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What You Need to Know about Payroll Deductions in Canada

Posted by Corinne Camara

|

Jul 18, 2016 9:00:00 AM

What_You_Need_to_Know_about_Payroll_Deductions_in_Canada.jpgDealing with payroll deductions in Canada can be a difficult process, fraught with potential mistakes and grave consequences, delivered by the Canada Revenue Agency. The CRA is currently cracking down on payroll compliance, auditing companies for misclassification and errors in payroll deductions. This can be daunting to any new venture that's seeking to make their mark on the Canadian landscape.

It's important to know what to expect when dealing with payroll deductions in Canada, how to determine your deductions, and what avenues to take. Also, it's worth looking into what potential mistakes are made most often and how you can avoid them.

How to Determine Your Deductions

First, there are a number of responsibilities as a business owner that you need to undertake in order to ensure proper Canadian payroll compliance. Opening and maintaining a payroll account and getting your employees’ information are only the tip of the iceberg.

In order to determine your deductions, you need to deduct CPP contributions, EI premiums, and income tax from your employees’ paychecks. The deductions then need to be remitted along with your own share of CPP contributions and EI premiums when they are due, which is determined by you calculating the average monthly withholding amount (AMWA). When you fill out your tax forms, you're also going to have to report the employee’s income and deductions in an appropriate T4 and T4A slip.

With all of these steps, it can be incredibly difficult to keep up with payroll regulations and errors can often occur. Mistakes with payroll deductions can be pretty devastating, particularly if you're a small business that's already working within the financial margins. Having to pay fines with interest can stymie any progress that a business is trying to make, not to mention breed distrust and a lack of faith in employees when they get overdeducted in their paychecks. Finally, if you get caught up in a payroll audit, paying your legal team alone can break the bank and leave your enterprising new venture into the Canadian market a veritable shipwreck.

Use a Canadian Payroll Deductions Calculator

It helps to use the CRA's Payroll Deductions Online Calculator, which can determine the provincial and territorial deduction amounts. All you need to do is enter your data into the calculator. However, there are some warnings against this, with the CRA's website claiming no responsibility for miscalculating deductions. Ultimately if there is an error in your remittance, you won't be able to blame the calculator on it.

When In Doubt, Outsource

Fortunately, there are alternative avenues that you can take which will prevent you from making errors in your deductions and save you time and money so you can focus on your business.

A payroll provider is going to be able to figure out all your deductions and remittance, and process it all on time. You'll be working with a staff experienced in following strict compliance, so you no longer have to worry about keeping up to date with new regulations, or making a costly mistake that sets back the growth of your company. For a monthly flat rate, you will have access to an existing infrastructure that can adapt to the unique qualities of your company and save you the hassle of having to train your own in-house employees, with their own deductions, benefits and premiums to consider. They'll also be able to take care of a number of HR related tasks, giving you a great package, all for the price of one-third party provider.

Canadian Payroll Tax Deduction Calculator

Topics: Canadian Payroll Deductions

Payroll 101: Understanding Payroll Deductions in Canada

Posted by Karen McMullen

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May 11, 2016 9:00:00 AM

Payroll_101-_Understanding_Payroll_Deductions_in_Canada.jpgWhether you're new to business in the country, or just want more information on payroll deductions in Canada, it can be a complicated thing to delve into. As an employer, you're required to deduct certain things from all paychecks for Canadian employees, regardless of your country of origin.

There are various kinds of remittances, but also different types of remitters on top of that and that's why it's important to identify precisely which category you fall into, to ensure everything is smooth sailing.

What Kind of Remitter Are You?

In effect, the kind of remitter you are is highly dependent on your average monthly withholding amount (AMWA)—a number that's made by adding up all of the different deductions you're responsible for and paid on behalf of your employees in the calendar year two years ago. Your AMWA is then found by dividing that number by the number of months you made payments in. The AMWA is important when it comes to payroll deductions in Canada because it dictates the type of remitter you are, and thus, how often and when you have to file your deductions with the Canadian Revenue Agency.

A regular remitter has an AMWA of less than $25,000, which means all deductions are due on or before the 15th day of the month after the month you last paid your employees. If you qualify as a quarterly remitter (deductions of less than $1,000, or in some cases $3,000) your due dates are the 15th day of the month after the end of each quarter. Quarterly remitters are often smaller businesses, as you can guess.

