Not always the simple task it may seem
Determining the province of employment of employees may seem a rather simple task; yet, it can be one of the most complex areas of payroll administration.
In actual fact payroll is a profession based on legislative compliance where organizations need to ensure they are compliant with more than 191 federal and provincial regulatory requirements that govern the payroll function. The Canadian Payroll Association (CPA) recently launched its third set of guidelines about the requirements surrounding the province of employment as a reference tool to assist payroll practitioners in determining employees’ province of employment in order to carry out their responsibilities and ensure compliance for their organization.
Employees are set up in an organization’s payroll based on their province of employment, which then dictates the tax rates, source deductions, and year-end reporting that must be applied by law. However, an employee’s province of employment may be different from the province of residence, and different still from the province under which this employee is covered for employment/labour standards, pension legislation and workers’ compensation.
To illustrate the potential complexity, here is a scenario some may have encountered:
Susan lives in Alberta, where she works from home as a graphic artist. Her company’s headquarters are located in Quebec, her supervisor works in Manitoba and she is paid from her employer’s payroll department in Ontario. The employer has engaged the services of a payroll service provider which processes the organization’s payroll from an office in New Brunswick. The company’s pension plan is registered in British Columbia, as that is where the majority of its employees are located. When she retires, Susan plans to move to Prince Edward Island, where she will then receive a company pension.
In this case, the following must be determined:
•What is Susan’s province of employment in terms of statutory withholdings on her employment income?
•Do you need to issue Susan a Relevé 1 as well as a T4 slip?
•Under which jurisdiction’s employment/labour standards does Susan fall?
•To which workers’ compensation board should premiums be remitted for Susan?
•Under which province’s pension regulations is Susan covered?
•Which provincial tax tables will be used for her retirement pension benefits?
Province of employment
An employee’s province of employment is either: the province where the employee physically reports to work at the employer’s permanent or deemed establishment, or the province where your business is located and from where you pay your employee’s wages when the employee does not physically report to an employer’s establishment.
Permanent or deemed establishment
The province of employment is the province where the employee physically reports to work at the employer’s permanent or deemed establishment.
However, if the employee does not report to a permanent or deemed establishment, then the employee’s province of employment is the province or territory where the business is located and from where employee’s wages are paid. In the example above, Susan lives in Alberta and does not physically report to work at any establishment of her employer. The company’s payroll department is located at its office in Ontario. Susan’s province of employment would be Ontario, even if her reporting manager happens to be in Manitoba or any other jurisdiction. The location of the service provider who may be processing payroll on behalf of the employer is also irrelevant.
The employee’s province of residence should never be assumed to also be the province of employment. When an employee files a personal income tax return, the province of taxation will revert to the province in which they are a resident on Dec. 31 of a given taxation year.
Source deductions
An employer is required to calculate and remit source deductions for the following based on the employee’s province of employment: Canada/Quebec Pension Plan (C/QPP), Employment Insurance (EI), Quebec Parental Insurance Plan (QPIP) and income taxes.
Employees should be asked to complete a Personal Tax Credits Return (TD1) based on the province of employment. A Source Deductions Return (TP-1015.3-V) should be completed if the province of employment is Quebec.
When an employee is required to physically report to work at either the employer’s permanent or deemed establishment, the employee’s province of employment is the province where they physically report to work. For example, if Susan was required to physically report to work at an establishment of her employer’s in Alberta, you would use the Alberta Payroll Deductions Tables.
However, when an employee is not required to physically report to work at either the employer’s permanent or deemed establishment (for example, per the employment contract, the employee works from a home office and without the general authority to contract), the employee’s province of employment is the province where the business is located and from where the employee’s salary is paid.
Since Susan works from her own home and does not physically report to work at an establishment of the employer, and since she is paid from her employer’s office in Ontario, she would be treated as an Ontario employee for the purpose of calculating income taxes as well as the employer’s liability towards the Employer Health Tax (EHT).
Although the Canada Revenue Agency (CRA) will perform a reconciliation for Susan at the end of the year when she files a personal income tax return as a resident of Alberta, no reconciliation would be made for any employer taxes.
When it comes to determining an employee’s province of employment, there are also special considerations such as the general authority to contract and the use of substantial equipment or machinery.
These considerations are explained in the CPA’s Province of Employment Guidelines, along with determining the correct jurisdictional requirements for year-end reporting, employment/labour standards, workers’ compensation, as well as pension standards and deductions, which can be accessed by association members, please visit the resources section on payroll.ca.
