It is easy for new or small businesses to get lost in the complexity of payroll processing. Your small business needs to manage payroll accurately right from the beginning. This means compliance with the requirements of the Canada Revenue Agency (CRA), including payroll deductions.
What are payroll deductions?
Payroll deductions withheld from employees’ earnings for the purpose of
- paying taxes (which are paid on their behalf to the CRA)
- garnishments (which are paid to the employees creditors) and
- benefits received by the employee from the business
Gross pay is the wages an employee earns before deductions, while net pay is the wages the employee actually takes home after deductions.
Both the business and the individual have tax responsibilities, and the business takes care of the administration of these responsibilities throughout the year.
A good payroll calculation will result in the employee owing $0.00 in tax when they file.
How is this done?
- Every new employee fills out a TD1 form.
- The employer uses information from the TD1 form to calculate the employee’s income tax.
- At the end of the year, the employer will give the individual a T4 form showing gross and net pay.
- The individual will use the T4 form to file their personal income tax.
Calculating net pay in terms of employee expenses?
Arriving at net pay for your employee’s pay period is different, if the have employee expenses?
Are you a licensed real estate agent, the salesperson on a salary/commission or truck driver? Deducting out of pocket expenses other than travel expenses is different than vehicle, tools or meals.
Keep all receipts for these expenses.
Employment Expenses Form
You may be able to deduct all or a portion of your cell, home, auto, computer, and internet. Out-of-pocket expenses for business purposes must be recorded, so you can deduct these expenses on your tax returns.
The employer must take into account various issues when completing the employment expenses form
- Do you require the employee to travel away from the place of employment to do work?
- Are you paying commissions to your employees or consultants?
- Do you know the limitations of employment expenses on commissions?
- How are you calculating your apprentices expenses?
- Are you keeping a logbook of vehicle or equipment usage, in order to determine allowable expenses?
- Did employees apply for employment insurance, or regular or sickness benefits related to the pandemic?
Filing Information Returns
The following must be filed by Feb 28 of the following year, so you can hire new employees in running your business.
- Employment Income
- Dividend Income
- Employment Expenses
- Annual Reports
Are you hiring, or are employees leaving your business?
Changes in employees can add to your administration burden. Click on the botton below to set up a free consultation if you plan to hiring new employees, or want to identify the best timing for pay raises and what to do when your employee leaves. You may be able to get wage subsidies or other funding.