It's important to understand what category you fall in to ensure your remittances are filed on time, or else there could be serious problems with the Canadian Revenue Agency.

Deductions

Payroll deductions in Canada are relatively simple, but it is critical that they are done correctly or you could face the wrath of the CRA and open yourself up to lawsuits by effected employees. This includes contributions to the Canadian Pension Plan, of which an amount isn't just deducted from your employees’ paycheck, but your share of the contribution must be included as well. The same goes for employment insurance premiums, which are also shared between you and your employee. Any and all income tax that applies must be deducted as well, and all of these things need to be clearly stated on each pay stub, including the current deductions and the total of all deductions made that year.

What If There Were No Remittances?

While a rare situation, sometimes there are simply no remittances to make. Thankfully, when it comes to payroll deductions in Canada, there's an easy answer to that. If you simply didn't have any employees, you will have to submit nil remittance information for your payroll program account. The CRA has a specific program set up whereby you can notify them of this. There are a few options—if you have a 'My Business Account' (or a 'Represent a Client' account) through the CRA's website, you can log in and provide them a nil remittance as easily as that. Alternatively, you can use TeleReply, which is a quick phone service, as long as you currently have no employees and the account number printed on your remittance form is correct. In that case, you don't even have to mail in your form; you can fill it out and keep it for your own records. If you happen to be a non-resident, you can also use the Non-Resident TeleReply service. On the off chance you're not a fan of online service or doing it by phone, you can always fill out the form on it's own and mail it to them; just make sure you state clearly when you expect to make deductions next.

What Are You Leaving to Chance by Handling Payroll on Your Own

Topics: Canadian Payroll Deductions

Understanding Canadian Payroll Deductions

Posted by Stacey Duggan

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Feb 10, 2015 11:04:40 AM

Understanding_Canadian_Payroll_DeductionsUnderstanding Canadian payroll deductions is an important step in paying your Canadian workers properly and legally. When you hire Canadian employees, you must deduct the appropriate taxes and other government withholdings from their paycheques. But to do so effectively, you need to know the ins and outs of Canadian payroll deductions. Below we’ll get you started on the basics you’ll need to understand so you can start the process of paying your workers in Canada.

Pay Statement

Every pay period, you’ll provide your employees with a pay statement, which is a record of the money they’ve earned, showing an hourly rate and number of hours worked, as well as the deductions you’ve withheld.

Total Earnings

The total earnings on a pay statement will be the highest number—it includes the employee’s gross income as well as all the taxable benefits, like RRSP contributions, and taxable allowances, like car, phone, or travel per diem. The premiums and the tax rate that you’ll withhold for employees will be in part determined by these earnings.

Gross Income and Net Pay

The gross income is the dollar amount associated with the employee’s salary or wages, commissions, and earnings before you take off any Canadian payroll deductions. Net pay on the other hand, will be several hundred dollars lower than the gross income because it’s the dollar amount left after all the deductions have been removed.

Income Tax

By law, you’ll have to deduct federal and provincial taxes. The rates will differ depending on the province your business is operating in, the employee’s classification, the employee’s wages, and the TD1 form that your workers filled out when they were hired. Income tax rates are graduated in Canada, which means that the higher the income bracket the employee is in, the higher percentage of taxes he will have to pay. This percentage can range from 15% to 29%.

Canadian Pension Plan (CPP)

CPP is a mandatory federal program. Employees pay into the program throughout their years’ of work and once they retire, after 60 years of age, they receive benefits from their contributions. Note that if you’re operating in Quebec, you’ll be deducting for the QPP instead of CPP. As the employer, you’ll be contributing to this as well.

Employment Insurance (EI)

Employment insurance is deducted from everyone’s salary until the annual maximum has been achieved. It protects employees by providing financial assistance to those who are eligible if they become unemployed or need to take a leave, among other situations. As the employer, you’ll also contribute a share to EI.

Other Deductions

Income tax, CPP, and EI are mandatory deductions that must be withheld from your employees’ paycheques. However, there are non-compulsory deductions that you might have to consider as well. These can include child support, group insurance premiums, union dues, and RRSP deductions.

Remittances

Once the appropriate Canadian payroll deductions have been made, it’s the employer’s responsibility to remit these withholdings to the Canadian government by its deadlines.

