As of 2017, small businesses in British Columbia were responsible for almost 1.1 million jobs - or 44% of the province’s total employment.
If you’re one of those BC-based small business owners - and you’ve decided to do your own payroll - it’s essential that you pay your employees correctly. However, it's also crucial that you thoroughly understand payroll deductions and how much you should be remitting to the Canada Revenue Agency (CRA).
Here’s what you need to know about payroll deductions and remitting employee payroll deductions from your business account.
What Are Your Responsibilities As An Employer?
As an employer, you are responsible for accurately calculating the mandatory employee deductions and employer contributions to your employees’ salaries. You are also responsible for remitting it over to the CRA at the right time.
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.
If you are having social insurance number (SIN) validation problems, you can use this SIN verification tool to make sure your employees' SINs are valid before use.
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.
Which Payroll Deductions Are Required By Law?
In most cases, you’ll remit employee deductions and contributions to the CRA on a monthly basis as part of your payroll process.
For each employee, you’ll be expected to calculate:
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
- Income Tax deductions
How Much Tax Is Deducted From an Employee's Paycheck?
These deductions are based on the amount an employee earns, therefore the deductions will differ for each individual employee.
The CPP program pays a pension to contributors upon retirement, but it can also provide a partial replacement of earnings to the families of contributors in the case of disability or death.
The CPP contribution rates, maximums, and exemptions table tells you exactly how much you have to deduct for CPP for each employee. As an employer, you’re also responsible for contributing an equal amount to the employee’s pension plan.
Employment Insurance (EI) Premiums
EI premiums qualify employees for financial assistance from the Canadian Government in certain unforeseen circumstances whereby they’re unable to work for prolonged periods of time. For example, in the case of personal illness or caring for seriously ill family members.
Premiums are calculated based on a rates and maximums table. But as an employer, you’re also responsible for contributing 1.4 times the amount deducted from each employee’s salary.
Income Tax Deductions
Income tax should also be deducted from your employees’ pay. Both federal and provincial income tax rates will need to be considered to ensure you deduct the right amount of tax.
Although federal tax rates are the same across Canada, each province has its own provincial or territorial rate. For example, in Alberta, the provincial income tax rate is 10% on the first $131,220 of income, while BC's provincial income tax rate is 5.06% on the first $40,707.
You can use an online payroll calculator like the CRA’s Payroll Deductions Online Calculator to find the appropriate amounts for your CPP contributions, EI premiums, and income tax deductions.
You should however note that maximum earnings and contributions for CPP and EI change annually. A payroll deduction calculator will need to be updated accordingly with this information.
To remain compliant, you should consider reviewing the CPP and EI rates and maximum tables yearly in December. This prepares your organization for any upcoming changes in the new year and ensures your calculations remain accurate.
Employer Health Tax
If you are a BC-based small business with an annual payroll of $500,000 or more, you’ll be required to pay the Employer Health Tax (EHT), effective since January 1, 2019. The EHT is a payroll tax that is based on employment income. More information is available on the gov.bc.ca website.
What Are Some Other Deductions?
Mandatory payroll deductions are not the only ones that come into play in BC. In addition to CPP, EI, Income Tax, and Employer Health Tax, there are also other deductions you should know about.
Union Dues Deductions
If you employ individuals that are unionized, you may have to deduct and remit union dues or other fees on their behalf. Union dues are set by bargaining agents and are usually calculated using a fixed rate or a percentage of the employee’s salary.
You should be prepared to collect dues directly from employees' paychecks if they have permitted you to do so. You will then remit those amounts to the appropriate bargaining agents on a monthly basis.
As an employer who deducts union dues, you’ll also need to detail the amounts withheld on each individual pay stub. You must report the total dues paid annually when filing the T4 for a unionized employee.
The tax structure surrounding union payments can be quite complicated. If your business works in a unionized environment, you should seek help from a payroll professional. This ensures that your organization is accurately deducting, remitting, and reporting union dues, union fees, and any associated taxes.
Legal Deductions and Garnishment
Garnishment is a way for creditors to collect a debt. If one of your employees owes money ⎯ making them a debtor ⎯ the creditor may get in contact with you, through a means of third party communication, to get this money back. This process is called garnishment.
First, the creditor will go to court and obtain a court order, asking for the money they are owed from the debtor.
When the creditor serves you a garnishing order, you must send a portion of the debtor’s wages to the court and they will then reassign money, upon confirmation, to the creditor.
There are laws in place to protect the debtor, in terms of how much money the creditor can demand. In most cases, no more than 30% of the debtor’s net income can be collected. However, in the situation that the creditor is reliant on the money for means of child support, the quota increases to 50%.
Note: the provincial and territorial laws in BC state that an employer may not dismiss or discriminate against an employee due to their outstanding debts or after being served with a garnishing order.
Compulsory Company Deductions
Compulsory company deductions are mandatory through a company's policy and are a condition of employment. Although compulsory, they still require the employee's written consent before you can take the deductions of your employee's wages. Some of these deductions could be tax-deductible.
Examples of compulsory-company deductions can include:
- Provincial health care plan premiums
- Registered pension plan (RPP) contributions
- Registered Retirement Plan Contributions (RRSP)
- Group benefit plan premiums
Employees can decide whether they want a portion of their wages to be automatically donated to a charity. Within a month of being filed for, the assigned wages must be sent and received by the designated organization.
Social club deductions are not tax deductible but in essence, provide deductions when an employee joins the company’s social club. If the main purpose of the club is recreation, deductions are not acceptable. Examples of clubs where fees can be deducted are boards of trade or business associations.
What Are Your Year-End Payroll Responsibilities?
You will usually remit employee payroll deductions and contributions over to the CRA on a monthly basis as part of your payroll process.
You have to perform a payroll reconciliation to ensure that you have remitted 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 paid to the CRA, while overpayments will be refunded.
You will also have to generate a T4 Slip for every employee that contains their individual payroll information for the year. This has to be filed and sent to every employee by the end of February following the year of remuneration. For example, the T4 slips for 2019 have to be filed and sent to your employees by the end of February 2020.
You can also use this Employer's guide from the Canadian government to learn more about payroll deductions and remittances.
Need help with your payroll?
As a BC-based small business owner, it’s your responsibility to know how much you should be deducting and remitting on behalf of your employees. To meet this obligation, you should ensure your payroll systems and processes are up to date and robust enough to cope with the necessary calculations, regulations, and remittance requirements.
For many busy entrepreneurs, managing payroll and payroll deductions can quickly become a confusing, time-consuming task that contributes little to the growth of their business. At Enkel, we provide business owners in Vancouver, Kelowna, Victoria and more with reliable, end-to-end Payroll Management services, giving you peace of mind as you focus on growing your business.