Employing Canadian workers and deducting the correct Canadian payroll taxes from their paycheques can be difficult if you’re an American or foreign company outside of North America. We’ve compiled a list of Canadian taxes a company employing Canadian workers should be aware of, if they are not engaging with an Employer of Record service.

Canadian Business Taxes

All Canadian businesses must file a corporate tax return with the Canadian government. This corporate tax return is due within the six months after the end of the company’s fiscal year.

If you are engaging with Canadian companies for the sale of your product or service you need to be aware of the sales tax for the province you are doing business in. For goods and services sold in Canada, every company must charge the applicable provincial sales tax. The same is true in the reverse, if you purchase goods and services in Canada, you will be charged the sales tax. You are then required to reconcile these debits and credits to pay or report to the Canada Revenue Agency. Every province has a different rate and the remittance schedule can vary as well based on company size. In Ontario, it is called the HST (Harmonized Sales Tax) and the rate charged is currently 13%, in Alberta that rate is 5% for their GST (Goods and Services Tax). For a full list of HST/GST rates by province, please visit the Canada Revenue Agency’s website.

Another tax to be aware of as a foreign company is the possibility of the 15% withholding tax. If a U.S. or foreign company chooses not to register a Canadian business presence but does engage in a sales transaction with a company in Canada, that company must withhold and remit 15% of any payments for services rendered in Canada.

Canadian Payroll Taxes

Some taxes are consistent for all employers across Canada such as the Canada Pension Plan (CPP), Employment Insurance (EI) and Worker’s Compensation.  These taxes may be consistently seen across all provinces and territories but the rate that they are charged can vary.

Other taxes are province or territory specific. For example, in Ontario employers must pay the Employer Health Tax (EHT) and in Quebec there are three additional taxes over and above the federal ones. Please visit the Canada Revenue Agency’s website for further information on provincial payroll taxes and rates.

If you have not engaged an Employer of Record here in Canada and have successfully registered your business, enrolled for the various government accounts and are up to date on your taxation responsibilities, you may be ready to hire your first employee.

If you’d prefer to have an Employer of Record handle the complexities of Canadian employment law, contact The Payroll Edge today and we’ll take care of the workforce compliance issues for you! 

Managing Canadian payroll regulations can be as difficult, or as simple, as you want. Like most business leaders, you probably have a penchant, and preference, for getting things done yourself. You like the hands-on approach, and don’t delegate tasks unless you have to. On the other hand, when it is time to delegate, you choose the best person for the job, and let them do the job you chose them for. If you’re trying to navigate Canadian payroll regulations, then you have the same two basic options. You can try the hands-on approach, and focus all of your time and efforts on learning a completely foreign system from the ground up, or you can delegate the task to somebody who already knows the Canadian payroll regulations. The route you choose will largely depend on how much money and effort you are willing to invest, and how quickly you need results.

Many, Many Steps to (Hopefully) Success

Before you start hiring and paying Canadian employees, there are quite a few steps you have to take. U.S. and Canadian payroll regulations are entirely different creatures. Your existing system for managing and paying employees simply won’t work with Canadian employees. You’ll need new software, new filing systems, and new (or completely retrained) staff before you get started. This will all be in addition to your existing payroll system and personnel.

Once you have a second payroll system up and running, you can move on to step two—setting up a business presence inside of Canada. This can be challenging in itself as registration procedures are different from province to province and have different rules depending on the type of registration you would like.

At this point, you need to set up all of your government taxation accounts, register with worker’s compensation and arrange banking and insurance infrastructure.

Now you’re ready to hire your first employee. You’ll have to verify their identity, establish their right to work, ensure that they’re properly classified, and provide any required training. If you’ve completed all of these steps without making a single error, your new employee is ready to start their first day at work.

At this point, you’ve expended a ton of money and energy just getting your first employee on board. If you made any mistakes, the amount of time and money spent probably increased exponentially. If you make any mistakes in the future, there will be more expenses to deal with.

A Line on Success

The ability, and willingness, to delegate is a powerful business skill. Too many business leaders stray far outside of their zone of expertise and end up needing help to find their way back. Delegating difficult or time-consuming tasks to a more experienced professional is the better business decision. When it comes to managing Canadian payroll regulations, delegating the tasks to a Canadian-based Employer of Record (EOR) minimizes effort, expense, and risk.

Some Canadian payroll service providers (like The Payroll Edge) are already set up to act as full-service employers for Canadian workers by providing EOR services. They have established all of the necessary accounts and infrastructure, and cleared all of the administrative hurdles. All that is required to put them to work for you is a telephone call. Instead of spending months, and a small fortune, establishing a Canadian presence, you could spend a few minutes on the phone and be up and running in hours or days.