Nuances of Payroll

Understanding Canadian payroll deductions will help you pay your employees properly at each pay period. Many factors come into play and deductions can vary from employee to employee and business to business, so it’s important to understand all the nuances of payroll. If you’re not well versed in Canadian payroll legislature, you might want to consider outsourcing your payroll to a payroll provider. The payroll provider can help take the load off your shoulders—it will calculate, deduct, and remit your Canadian payroll deductions for you so you don’t have to worry about understanding every aspect of payroll legislature.

Canadian Payroll Tax Deduction Calculator

Topics: Canadian Payroll Deductions

Employing Canadians? You'll need to Understand these Payroll Taxes!

Posted by Ray Gonder

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Oct 7, 2014 7:30:00 AM

Payroll Taxes in Canada resized 600Without an understanding of payroll tax laws in Canada, you'll have a hard time operating your business. Payroll taxes are one of the most fundamental aspects of legally employing people in Canada. As soon as you hire people to work for you, you have responsibilities to pay them properly, and that includes paying payroll taxes.

Personal income taxes, both at the federal and provincial levels, are the most significant revenue sources for Canadian government. Payroll taxes account for over 40% of Canada's tax revenues, and employers pay an integral part in the government's collection of these taxes.

Canadian employers are required to register an account with the CRA, collect information about their employees, calculate deductions, and then remit various types of payroll taxes applicable for the jurisdiction, or jurisdictions, where the work was done. Here's a basic list of payroll taxes applicable using the example of two of Canada’s largest provinces:

Federal

  • Canada Pension Plan (CPP)
  • Employment Insurance (EI)

Ontario

  • Employer Health Tax

Quebec

  • Quebec Pension Plan (QPP)
  • Health Services Fund
  • Quebec Parental Insurance Plan
  • Compensation Tax
  • Workforce Skills Development and Recognition Fund
  • Commission des nores du travail

Workers' Compensation Premiums

  • All provinces will also have you needing to pay premiums into that province’s Workers’ Compensation program, for example WSIB in Ontario.

For each person in your employ, the proper amounts need to be calculated for each of the above, applicable funds (not all employees will have to pay all of these taxes). These amounts can be found by referring to the published tables for each tax or by using the CRA's online calculator. Then, you must hold the funds in trust until it's time to remit to each of the agencies.

As an employer, you will probably have to answer payroll tax questions, including the question of what all these taxes are for. Let's take a brief look at each one.

Canada Pension Plan.

Established in 1965, this payroll tax funds Canada's social insurance program, which helps to fund Canada's public retirement income system. All Canadian workers who are 18 years of age and over are required to contribute to the CPP. However, there are certain rules around CPP deductions for those workers who have reached retirement age. There is a maximum amount of CPP that each employee pays per year so once that threshold is reached you no longer have to deduct the tax for the remainder of that year. Employers match workers' contributions to increase funding to the pension plan.

Employment Insurance.

Formerly called Unemployment Insurance, this payroll tax provides benefits to workers if they lose their jobs. Canadian employees pay a percentage of their salaries into the insurance fund; the amount they receive if they lose their jobs depends on their previous salaries, the length of their employment, and the unemployment rate in their local jurisdiction.

Workers' Compensation.

Like Employment Insurance, Workers' Compensation is a form of insurance for workers who face unexpected hardship in the form of wage replacement and medical benefits. This was Canada's first social program because both workers' groups and employers hoped it would reduce lawsuits. It's still managed by local jurisdictions, as it has been since the early 20th century, and it's still funded by employers based on their payrolls. Each province has different rate groups based on the risk of the work being done. The bigger the risk, the higher the premiums the employer will pay. These rates have a tendency to change on a yearly basis across each province.

Ontario Health Tax.

Introduced in the 2004 Ontario Budget, the Ontario Health Premium contributes around $3 billion to the health care system each year. The payroll taxes remitted to the Ontario Health fund are invested directly into the health care system, and only those who are residents of Ontario must pay this tax.

For more information about payroll tax questions, especially how they vary from province to province, contact us at The Payroll Edge. Whether you have difficult questions from your employees that need to be answered or you need help becoming compliant with payroll tax laws and guidelines, we can get you the help you need. A third-party payroll tax expert can make all the difference in the way your company operates.

This article was originally posted on August 1, 2013. 

