4
Test to see if a person is employed or subcontracted as observed by CRA:
1. Control
2. Ownership
3. Opportunity for Profit or Loss
4. Integration, Acting Behavior in work place
Jurisdiction of the Company
·
Federal: Canada Labor code
·
Provincial or Territorial: Employment or labor standard 90% follows
HRSDC: Human Resources and skills Development Canada
Renamed as “Department of Employment and
Social Development Canada” (ESDC)
Ontario Standard Hours 44
Federal Standard Hour 40
Overtime Pay = 1.5
Monday Tuesday
Wednesday Thursday Friday Standard Overtime
9 9 9 9 9 44 1
10 9 5 8 10 42 0
Hours of Work
Standard 8
hrs. / day 40 hours a week
Maximum 8
hrs. / day 48 hours a week
Rest Periods
·
Minimum of 11 consecutive hours
off work each day
·
24 consecutive hours a day off
each week or 48 hours in 2 work weeks
·
8 hours off work between shifts
·
A 30 min eating period after no
more than 5 hours of work. Does not have
to be paid. Arrangement can be made to
split into 2 breaks
Over time: O/T: Premium Rate = time and half = 1.5
Leaves with pay: At least 50 employees
Minimum Wage:
General Minimum Wage = Regular employee
rate
Student: under age of 18 while still in
school
Liquor Servers: Serve liquor directly to
customers in licensed premises like bartender
Hunting and Fishing: Based on blocks of
time instead of hours (Diff. rates for less or more than 5 hrs.)
Home workers: Work from home such as
answering calls for companies
Students of any age get this if working
from home
Deductions:
1. Statutory Deductions: CPP, EI, Income Tax Federal and Provincial
2. Garnishments: Court Orders
like child support
3. Amount defined under collective Bargaining
agreement such as union dues
4. A recovery of previously overpaid wage or salary
5. Specific amounts authorized by employee in writing such as
charitable contributions.
Statutory Holidays:
1. Entitled for work off and paid at regular rate.
2. If employee works on a holiday; he will receive normal rate Plus a
premium equal to 1.5 times
All employees who have completed 30 days of employment
prior to the holiday are entitled to be paid on holiday without working.
There are 9 Public holidays.
New Year’s Day January 1
Family Day 3rd Monday
in February
Good Friday Friday before Easter
Sunday
Victoria Day Monday in May prior to
May 25
Canada Day July 1st
Labor Day 1st
Monday in September
Thanksgiving Day 2nd Monday in October
Christmas Day December 25
Boxing Day December 26
Vacation Pay
Vacation pay may
be paid each pay cycle or when employee takes vacation time off.
It is 4% and
equals to 2 weeks per year of regular gross earnings for 5 years which.
It is 6% and
equals 3 weeks per year for employee worked 6 or more years.
Under Ontario
Employment Standard Act:
·
“A year
employment”: Anniversary date for employee unless a year was already defined
·
If
employed or terminated part way through year, then we have to prorate it
·
If
statutory h falls between vacations, then employee gets an extra vacation day
for the holiday.
·
Employee
can forgo vacation time, but the earned vacation pay must be paid. agreement is
required
Pay Cycle: Defined Pay Period when employee get paid
Weekly 52
Bi weekly 26
Semi-monthly 24
Monthly 12
Wages: Rate per hour
Overtime
Shift premium
Statutory holiday pay
Performance bonuses
Salary: Fixed amount per pay period:
Allowances:
·
A type of reimbursement to an
employee which is paid in addition to regular payroll
·
It does not require a
supporting documentation.
·
This is usually paid through
payroll.
·
This is usually a standard
amount
·
This can be taxable or not
taxable
Reimbursements:
·
A situation when an employee
personally pays on behalf of the employer
·
It is paid back by employer at
a subsequent date, usually after submitting proofsuch as receipts.
Scenario:
4333.33 per
month (biweekly pay cycle) x 12 then divided it to 26 = 2000
Benefits: Taxable benefit is a term, used to define the payment
made by an employer that is for the personal benefit of the employee.
·
These may be paid to the
employee through payroll or accounts payable and would be referred to as “cash”
taxable benefits.