In an effort to save money, it can be tempting to try to handle as many tasks as possible in-house. Many businesses are asking their personnel to handle a growing list of responsibilities, regardless of their training or expertise. While some tasks afford a margin of error, and allow for time to learn the responsibilities, handling Canadian payroll tax responsibilities isn’t one of those tasks. If you’re considering handling Canadian payroll tax compliance in-house, there are a few things you should know beforehand.

It’s Not Easy

Canadian payroll tax laws are complex and difficult to learn, let alone master. To make matters worse, the application of those laws can change from one situation to the next, and may not be applied the same way by every agency. Learning which laws apply in which situation takes time and experience. During that time, any mistakes can cost the business dearly. The CRA, and other agencies, won’t accept ignorance or inexperience as an excuse for non-compliance. At best, mistakes will result in back payments, along with the associated costs of processing and distributing new cheques. At worst, fines and criminal penalties can be imposed for any errors in reporting or remittances.

It’s Not Constant

Learning Canadian payroll tax laws is a constant process. The laws, at all levels, change frequently. These changes can be in the form of new legislation, changes to existing legislation, or differences in application from year to year. Staying on top of these changes requires constant vigilance on the part of your personnel. They’ll have to attend seminars, training sessions, and read up on proposed and actual changes. This investment of time and effort will come directly out of their overall productivity. If they make any mistakes with the new legislation, any savings you enjoy by handling Canadian payroll tax in-house will quickly disappear.

It’s Not Without Risk

All of the time, effort, and money invested in training your personnel can vanish after a single CRA audit. Government agencies have stepped up their compliance checks, meaning more agents looking for more mistakes. The fines and penalties for first-time offenders have risen steadily in recent years, making any errors more costly. Even the best training, and intentions, aren’t a substitute for experience. While your personnel are trying to develop that experience, the CRA will be watching for any slip-ups.

There’s an Easier Way

Using your in-house personnel to handle Canadian payroll tax compliance may appear to save you money on upfront costs. You’re already paying your personnel, so why not add to their responsibilities? However, when you add in the cost of training, the lost productivity, and the potential fines and penalties, it becomes a losing proposition. There are ways to cut expenses that don’t put your business at greater risk of a government audit. Using an outsourced payroll provider saves you the expense of constant training, and keeps your personnel focused on tasks that directly benefit your business pursuits. A payroll provider also minimizes the risk of a government audit, saving you money on fines and legal representation during government actions. When you do the math, it just makes sense to let a payroll provider handle your Canadian payroll tax obligations.

Many businesses still choose to handle payroll using in-house personnel. This is usually done either out of habit, or out of the belief that it saves the business money. Whatever the reason, it’s becoming increasingly expensive and risky to handle CRA payroll tax compliance using your own staff. As the CRA payroll tax rules continue to evolve and change, it’s becoming more difficult to keep up with all of the complexities. Any money saved by using your own staff can be instantly wiped out by a single error.

A Better Use of Time

Keeping up with CRA payroll tax legislation requires in-depth training and retraining. Even with all of that training, it still takes constant practice to meet all of the legislative requirements quickly and efficiently. Unless you have a dedicated payroll staff, your personnel probably only deal with CRA payroll tax requirements on a weekly or semi-weekly basis. This leaves gaps in their experience that can allow mistakes to creep in. With all of the other daily tasks your HR personnel are responsible for, it can be difficult for them to find the time to keep up with all of the payroll requirements. When they’re focused on payroll, they aren’t as productive in their other tasks. When they’re focused on their other tasks, they’re not gaining experience in CRA payroll tax compliance.

Employee Issues

Part of handling payroll involves handling employee questions and concerns. Employees always have questions about insurance and tax withholdings, overtime pay, missing hours, and myriad other concerns. Addressing these issues will consume even more time that your staff could be spending on more productive pursuits. Any mistakes must be corrected, CRA documentation must be changed, and new checks must be issued. The hours lost fixing minor errors can quickly add up to far more than the company is saving by using in-house personnel to handle payroll.

Convoluted Compliance

Even if your personnel have the right training and adequate experience to handle most payroll needs, that’s no guarantee that they’ll understand all of the nuances of the CRA payroll tax requirements. Worker classifications, insurance requirements, reporting documents, and more, can all change without notice. Something as simple as a trip to another work site can change the reporting requirements for a worker. If your staff isn’t familiar with the triggers that can cause these changes, they can fail to comply with the most current legislation. When that happens, fines, penalties, and back pay can quickly add up to tens of thousands of dollars.