7 Signs It's Time to Outsource Payroll

Topics: Canadian Payroll Deductions, Ontario

A Canadian Payroll Class May Not be The Right Choice

Posted by Stacey Duggan

|

Jul 29, 2014 8:30:00 AM

Canadian Payroll Class FrustrationWhen it comes to understanding Canadian payroll, your first instinct may be to enrol in a payroll class to help your payroll and HR department learn the specifics.  For those companies outside of Canada, this search is in effort to understand foreign payroll compliance and is often handed over to someone hesitant to learn a new set of laws when they are already comfortable with their own. 

Canadian rules and regulations when it comes to paying an employee can be vastly different, especially when compared to a country such as the United States.  These differences can exert a level of frustration on the payroll or HR person who is already schooled in one set of legislative compliance.

When it comes to choosing a Canadian payroll class ensure that part of the curriculum covers the following:

  • Federal payroll taxes including the Canada Pension Plan, Employment Insurance and Worker’s Compensation.
  • The additional provincial payroll taxes as they vary from province to province (ensure the class covers the province that most interests you as many payroll classes will avoid Quebec due to its complicated nature)
  • Employee and Employer deductions and the remittance schedules assigned to each tax account.
  • Employment standards when it comes to overtime, statutory holiday pay and vacation pay and a section on how these vary from province to province as well.

Not only should the above information be covered in a Canadian payroll class but the payroll and HR department need to be aware of the over 1700 rules and regulations when it comes to the Employment Standards Act which also varies from province to province.

Ensure that the Canadian payroll class you register your in house payroll person includes information on:

  • Health & Safety and a Return to Work program should your worker be injured.
  • Termination and pay in lieu of notice.  Note: there is no ‘At Will’ employment in Canada.
  • How to properly compose an employment contract ensuring that all clauses meet employment minimums.

What are the chances that not only will the Canadian payroll class offer all of the above, but that your payroll and HR person taking the class will retain all of the information?  How will they keep up to date on the ever-evolving employment regulations and changes to tax law?  Most likely the Canadian payroll class will offer nothing more than an overview of the functions and processes of paying an employee

What outsourcing your Canadian payroll to The Payroll Edge will bring:

  • Complete compliance when it comes to calculating payroll taxation.
  • Correct, on time remittances with all government bodies in every province.
  • Employment standards expertise ensuring you meet your due diligence.
  • Certified experts who understand the law and keep up to date on its changes.
  • The freedom to focus on your business.

Canadian payroll processing doesn’t have to be complicated and you don’t have to take a new field of study to get it done. The Payroll Edge is a Canadian based payroll processing company specializing in helping American and foreign companies expand their workforce into Canada by acting as the employer of record (EOR), a similar service to a PEO in the U.S.  We also take care of small businesses in Canada who don’t have the time or expertise for payroll.

The Payroll Edge offers seamless workforce expansion into Canada without the daunting task of understanding foreign employment compliance. Contact us today for more information on how we can help your business.

12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Canadian Payroll Deductions, Employee Payroll Deductions, Payroll Tax Tips, U.S. Business operating in Canada, Paying a Canadian, Calculating Taxes in Canada, Canadian payroll class

How to Understand Canadian Payroll Deductions

Posted by Ray Gonder

|

Jul 18, 2014 9:05:00 AM

how to understand canadian payroll tax deductionsCanadian payroll deductions aren't easy to understand. There are numerous agencies and multiple levels of bureaucracy involved. Failing to correctly navigate the payroll maze can leave you facing fines, administrative penalties, and back payments to employees and government agencies. If you've decided to handle your payroll on your own, there are a few things you need to do to make sure you adequately understand Canadian payroll deductions.

Go to School

Payroll experts typically spend years in school earning degrees that let them navigate Canadian payroll laws. Many of them work as interns while in school, building real-world experience to go along with their education. After school, there are certification exams and more work study, just to make sure that everything they learned in school sticks. If you have the time, and the desire, you too can develop the deep understanding of Canadian payroll deductions that these students have.

Keep Learning

Of course, what you learn in school can change with a legislative whim. Rules and regulations that applied last year can be completely different in the upcoming year. That's why payroll professionals are constantly learning. They attend conferences, read journals, and take continuing education classes to make sure they're up on the latest changes. If you want to understand Canadian payroll deductions, you need to be prepared to devote time to keeping up with changes to those deductions.

