Columbia and Ontario, individuals must pay premiums for this coverage.
In Ontario, the premium is part of the income tax deduction sent to the CRA.
For B.C., premiums are paid directly by the account holder or through payroll or pension deductions. If an employer deducts the premium from an employee’s pay, it must send it to the B.C. government. If employers opt to pay the premium for the employee, a taxable benefit results.
In Manitoba, Newfoundland and Labrador, Ontario and Quebec, employers must pay a special health-care tax levy to the provincial finance or revenue department. These apply to employers with a permanent establishment in the province that have employees who report for work at the permanent establishment and employees who are not required to report for work at the employer’s permanent establishment in that province, but who are paid from or through the employer’s permanent establishment in the province.
The tax is calculated on the employer’s annual gross payroll (Quebec’s total payroll is based on a worldwide payroll) based on the tax rates set out by the province. Each province also provides a definition of the type of remuneration that is subject to the levy.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, in Toronto. She can be reached at (416) 298-5085 or email@example.com.