Rachel De Grâce, is the CPA’s compliance services developer. She can be reached at [email protected].
In actual fact payroll is a profession based on legislative compliance where organizations need to ensure they are compliant with more than 191 federal and provincial regulatory requirements that govern the payroll function. The Canadian Payroll Association (CPA) recently launched its third set of guidelines about the requirements surrounding the province of employment as a reference tool to assist payroll practitioners in determining employees’ province of employment in order to carry out their responsibilities and ensure compliance for their organization.
Employees are set up in an organization’s payroll based on their province of employment, which then dictates the tax rates, source deductions, and year-end reporting that must be applied by law. However, an employee’s province of employment may be different from the province of residence, and different still from the province under which this employee is covered for employment/labour standards, pension legislation and workers’ compensation.
To illustrate the potential complexity, here is a scenario some may have encountered:
Susan lives in Alberta, where she works from home as a graphic artist. Her company’s headquarters are located in Quebec, her supervisor works in Manitoba and she is paid from her employer’s payroll department in Ontario. The employer has engaged the services of a payroll service provider which processes the organization’s payroll from an office in New Brunswick. The company’s pension plan is registered in British Columbia, as that is where the majority of its employees are located. When she retires, Susan plans to move to Prince Edward Island, where she will then receive a company pension.
In this case, the following must be determined:
•What is Susan’s province of employment in terms of statutory withholdings on her employment income?
•Do you need to issue Susan a Relevé 1 as well as a T4 slip?
•Under which jurisdiction’s employment/labour standards does Susan fall?
•To which workers’ compensation board should premiums be remitted for Susan?
•Under which province’s pension regulations is Susan covered?
•Which provincial tax tables will be used for her retirement pension benefits?
Province of employment
An employee’s province of employment is either: the province where the employee physically reports to work at the employer’s permanent or deemed establishment, or the province where your business is located and from where you pay your employee’s wages when the employee does not physically report to an employer’s establishment.
Permanent or deemed establishment
The province of employment is the province where the employee physically reports to work at the employer’s permanent or deemed establishment.
However, if the employee does not report to a permanent or deemed establishment, then the employee’s province of employment is the province or territory where the business is located and from where employee’s wages are paid. In the example above, Susan lives in Alberta and does not physically report to work at any establishment of her employer. The company’s payroll department is located at its office in Ontario. Susan’s province of employment would be Ontario, even if her reporting manager happens to be in Manitoba or any other jurisdiction. The location of the service provider who may be processing payroll on behalf of the employer is also irrelevant.
The employee’s province of residence should never be assumed to also be the province of employment. When an employee files a personal income tax return, the province of taxation will revert to the province in which they are a resident on Dec. 31 of a given taxation year.
Source deductions
An employer is required to calculate and remit source deductions for the following based on the employee’s province of employment: Canada/Quebec Pension Plan (C/QPP), Employment Insurance (EI), Quebec Parental Insurance Plan (QPIP) and income taxes.
Employees should be asked to complete a Personal Tax Credits Return (TD1) based on the province of employment. A Source Deductions Return (TP-1015.3-V) should be completed if the province of employment is Quebec.
When an employee is required to physically report to work at either the employer’s permanent or deemed establishment, the employee’s province of employment is the province where they physically report to work. For example, if Susan was required to physically report to work at an establishment of her employer’s in Alberta, you would use the Alberta Payroll Deductions Tables.
However, when an employee is not required to physically report to work at either the employer’s permanent or deemed establishment (for example, per the employment contract, the employee works from a home office and without the general authority to contract), the employee’s province of employment is the province where the business is located and from where the employee’s salary is paid.
Since Susan works from her own home and does not physically report to work at an establishment of the employer, and since she is paid from her employer’s office in Ontario, she would be treated as an Ontario employee for the purpose of calculating income taxes as well as the employer’s liability towards the Employer Health Tax (EHT).
Although the Canada Revenue Agency (CRA) will perform a reconciliation for Susan at the end of the year when she files a personal income tax return as a resident of Alberta, no reconciliation would be made for any employer taxes.
When it comes to determining an employee’s province of employment, there are also special considerations such as the general authority to contract and the use of substantial equipment or machinery.
These considerations are explained in the CPA’s Province of Employment Guidelines, along with determining the correct jurisdictional requirements for year-end reporting, employment/labour standards, workers’ compensation, as well as pension standards and deductions, which can be accessed by association members, please visit the resources section on payroll.ca.
Rachel De Grâce, is the CPA’s compliance services developer. She can be reached at [email protected].