An Easier Way

The best way to understand Canadian payroll deductions is to let experienced professionals worry about them. You already have a lot to deal with running your company, trying to be all things to all people will simply stretch you too thin. Most businesses outsource their legal departments, logistics, and maintenance because they don't have the time or interest to handle those things in house. Payroll deductions are no different--there are seasoned professionals available who can handle all of your payroll needs, without a great expenditure of time, effort, or money on your part.

Focus Your Efforts

You and your staff should focus on your core competencies and running your business. Time spent learning to micromanage every aspect of your business is time that's not spent maximizing the value of your business. Could you learn to be a payroll expert, and handle all of your payroll deductions in house? Of course you could. However, unless you're running a payroll service, how does that further the long term goals of your company? Stick with what you do best, and let a payroll service provider handle the rest. 

7 Signs It's Time to Outsource Payroll

Topics: Canadian Payroll Deductions

Calculating Canadian Payroll Deductions is Only Half the Battle

Posted by Stacey Duggan

|

Mar 3, 2014 9:00:00 AM

Calculating Canadian Payroll Deductions is Only Half the BattleSome businesses are under the impression that Canadian payroll deductions will make up the majority of the red tape they have to deal with. While Canadian payroll deductions can be incredibly complex, they’re still just a drop in the bucket compared to all of the other legal and administrative hoops you’ll have to jump through. Long before you have to worry about Canadian payroll deductions, you’ll have to worry about meeting all of the legal requirements to get your business up and running. Meeting those requirements initially, and continuing to meet them for as long as your business operates, can be far more difficult than worrying about Canadian payroll deductions.

A Daily Struggle

Whether you’re a US or Canadian business, there are certain tasks that you will be expected to perform every day to keep your Canadian operations in compliance. Timekeeping, employee classification, workplace safety, and providing legally required documentation are just a few of the tasks on your agenda. You’ll also be required to provide health and safety training for your employees and deal with any jobsite inspections that different government agencies deem necessary. Once you’ve successfully completed all of those tasks, you can start in on all of the things that actually make your business profitable.

An Added Burden

If you’re a US business operating in Canada, then the legal hurdles become higher and more frequent. Before you ever have to worry about Canadian payroll deductions, you’ll have to establish a business that can legally hire Canadians. That means establishing a physical presence in Canada, setting up banking and government accounts, procuring proper insurance, dealing with inspections and licenses, and meeting any other industry-specific requirements. You’ll spend a lot of time and money, long before you can legally start operating in Canada. If you choose to handle everything on your own, you’ll have to learn an entire foreign legal system in your spare time. If you miss anything or make any mistakes, the time and costs will increase dramatically.

A Single Solution

Fortunately, there’s a single solution for US and Canadian businesses. The Payroll Edge is a payroll service provider that provides all of the administrative and management services a business needs for its day-to-day operations. These services include everything from workplace health and safety compliance, to those Canadian payroll deductions you were so worried about. They can even handle hiring, classification, and management of employees.

If you’re a US business moving into Canada, The Payroll Edge can act as an Employer of Record (EOR) for your expansion. Using their EOR services, you can avoid all of the red tape and legal hurdles involved in setting up shop in Canada. An EOR provides you with everything you need to get up and running in Canada. They have a physical presence, all the necessary government and banking accounts, and the legally required insurance. When you hire an EOR, they can immediately begin hiring and managing Canadian employees on your behalf. You won’t have to spend months setting up shop and learning a new legal system. With the help of an EOR, your Canadian expansion requires little more than a telephone call.

Canadian Payroll Tax Deduction Calculator

Topics: Payroll Service Provider, Canadian Payroll Deductions, U.S. Business operating in Canada

How Canadian Payroll Keeps US Companies from Operating in Canada

Posted by Stacey Duggan

|

Feb 11, 2014 9:00:00 AM

How Canadian Payroll Keeps US Companies from Operating in CanadaManaging Canadian payroll is no easy task. For US-based businesses, there are numerous administrative hurdles that must be overcome before paying Canadian employees. Overcoming those hurdles is a time-consuming and expensive process. Once the hurdles have been cleared, there are ongoing concerns about the complexity of the payroll laws, as well as the frequent changes to those laws. The headaches associated with Canadian payroll have kept many US-based businesses from expanding into Canadian markets. For some businesses, the immediate and ongoing costs, as well as the risk of making mistakes, are simply too much to bear. Those companies choose to forego a Canadian expansion, rather than deal with the complexities of Canadian payroll law. Fortunately, there is an easy, affordable way to deal with Canadian payroll, while also minimizing the potential risks.