Expensive Errors

Over the past year, the CRA has drastically increased their compliance efforts. This means more audits, more time spent navigating bureaucracy, and more potential for fines and penalties. Once you’re involved in a CRA payroll tax audit, you’ll probably want to engage legal counsel. At current hourly rates, it won’t take long for a labour attorney to cost far more than a payroll service.

Payroll Peace of Mind

Engaging a payroll service can eliminate all of these problems and concerns. Their dedicated staff is focused on payroll, and payroll regulations, every single day. They have the education, training, and experience to maintain compliance with the most recent legislation. Many of them are involved in shaping upcoming legislation, so they can be prepared for changes before they even happen.

Using a payroll service allows your personnel to focus on tasks for which they are better suited, and which are more productive for your business. The payroll service can handle everything from employee queries to CRA audit preparation. With their professional CRA payroll tax services, you save time, aggravation, and avoid compliance issues.

Around 2,500 years ago, Heraclitus taught that “the only thing that is constant, is change.” In hindsight, it seems that he was predicting the existence of Canadian payroll regulations. Every year, if not more often, these payroll regulations undergo wholesale changes. New payroll regulations are added, old ones are removed, and many that are left get modified. When the dust settles, it’s up to you to figure out how the new set of payroll regulations affects your business. Unfortunately, the CRA expects a steep learning curve. Mistakes can start costing a business fines and penalties from the first day the new payroll regulations are in effect. With a lot to learn and relearn, and no room for error, keeping up with changes to the regulations can be a full-time job.

No Easy Task

Even without all of the changes, keeping up with payroll regulations isn’t easy. Aside from the CRA, there are provincial agencies that require their own remittances and paperwork. There are worker-classification issues, insurance payments, overtime calculations, and holiday pay to consider. Different workers will all have different rates and requirements, forcing the payroll manager to track each employee separately. Time reporting must be verified weekly to avoid any under or over payments. In the event of any errors, corrections must be submitted to the relevant agencies, and new cheques must be issued. And all of this is standard, day-to-day payroll management. There are complexities that can make all of this look simple by comparison.

All Tangled Up

Payroll regulations are complex, and interwoven. Some regulations that appear to stand alone can have a significant impact on other regulations. Worse yet, any impact may entirely depend on the situation at hand. A worker’s classification may change from one jobsite to the next—or it may not, depending on their role at the other jobsite. Reporting requirements can change from one job position to the next. Even pay rates for holidays or overtime can change, depending entirely on which regulations apply to a particular situation. The same worker may have to be tracked using multiple systems if they work at different sites or in different roles. Knowing how and when these regulations affect each other takes a lot of expertise. Getting, and maintaining, that level of expertise requires constant training and practice.

Staying up to Speed

Keeping up to date with changing payroll regulations requires a serious commitment of time and money. Payroll managers have to be trained, take classes, and attend seminars and conferences. Giving them the best tools requires purchasing expensive software, which also requires training to use. Even when they’re fully trained and have the right software, there’s no guarantee that they’ll be getting the experience to handle complex issues. The vast majority of their duties will be day-to-day payroll management. On the rare occasions when difficult regulations come into play, they may not have the expertise to recognize them.

Compliance with Confidence

A payroll service provider deals with changing payroll regulations every day. They may even be involved in helping to craft those changes. They have a level of expertise that can only be gained by constant training and immersion in payroll issues. They use state of the art software to help them accurately and efficiently meet your payroll needs. The cost of all the software and training is distributed among dozens, or hundreds, of clients—so you have no large, up-front expenses. Payroll service providers are frequently in contact with inspectors and auditors, so they know what red flags are triggering issues. To keep up with changing regulations, you need a full time payroll service provider.

Many small business owners start out handling payroll on their own. As their company grows, it becomes increasingly difficult and time consuming to keep up with payroll. By that time, the company usually has some kind of HR manager or administrator, and they often inherit the payroll responsibilities. They become a default payroll manager, regardless of whether they have the training and experience to handle the needs of a growing company. This takes away from their HR responsibilities, and puts your payroll in the hands of someone who may not be able to dedicate the necessary time to do it right.

Instead of handing off your payroll needs from one employee to the next, it makes more sense to hire a payroll service. Payroll providers have the training, experience, and knowledge to handle the payroll needs of any size company. A payroll provider lets you and your staff stay focused on the business at hand, while your payroll needs receive the attention they deserve. Here are five ways that hiring a payroll service makes sense for your company:

Counting the Minutes

Every minute you spend on payroll is a minute that’s not focused on your core business activities. As the hours add up, and you answer employee queries, and read up on the latest legislative changes, more productive pursuits are being delayed.

