Whether you employ one or a thousand Canadian workers, you must understand the concept of payroll in Canada if you’re considering processing payroll on your own. Payroll in Canada can be difficult for a UK based company to figure out, but it’s your legal and financial duty as an employer to make sure it’s done right.
You can’t just convert some funds into Canadian dollars and make a bank transfer. Your payroll processing must take into account federal and provincial or territorial income tax and other deductions, filing deadlines, remittances, and account registration.
To get you started on the right track, here are three things that you, as the owner of a UK based company, should know about payroll in Canada.
The Canada Revenue Agency Is Stringent
We’re going to warn you right now: dealing with the Canada Revenue Agency, the Canadian government body that deals with all things payroll, is going to be stressful. The sheer amount of paperwork you’ll have to fill out alone is going to be incredibly time consuming and complex. Everything must be filled out perfectly—no exceptions—or you could face a fine.
Then, there are the remittance deadlines—the specific days that your UK based company will need to keep track of in order to send your payroll tax deductions to the government in a timely manner. If you miss a deadline, you’ll be automatically smacked with a penalty—and it can be pretty hefty. It could range from 3 to 10 percent of the interest owed depending on how late you are. And then, if you’re late a second time, you can get hit with a 20-percent penalty! When you have a lot of employees, this can hurt your bottom line considerably. Unfortunately, the CRA doesn’t care that you’re new to doing business in the country. It doesn’t care that you don’t have a handle on payroll in Canada yet. It doesn’t care why you remitted late. You’ll get a penalty. No ifs, ands, or buts about it.
Mandatory vs. Voluntary Deductions
For almost all of your UK based company’s Canadian employees, you’ll have to deduct federal and provincial income tax, Canada Pension Plan premiums, and Employment Insurance contributions. These three withholdings are mandatory.
On the other hand, voluntary deductions can also be requested. These can include employee contributions towards the cost of a retirement plan, health and dental insurance, life insurance, or child support payments.
You Must Consider Applicable Variations
Payroll in Canada is not cut and dry. There are variations, exceptions, and maximums that you’ll have to consider when you process payroll. A company operating in the province of Ontario won’t deduct the same amount of tax from employees as a business operating in British Columbia. Even holidays and overtime pay regulations vary by province or territory—so you’ll need to get acquainted with the ones that are in effect in your location.
And one employee’s deductions might not match exactly how much you deduct from the guy working next to him. For example, age makes a difference in whether or not you can deduct CPP premiums from employees, and deductions must stop after a maximum. The amount of taxable earnings an employee claims will also make a difference in how much tax you deduct.
A EOR Can Help
When you employ the services of an employer of record, you don’t have to try to navigate the complexities of payroll in Canada on your own. You’ll have access to hands-on experts, resources, and advice to ensure your payroll is done right, every time.