Jumping Through Hoops Yourself

Paying Canadian employees isn’t as simple as doing a quick currency conversion and sending out checks. Before you ever get to the point of paying employees, there’s a laundry list of administrative hoops to jump through. To legally establish a Canadian payroll department, you have to have a physical presence in Canada. This means establishing an actual, working office. You can’t get by with a postal box or an empty storefront. This cost alone has caused uncounted businesses to abandon their expansion plans.

Once you’ve established a physical presence, you’ll be faced with a few more hoops. You’ll need to set up all of your government accounts—the difficulty of setting up these accounts will vary greatly, depending on your type of business and what provinces you’ll be operating in. After that, you’ll need to set up bank accounts, purchase insurance, and schedule any workplace safety inspections. Once all of that is done, and you’ve gotten the green light from all of the different agencies involved, you can start hiring employees.

Hiring employees isn’t the final step in the Canadian payroll process. Once hired, they must be properly classified, trained, and provided all legally required materials regarding workplace health and safety. After they begin work, you’ll be responsible for keeping up with any changes to the laws, as well as any changes to worker classifications or job sites. Those laws can change with little notice, and are often subject to differing interpretations. Mistakes along the way will cost you time and money. Make mistakes after you’ve hired employees, and you could be facing audits, fines, and criminal penalties.

Letting Someone Else Jump Through Hoops

You could spend a lot of time and money trying to set up your own Canadian payroll department. Or, you could spend no time and less money hiring a Canadian Employer of Record (EOR). An EOR performs the same functions as a Professional Employer Organization (PEO) in the States. You pay the EOR directly, and they manage all aspects of your payroll. From hiring and training, to workplace safety and tax remittances, everything is handled for you. Since they’ve already set up the necessary accounts and infrastructure, they can start conducting your business in Canada almost immediately. And, since they service a variety of clients, the costs of jumping through the hoops are distributed across those clients – no single business has to foot the entire bill themselves.

An EOR like The Payroll Edge saves time, money, and risk. With their professional services, it’s unlikely that any mistakes will be made when dealing with Canadian payroll. They have the training and experience to keep up with the current complex payroll laws, and to deal with any future changes to those laws. With their help, you don’t have to worry about Canadian payroll problems keeping you from operating in Canada.

12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Payroll Processing, Payroll Service Provider, Outsourced Payroll Service, Canadian Payroll, Canadian Payroll Deductions, Canadian Payroll Regulations, EOR, Canadian Payroll Service, U.S. Companies operating in Canada, CRA

How to Avoid Costly Mistakes with a Canadian Payroll Calculator

Posted by Ray Gonder

|

Feb 7, 2014 9:00:00 AM

How to Avoid Costly Mistakes with a Canadian Payroll CalculatorWhen dealing with Canadian tax withholdings and remittances, mistakes can cost you a fortune in fines and back payments. US-based businesses are more likely to make mistakes, as they usually aren’t as familiar with Canadian tax laws. A Canadian Payroll Calculator can help you spot the most obvious errors, and make sure that you’re withholding enough taxes from your employees’ paychecks. Using a Canadian Payroll Calculator will help you determine how much to withhold from standard employees in typical situations. However, since you will probably have some non-standard employees working in atypical situations, a Canadian Payroll Calculator can’t replace the advice of a professional payroll service.

Not for Every Employee in Every Situation

To give accurate results, a Canadian Payroll Calculator must be using accurate information. Typically, they use a standard algorithm, designed to fit the majority of employees. However, given the complexity of Canadian tax laws, and the wide variety of employee and job designations, there is no calculator that can foresee every possible scenario. To account for this, the person using the calculator must have a strong understanding of the law, and how it’s applied in the real world. Without that understanding, the results from the calculator won’t necessarily apply to every employee in every situation.

Guidance, not Advice

A Canadian Payroll Calculator shouldn’t be used in place of advice from an experienced professional. A calculator should typically be used to double-check results that you’ve already determined using the withholdings information provided by the Canadian Revenue Agency. Using the rules they provide, you can determine the withholdings for an employee, and then check for any discrepancies using a Canadian Payroll Calculator. If there are discrepancies, you know that there’s a problem with either your calculations, or how your employee is classified.

