In 2017, small businesses in BC employed almost 1.1 million people, which accounts for approximately 54% of the private sector employment. If you are a small business owner doing your own payroll, it is important that your employee deductions are accurate and your remittances to the Canada Revenue Agency (CRA) are made on time.
Let’s take a look at what your responsibilities are as a BC-based employer with regards to payroll and what deductions you have to calculate and remit to the CRA for each of your employees.
Your responsibilities as an employer
As an employer, you are responsible for accurately calculating the mandatory employee deductions and employer contributions for your employees’ salaries, and then paying it over to the CRA at the right time.
To get started, you will have to obtain the employee’s Social Insurance Number (SIN) and a completed form TD1 which is used to determine the amount of tax to be deducted from their employment income. If more than the federal basic personal amount is claimed, then the employee will also have to complete a provincial TD1BC (British Columbia) form. Completed forms are kept with you for your records and not submitted to the CRA.
You will also have to set your business up with a CRA payroll program account. This account will identify your organization with the CRA and enable you to remit the necessary payroll deductions to them.
Your next step is to calculate and make the required deductions.
The payroll deductions you have to calculate
For each employee, you are expected to calculate Canada Pension Plan contributions (CPP), Employment Insurance premiums (EI) and Income Tax deductions.
The deductions are based on the amount the employee earns so they will be different for each individual worker.
CCP pays a pension to contributors upon retirement but can also provide a partial replacement of earnings to the families of contributors in the case disability or death. The CPP contribution rates, maximums and exemptions table tells you exactly how much you have to deduct for each employee. As an employer, you will also have to contribute an equal amount to the employee’s pension plan. These maximum annual earnings and contributions change yearly so it is important to consult the table at least on an annual basis to ensure your calculations are accurate.
EI premiums qualify employees for financial assistance from the Canadian Government in certain unforeseen circumstances where they are unable to work for prolonged periods of time (such as sickness or caring for seriously ill family members).
Premiums are calculated based on a rates and maximums table and you as the employer are also responsible to contribute 1.4 times the amount deducted from the employee’s salary.
Income tax should also be deducted from the employee salary. Both federal and provincial income tax rates need to be considered in order to ensure you deduct the right amount of tax. Although federal tax rates are the same across Canada, each province has its own tax rate that differs from territory to territory. For example, different provincial tax rates apply in British Columbia than in Alberta.
You can use the Payroll Deductions Online Calculator from the CRA that will provide you with the figures for your CPP, EI and income tax to be remitted.
Finally, for BC-based small businesses that have an annual payroll of $500,000 or more, you will have to pay an Employer Health Tax (EHT) that kicks in from the 1st of January 2019. This is a payroll tax based on employment income. More information is available on the gov.bc website.
Your payroll responsibilities at year-end
You will usually remit employee deductions and contributions over to the CRA on a monthly basis as part of your payroll process.
Once a year you have to perform a payroll reconciliation to ensure that you remitted over the correct amount to the CRA. This is done through a T4 Summary that reconciles the amount you actually remitted with the amount you were supposed to remit. Any shortfalls will have to be remitted to the CRA, while over-remittances will be refunded.
You will also have to complete a T4 Slip for every employee that contains their individual payroll information for the year. This has to be filed by the end of February following the year of remuneration.
It is your responsibility to calculate the required employee deductions on a monthly basis and remit it over to the CRA on time. As part of this, you have to ensure your payroll systems and processes are up to date and robust enough to cope with the necessary calculations, regulations and remittances.
For busy small business owners, payroll can be a time consuming and confusing task that does not contribute to the growth of your business.
At Enkel, we provide a reliable end-to-end Payroll Management service so you can have one less headache to worry about. For more information about our payroll services, or any of our other back-office solutions, contact us to learn more about how we can help streamline your business processes!