With new changes constantly being rolled out and myriad rules to learn, understand, and follow, it’s no surprise that foreign companies have a tough time staying compliant with Canadian payroll regulations. But compliance is critical if you want to avoid unwanted visits from the Canada Revenue Agency and hefty fines and penalties.
Here are five important things about Canadian payroll regulations you should know, so you can stay in compliance while operating your business in Canada.
You must ensure that you are registering for the proper accounts before you can start to payroll Canadian employees. New employers in the country must get a business number and register for a CRA payroll program account. With this account, you’ll be able to report your GST, tax deductions, and other annual payroll and tax information. Depending on the province you operate in, you may also need an Employer Health Tax number.
If you have employees on payroll, you can’t skip these steps.
2. The Independent Contractor Conundrum
Many foreign companies working in Canada are audited because of the independent contractor conundrum. To avoid the headaches that come with Canadian payroll regulations and compliance, many business owners classify their employees as independent contractors. You would think that if the worker agrees to this classification that everything is well and good. Unfortunately, this isn’t the case. The CRA uses a four-point test to determine whether workers are truly employees or in fact contractors. Classification isn’t as straightforward as it may seem. It can get complex. Some of the factors you will need to pay close attention to include the employee-employer relationship, ownership of tools and equipment, control, chance for financial profit or loss, and how the worker is paid, among others.
3. Payment of Wages
Another aspect of payroll that seems straightforward is the payment of wages. The Canadian payroll regulations regarding the payment of wages vary by province or territory. Depending on where you operate, you might need to follow completely different rules, and if you operate in several different provinces and territories, you will have a lot to keep track of.
For example, the minimum wage is lower in British Columbia than in Ontario, and employees serving alcohol have an even lower minimum wage than other types of workers. The frequency at which you pay your employees will also vary depending on location: in some provinces, you can pay monthly, in others you must pay bi-weekly. Each location will also have its own employment standard legislation regarding what information must be included on employee pay statements.
4. Hiring Employees
Along with a wealth of employment laws, there are two specific Canadian payroll regulations you must adhere to when you hire employees. The first is that you must acquire the worker’s social insurance number within three days of his first day of work. A SIN number that starts with “9” indicates that the worker is not a Canadian citizen and you’ll have to take additional steps to complete the paperwork for the hiring process. The next is that you must have the new worker fill out TD1 Personal Tax Credits Return forms. These forms will give you the information you need to make appropriate deductions.
If your company terminates an employee or that worker leaves your organization, you have a few things to do. The CRA recommends that you create a T4 slip of his earnings and deductions for the year to date. Keep one for your files and give a copy to the employee. You’ll also need to prepare a record of employment (ROE) and send it within five calendar days and provide any owed wages in a timely manner—the specific timeframe will vary by location.
If you fear non-compliance with Canadian payroll regulations and don’t want to handle the responsibility on your own, consider engaging an Employer of Record to take care of it.