A payroll service deals with payroll needs every single day. They don’t have other responsibilities that consume their attention. They can handle your payroll needs quickly, efficiently, and accurately. You will be able to spend more of their time focused on growing your business.

Time is Money

By saving you time, a payroll service saves you money. They also save you money by ensuring that your payroll is handled right the first time. Mistakes in payroll can be expensive. Cutting new cheques, making back payments, and government fines can quickly add up. The easiest way to avoid all of these potential expenses is by using a payroll service provider.

Focus on Service

When someone in your company handles payroll, they can’t always give immediate attention to questions or concerns. If you have a problem, you either have to interrupt the payroll manager, or wait for them to get back to you.

With a payroll service, they’re always working on payroll. When you call with questions or concerns, that’s just another part of what they do every day. Since they handle customer queries all the time, they can have the right answer for you right away. 

Get it Right

A lot of payroll mistakes can be traced to ignorance of changing legislation. Even when the legislation doesn’t change, it can be incredibly complex. Your payroll manager may not have the time to research all of the intricacies of the law, let alone keep up with the constant changes.

A payroll service understands the laws, as well as their application. They often participate in crafting new laws, so they have a deep understanding of the issues. Keeping up with changes is part of their day-to-day routine. This makes it easy for them to avoid mistakes that can lead to fines and back payments.

Expert Guidance

As your business grows and changes, you’ll need advice on future payroll issues. It’s unlikely that your payroll manager will have the experience to help guide that growth.

A payroll service handles clients of all sizes and stages of growth. This gives them unique insights into the challenges faced by businesses. This insight can prove invaluable in helping you steer your company into the future.

Many businesses employ a full-time payroll clerk to handle all of their payroll needs. They believe that an in-house clerk offers more benefits, and lower prices, than an outsourced payroll provider. On its face, this can seem to be true. However, looking at all of the hidden expenses of an in-house payroll clerk reveals just how costly they are. When you compare that cost to the advantages you get from a payroll provider, you’ll see just how affordable they really are.

In-House Advantages

Having a full-time payroll clerk on staff does offer some advantages. They can be 100% dedicated to payroll issues, instead of juggling multiple responsibilities. This gives them the time and freedom to keep up with changing regulations, and to focus entirely on handling your payroll needs accurately. Often, payroll is simply one of many responsibilities handled by a staff member. This can lead to inaccuracies, as they can’t be focused on payroll at all times. A full-time payroll clerk is much less likely to run into issues.

At What Cost?

Figuring out what an employee costs per year seems like a simple process. Add up the costs of their salary, benefits, and vacation days, and you have your answer, right? Wrong. This is what you’re paying them, not necessarily what they’re costing you. A full-time clerk will have sick days, vacations, and other absences. The time they spend away from your business will have to be covered by another employee. The time that employee spends on payroll will have to be covered by yet another employee. This cycle can drag down productivity throughout your administrative departments.

A full-time payroll clerk typically gets paid for the hours they’re at work, not necessarily the hours they’re working. There are times when they may have nothing to do. You’ll still be paying them for that time. During any periods of downtime, you’ll still be paying them for their presence.

One overlooked expense is training for the payroll clerk. The payroll laws are constantly changing and failing to keep up with them can lead to expensive fines and penalties. To avoid this, your clerk will need to undergo continuing education, attend conferences and workshops, and train on the latest software. The money for all of that training has to come from somewhere.

Even with all of the money you spend on training, there are no guarantees that your payroll clerk won’t make a mistake. Even though it’s their mistake, you’re still on the hook for all of the legal penalties. You could spend a lot of money hiring, training, and retaining a full-time payroll clerk, just to end up paying fines as well. As the laws and issues surrounding payroll become more complex, the chances of an error increase.

Professional Help

An outsourced payroll service provider offers all of the advantages of a full-time clerk, without the hidden expenses and risks. Instead of a single employee dedicated to your payroll needs, you can have an entire agency full of payroll professionals. You don’t need to worry about finding a replacement when your clerk is out of the office, or the effect their absence will have on your other employees. You pay the service provider for the services they render, not the time they spend in the office. The cost of their training is distributed across hundreds of clients, meaning that you get the best training for you payroll service at a fraction of the cost. Best of all, with their training, experience, and expertise, the chance of costly errors occurring is reduced to almost zero.

