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Calculating C/QPP deductions on vacation pay

Question: I am paying outstanding vacation pay to an employee who did not take all of his vacation before the end of our vacation entitlement year. I know that the payment is subject to source deductions, but do I have to apply the Canada Pension Plan (CPP) exemption before I calculate the amount of CPP to deduct?

Answer: If you are paying the vacation pay separately from the employee’s regular earnings, calculate the C/QPP contribution without taking into consideration the annual basic exemption amount. Multiply the vacation pay by the current C/QPP rate (4.95 per cent for the CPP and 5.4 per cent for the QPP) to calculate the C/QPP deduction.

If the outstanding vacation pay is being paid with the employee’s regular earnings, calculate the C/QPP contribution in the usual manner. Do not deduct C/QPP from the vacation payment if the employee has already reached the maximum annual contribution ($2,564.10 for the CPP and $2,797.20 for the QPP).

Vacation pay is also subject to employment insurance (EI) and Quebec Parental Insurance Plan (QPIP) premiums, as well as income tax deductions.

For EI and QPIP, calculate the premiums by multiplying the vacation pay amount by the current premium rates, provided that the employee has not already paid the maximum annual premiums. The current EI premium rate is 1.63 per cent for employees outside of Quebec. For employees in Quebec, it is 1.27 per cent.

The annual maximum premium for employees outside of Quebec is $836.19 for 2017. For employees in Quebec, it is $651.51. The current employee QPIP rate is 0.548 per cent and the maximum premium for 2017 is $397.30.

To calculate income tax deductions, use the bonus method. For more information on this method, refer to the Canada Revenue Agency’s website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/bnns-eng.html.

Note: Under employment standards law, employers must ensure that employees take the statutory minimum amount of vacation time with vacation pay to which they are entitled within the period set out in the legislation. Exceptions may apply in jurisdictions where employees are allowed to waive their right to vacation. For more information, contact the applicable employment standards board.

Vacation rules for commission-based employees

Question: Are commission-based salespersons covered under employment standards rules for vacation time and pay?

Answer:  The answer depends on the jurisdiction in which the employee works since vacation time and pay are governed by provincial/territorial employment standards laws and the Canada Labour Code for federally regulated workplaces.

All commission-based employees are covered under employment standards rules for minimum vacation time and pay in the following jurisdictions: federal, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nunavut, Saskatchewan, and Yukon.

The following jurisdictions exempt certain commission employees from legislated vacation time and pay standards:

Alberta

•salespersons, other than route salespersons, who are wholly or partially paid by commission and who sell goods or services, principally away from their employer’s place of business, that will be delivered or provided to the customer at a later date

•salespersons registered under the Securities Act

•real estate brokers authorized under the Real Estate Act

•individuals holding an insurance agent’s certificate under section 470 of the Insurance Act who are paid entirely by commission for activities performed under the certificate

British Columbia

•persons registered under the Securities Act

•licenced real estate agents

Nova Scotia

•real estate, automobile and mobile home salespersons

•salespersons, other than route salespersons, who are wholly or partially remunerated by commission and who sell principally outside the employer’s establishment

Ontario

•salespersons or brokers, as defined in the Real Estate and Business Brokers Act, 2002

•commissioned salespersons, other than route salespersons, who sell away from their employer’s place of business

Prince Edward Island

•salespersons paid primarily by commission

Quebec

•real estate agents under the Real Estate Brokerage Act who are paid entirely by commission

•representatives of a dealer or advisor under the Securities Act who are paid entirely by commission

•representatives under the Act respecting the Distribution of Financial Products and Services who are paid entirely by commission.

Taxable benefits and vacation pay

Question: When calculating the amount of vacation pay an employee is slated to receive, are we required to include the value of taxable benefits?

Answer: The answer depends on the jurisdiction in which the employee works since vacation pay is governed by provincial/territorial employment standards laws and the Canada Labour Code for federally regulated workplaces.

Most jurisdictions do not require taxable benefits to be included in vacation pay calculations; however, for some benefits, employment standards boards may make a decision on a case-by-case basis.

In Alberta, Ontario, Prince Edward Island, and Saskatchewan, employers must include taxable board and lodging benefits in an employee’s vacationable earnings.

Manitoba also requires them to be included if they are part of the employee’s remuneration package.

Employers are advised to contact the applicable employment/labour standards boards to confirm the inclusion or exclusion of any taxable benefits they provide when calculating an employee’s vacation pay.