What are your responsibilities as an employer? Knowing your responsibilities will help you focus on your business instead of dealing with tax issues.
The employer responsibilities
– If you hire an employee, you need to register for a payroll account with CRA
– Each employee should fill in and provide you the form TD1
– Once you have an employee, you need to deduct CPP, EI, and Federal taxes from each paycheque of the employee and add the employer contributions of CPP and EI and remit the total amount (payroll remittance) to CRA
– You need to give either two weeks of vacation in a year or pay 4% vacation pay to your employee as per the employment standard act of Canada
– You need to remit payroll remittance generally on or before the 15th day of the following month
– If your payroll remittance is nil, you need to report to CRA nil remittance
– You may need to report and pay Workers Safety Insurance Board Premium (WSIB)
– You may need to report and pay Employee Health Tax Premium (EHT)
– Once your employee left you, you need to submit ROE
– You need to prepare and provide a T4 to your employee by the end of February of the following year
– You need to prepare and file a T4 Summary return with CRA
Important things to consider
An employee or a contractor?
– An employee is entitled to employment insurance benefits and treated differently under the Canadian pension plan (CPP). If an employee-employer relationship exists, the employer needs to deduct Federal tax, CPP, and EI from each employee’s cheque, add the employer’s contributions to amounts deducted and remit to CRA, usually by the 15th of the next month. If the employer fails to deduct the Federal tax, CPP, and EI for the employee’s paycheque, the employer has to pay the amounts not so deducted.
– In the case of a contractor (self-employed individuals), the employer is not responsible for deducting the Federal tax, CPP, and EI. However, the contractor pays Federal tax and CPP when he files his own income tax return and reports the self-employment income. The contractor may also contact Employment Insurance Canada to request self-employment insurance and pay the insurance premium directly to Employment Insurance Canada once set up.
– You may need to look into several factors to decide whether you have hired an employee or a contractor. Factors that are generally considered, the intent to decide the working arrangements, written contracts, employers’ control over the activities of the employee or the contractor, tools and equipment provided working schedule, risk the worker takes, worker’s opportunity for profit, etc.
Do you provide him/her with taxable benefits?
– All allowances, bonuses, and other payments made to an employee are taxable benefits. The employer needs to deduct Federal tax, CPP, and EI when these benefits are paid. If you provide benefits in kind to your employees, you need to make a reasonable valuation of those benefits and report that in the T4 of the employee.
Can I pay employees a tax-free benefit?
– Certain benefits are not taxable, and you can provide some of these benefits as a tax planning tool as tax-free for your employee. You need not to deduct CPP, EI, and Federal taxes on the portion of Car allowance paid to your employee as per rates prescribed by CRA.
Can I help my employee to get tax benefits for their bits of help?
RKB Accounting team is experienced, knowledgeable, and available to provide payroll services and worry-free accounting with year-round support.
Payroll Remittance Payment to CRA
– Please visit our blog, “CRA Payment.” CRA will charge you interest and penalty if CRA does not receive your payroll remittance by the due date.
Canada pension plan (CPP)
– You need to deduct from each paycheque of the employee CPP, which is 5.45% in 2021. You need to add the same amount as the employer contribution. You do not need to deduct CPP from the employee’s paycheque if his/her total CPP deduction reaches $3,166.45, the maximum contribution limit.
Employment Insurance (EI)
– You need to deduct from each paycheque of the employee EI which is 1.58% in 2021. You need to add 1.4 times the amount you deducted from the employee as the employer contribution. You do not need to deduct EI from the employee’s paycheque if his/her total EI deduction reaches $889.54, the maximum contribution limit. If you are the shareholder or director of the corporation or spouse of the shareholder, director, you do not deduct EI.
Workplace Safety & Insurance Board (WSIB)
– Most of the businesses in Ontario that hires an employee need to register with WSIB. WSIB provides workplace insurance in the event of any work-related causality happens. Depending on the nature of your business, some industries are not required to register; however, they can register voluntarily. The WSIB premium rate will depend on the classification of your business industry and the nature of work that the employee does. You do not deduct the WSIB premium from your employee paycheque. The employer pays the WSIB premium. You may not need to pay a WSIB premium for your executive officers’ salaries and wages unless you are in the construction industry. You need to report gross insurable earnings and pay the premium as per the applicable rate at every month, quarter, or year. You reporting frequency depends on the following thresholds:
|Reporting and payment frequency
|$1,000,000 or more
|$20,000 to $999,999.99
|Less than $20,000
Employer Health Tax (EHT)
You only need to pay EHT if your gross payroll exceeds the allowable exemption amount. The allowable exemption amount was $490,000.00; however, in 2020, it has been increased to $1 million.
Record of Employment (ROE)
Once an employee stops working or quits the job, the employer must issue an ROE within 5 days. An ROE includes the employer and the employee’s information, the reason for separation, insurable earnings paid to the employee in the last 26 pay periods. The employer submits the ROE either in paper or electronically to Service Canada and provides a copy to the employee.
T4s and Summary return
At the end of each calendar year, you need to prepare a T4 and provide a copy to your employee. a T4 includes information about the employee payroll for the year, such as gross payroll, other benefits, CPP, EI, and federal tax deduction during the year. You also need to prepare a T4 summary return and file with CRA by the last day of February.
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters. RKB a CPA(Delaware), CA(India), and CIA(USA) has over 25 years of experience in accounting and taxation in dealing with various countries in the world.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.