Business owners too often fall for the idea that bigger is always better. The huge payroll processing service with the flashy ad campaign must be great, right? They can afford huge billboards, sharp uniforms, and take up an entire floor of the new office building downtown—so they must be great, right? Of course, if they’re that great, why are they spending so much money and effort to convince you of how great they are? Maybe they do have great products and services, but something is lacking that makes them have to work so hard to attract new clients. Often, with large payroll processing providers, the thing that’s missing is personalized service. In a large office, with so many clients, it can be impossible to get to know each business on an individual basis. If you don’t know the business, how can you ever really know what the business needs?

I’ll Have to Refer You to Our Website

When you have tax or payroll questions, it would be nice to get an answer that’s specific to your business. A generic, one-size-fits-most web document isn’t going to address your particular concerns. You’ll have to read the document, decide what’s relevant to you, and then interpret how it applies to your business. Aren’t you using a payroll processing service to avoid these kinds of hassles?

A large organization isn’t going to take the time to research topics and how they apply to your business. When you call with questions, you’ll get generic answers and a web address for supporting documents. After that, it’s up to you to do the research and apply your findings.

Looks Good Enough to Me

At the end of the pay period, your payroll processing service will take the information you send them, enter it into their system, and cut the cheques. Error checking, if it exists, will only look for obvious arithmetical errors. Mistakes that would be obvious to anyone who knows about your business will be ignored or overlooked. It will be up to you to rectify any errors, and you could be charged extra by the payroll processing service.

What happens if there’s a data entry error, or somebody forgets to log in or out? Transposition errors could have your janitorial and senior marketing staff switching salaries. A simple, common-sense check of your data would reveal these errors, and correct them before they result in erroneous cheques. A large payroll service isn’t going to have the time, or the familiarity with your business, to catch these errors in time.

Sorry, We Don’t do That

Do you make remittances for any taxes other than the payroll tax? If you’re an employer in Canada you make worker’s compensation remittances and if you’re in Ontario or Quebec you have other taxes as well. Large payroll services typically only provide remittance services to your payroll tax account. This leaves you responsible for all of the others. Even though you’re paying for a payroll processing service, you could still end up doing some of the work you’d expected them to handle.

If you’re handling some remittances, you might as well be doing them all. If you’re outsourcing remittances, they should all be handled by a single provider. Having half of them done in-house, and half done by a payroll processing service is an invitation to errors. Having multiple service providers handling your remittances is also an invitation to disaster. A large agency may not have the time, or interest, in handling remittances to other agencies.

Smaller is Sometimes Better

Individualized attention can be a huge benefit when it comes to payroll processing. Those large agencies may do a lot of things very well, but personalization isn’t one of them.

If you look at the average day of someone trying to run a business, you’d be amazed by how little time they get to spend actually running the business. It’s not unusual to find that the majority of time is taken up by tangential activities like payroll. While all of those activities are vital to the operation of the business, they aren’t directly related to production and profitability. Most managers and owners would be happier, and more successful, if more of their time was dedicated to their core business pursuits.

A Better Use of Your Time

By using a payroll service, you can shift more of your attention back to business-oriented tasks, and away from tangential needs. Payroll can be time consuming, taking you away from other, more profitable, tasks. With a payroll service, you get all of that time back to focus on building your business. You can spend your time poring over timesheets, or you can spend it developing new products and processes to increase your profits.

Nobody Does it All

There are things you do well, and things you don’t do at all. You probably don’t personally deliver your products to your customers. Why not? Because shipping services have the training, infrastructure, and personnel to do it more efficiently. Hiring a shipping company is a more efficient use of your time and money. Payroll service is no different. You can invest the time and money to do it yourself, but there is a better option. Like shipping companies, a payroll service provider focuses on doing one thing, and doing it extremely well.

Getting it Right

Payroll isn’t as easy as just adding up hours worked and withholding taxes. If it were, everybody would be doing it. The legal regulations and requirements governing payroll stretch out over hundreds of pages, and change frequently and without warning. Different employee classifications can completely change how payroll must be calculated. Even something as simple as working at a different job site for a day can necessitate changes to how a worker’s pay is handled.

It takes a lot of time to learn all of the regulations, and even more time to keep up with the changes. Mistakes can be extremely costly. You may try to save money by handling payroll yourself, only to end up losing more money to fines and back pay. With a payroll service provider, you can save the time for more important business tasks, and rest easy knowing that your payroll is legally compliant.

Do What You Do Best

You know your business like nobody else does. That’s why you should be focusing your time and energy into making it the best business possible. A payroll service provider knows payroll like nobody else does. That’s why you should let them handle your payroll needs. You’ll get more time, and better results, with a payroll service provider.