Checking Your Work

Of course, identifying where any errors exist requires you to know and understand Canadian tax laws. Without that knowledge, it will be impossible to find anything other than basic arithmetical errors in your tax withholdings. You’ll be looking for a needle in a haystack—without knowing what a needle looks like. The kind of knowledge required to do advanced error checking only comes from constant experience with Canadian tax laws. Unless you have the time to devote to gaining that experience, you’ll always be at risk for unseen errors. Considering how much those errors can cost you, it’s probably not worth the risk.

Seek Professional Help

To avoid potential fines and back payments, you should consider using a Canadian payroll service. These experienced professionals deal with Canadian tax law every day. They also deal with the people who are applying those laws in the real world. That combined experience gives them a deep understanding of the intricacies of Canadian tax laws. They can quickly and accurately calculate all of your withholdings and remittances, with little risk of under- or over-payments. They can save you money immediately thanks to their speed and accuracy, and in the future by avoiding audits and associated costs.

Canadian Payroll Tax Deduction Calculator

Topics: Payroll Processing, Payroll Service Provider, Outsourced Payroll Service, Canadian Payroll, Canadian Payroll Deductions, Payroll Calculator, Canadian Payroll Calculator

US Companies Get in Trouble Hiring Canadian Independent Contractors

Posted by Ray Gonder

|

Feb 5, 2014 9:00:00 AM

US Companies Get in Trouble Hiring Canadian Independent Contractors2Given the complexities of operating a US-based business in Canada, it’s no surprise that some employers look for loopholes and workarounds. One workaround that US businesses have tried is to hire Canadians as independent contractors instead of employees. The US Company may feel that this removes the need for them to have a business presence north of the border as they merely have to direct funds from their bank account to the independent contractors.  

Unfortunately, hiring Canadian independent contractors can cause numerous legal and business issues.

Download our free guide on what US companies need to know about paying  employees in Canada.

An Employee by any other Name

If you need an independent contractor in Canada, that’s perfectly acceptable and completely legal. If you need an employee in Canada, and use an independent contractor to avoid tax withholdings and other employment regulations, then you’ve broken the law. Just like the IRS, the Canadian Revenue Agency (CRA) has strict rules around qualifying someone as an independent contractor.  The CRA has expressed a direct interest in eliminating the underground economies that have been created by employers abusing the independent contractor system. They are actively looking for businesses that abuse the system, and the penalties are severe.

Loss of Control

Unsurprisingly, an independent contractor is expected to be independent. They set their own hours, provide their own tools, and can subcontract their work to other people. By law, you have very little say in how they conduct their business. As a manager or owner, this gives you very little control over someone who is working for you. If they’re being used legitimately as a contractor, that’s rarely a problem. However, if you’re using them as a de-facto employee, then you have issues. Training them on your business processes, giving them goals to achieve and the tools to accomplish them and having the expectation that they are only working for you, all cross the line between contractor and employee.

Why Bother?

The only reason to use independent contractors as a workaround is convenience. Setting up all of the accounts and infrastructure to pay workers legitimately is difficult and time consuming. Instead of dealing with all of the legal and administrative complexities, some employers choose to pay contractors directly, expecting them to handle all of the legal and tax requirements themselves. While this may be simpler, it’s illegal and can result in huge fines, back payments, criminal penalties, and the loss of your right to conduct business in Canada. To make matters worse, it’s all pointless, since there’s a way that’s just as easy, yet completely legal.

Employers of Record

If you want the convenience of paying a flat rate, without having to worry about tax withholdings, workplace regulations, or business infrastructure, then you want an Employer of Record (EOR). They operate in the same way as an American Professional Employer Organization (PEO). An EOR already has all of the infrastructure, accounts, and insurance necessary to directly hire Canadian employees. You pay the EOR directly, then they hire and pay employees, handle withholdings and remittances, and ensure workplace compliance. You get the convenience of a contractor, without the legal risk, and without ceding control.

12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Payroll Service Provider, Outsourced Payroll Service, Canadian Payroll, Canadian Payroll Deductions, EOR, Employer of Record, U.S. Companies operating in Canada, CRA, Canadian Employer of Record, Independent Contractor, CRA Compliant

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