Do you operate a branch office in Canada? Are you thinking about opening a Canadian subsidiary? Maybe you just finished acquiring a Canadian firm. Any of these situations could leave you wondering, “How does employing a Canadian affect my payroll?”
It’s a good question to ask! Preparing payroll in Canada isn’t necessarily hard, but it is different. A nuanced understanding will help you avoid mistakes.
Two Levels of Government
Employment standards and taxation are handled at two levels of government in Canada. Both the federal and provincial governments are involved in regulating how payroll is conducted.
Federal employment standards only apply to federal employees, who make up about ten percent of the workforce. The other 90 percent of Canadian employees are covered by provincial legislation.
Provincial legislation covers topics like vacation pay, minimum wage, and shift lengths. Federal legislation is more important when it comes to social programs such as the Canadian Pension Plan and Employment Insurance.
Where Do You Operate?
Different provinces have different legislation pertaining to payroll, so you first need to figure out what legislation applies to your operations. You’re employing a Canadian, but where do they work? You’ll need different calculations if they work in Montreal than if they work in Saskatoon.
Once you’ve determined the legislation
x cvoverning your operations, you can begin calculating payroll.
What You Need to Consider
In all provinces and territories, businesses employing a Canadian will need to consider calculations for CPP and EI. You’ll also need to calculate and set aside federal income tax for your employees as well.
Next, you’ll turn your attention to provincial withholdings. Most provinces also assess income tax. Income tax brackets range from as little as four percent for the lowest earners in Nunavut to 21 percent for high earners in Nova Scotia!
The provinces also lay down the law when it comes to vacation pay, leaves of absence, parental leaves, and other types of paid and unpaid leaves.
The federal government also regulates what is considered a “taxable benefit.” This definition is shifting, so be sure to check. Employers commonly misunderstand what is a taxable benefit and what’s not. Avoid any trouble by double-checking.
The Role of the CRA
The Canada Revenue Agency (CRA) is the governing body for almost all tax- and payroll-related issues in Canada. You’ll submit your tax return to the CRA for both provincial and federal taxes and calculations.
The CRA assesses your return and determines if it’s accurate. It’ll also assess any penalties if you’ve submitted an erroneous return. It also has the power to audit your business operations in Canada.
The CRA offers many tools for employers to avoid tax penalties related to payroll. Not only do they explain the payroll tax regulations in Canada, they also provide tools such as calculators designed to help you calculate your return correctly.
If you need help with payroll because you’re employing a Canadian, don’t worry. There are many free tools designed to help you calculate your withholdings. The CRA itself is a good resource, as already mentioned.
Other resources exist. A Canadian payroll service provider may be your best bet. Some offer free resources to help you understand how employing a Canadian could affect your payroll. You could also team up with them to ensure payroll is done right.
Getting Things Right
If you’re employing a Canadian, you’ve taken the first major step by asking how this affects your payroll. The next step is making sure you use this knowledge to good effect. Discover more about your obligations as an employer.
If you’re still having trouble with payroll calculations, consider employing a Canadian payroll services provider. They know the ins and outs of payroll in Canada, and they’d be more than happy to help.