·
If the payment is made to a
third party such as insurance company then they would be termed “non cash”
taxable benefits since employee did not receive a cash payment directly from
the employer.
·
We have to make a distinction
whether expenditure primarily benefits the employee or employer. If its employer benefit then not
taxable. Tuition is an example where an
employee may take a course directly related to their job as directed by the
supervisor. If employee subsequently
receives reimbursement then this would not be considered a taxable
benefit. However, if an employee takes a
general interest college course without direct job relevance and is reimbursed
then that would be considered as a taxable benefit.
Common taxable benefits:
·
Employee use of employer
provided vehicle for personal use
·
Rent free housing
·
Employer contributions to a
RRSP (Registered Retirement Saving Plan)
·
Parking fees paid by employer
but employee does not required vehicle’s use in job
Example:
Weekly pay cycle
50 hrs. all midnight
$ 10 per hour
O/T for over 40 hours
Midnight shift pays premium of 50 cents
per hour
4% vacation paid each pay
Uniform allowance $100 paid this pay
Calculate gross earnings
Regular Earnings: 40 x 10 =
$400
O/T hours 10 x 10 x 1.5 =
150
Shift Premium 50 x .50 =
25
Uniform allowance $100 =
100
Vacation 4% (400+150+25) = 23
Total Earnings = $698
CPP (Canada Pension Plan):
·
All employees between the age
to 18 and 70, except those employed in Quebec, must contribute to Canada
Pension Plan.
·
These mandatory plans give disability, retirement,
and deathbenefits to qualifying
Canadians.
·
In the event that a contributor
dies before being entitled to pension benefit then a survivor benefit can be
claimed by surviving spouse and dependent children.
·
A one-time payment of death
benefit may also be claimed.
·
You start taking CPP after the
age of 67 or a reduced CPP Pension at the age of 60 which is permanent.
·
When you retire and you get it,
it is taxable.
3-Things
to consider before deducting CPP from Employee
1. Age = 18 – 70?
2. If already receiving CPP, then no deduction
3. What will pensionable earnings before the pay cycle?
Pensionable
Earnings:
Pensionable
earnings are generally same as gross pay
Less: Non-taxable allowances, such as
safety shoes allowance.
It is considered non-taxable, only if it is strictly for health and
safety.
An allowance
paid to employee for clothing to be work on the job would be considered taxable
and pensionable.
Less: Earnings related to termination
such as severance pay or retiring allowances
Plus: Non-Cash taxable benefits included
in taxable income but not paid to employee.
Such amounts are:
·
Calculated automobile benefit
·
Premiums for group life
insurance
·
Benefit from low interest or
interest free loans
·
Employer contribution to a
group registered retirement plan
·
Board and lodging
·
Subsidized meals
= Pensionable earnings
Less: Pay cycle exemption: CPP Basic exemption for a year = $3,500
So we prorate it to pay cycle
= Contributory earnings
X CPP contribution rate
(4.94%)
= Employee’s CPP Contribution Employer will
match the same CPP contribution
Example of CPP:
Weekly pay
cycle – worked 50 hrs.
Rate = $ 10 /
hr.
O/T over 44
per week
Shift premium
50 c per hour
Vacation 4 %
paid later
Safety shoes
$100
Tuition
reimbursement interest course: $200
Calculate gross earnings
Regular Earnings: 44 x 10 =
$440
O/T hours 6 x 10 x 1.5 =
90
Shift Premium 50 x .50 =
25
Safety Shoes $100 =
100
Vacation 4% (440+90+25+90) pay later = 0
Tuition =
200
Total Earnings = $855
Less: Non-taxable allowances, such as
safety shoes allowance. -100
It is considered non-taxable, only if it is strictly for health and
safety. =755
An allowance
paid to employee for clothing to be work on the job.
It would be
considered taxable and pensionable.
Less: Earnings related to termination
such as severance pay or retiring allowances
Plus: Non-Cash taxable benefits included
in taxable income but not paid to employee.
Such amounts are:
·
Calculated automobile benefit
·
Premiums for group life
insurance
·
Benefit from low interest or
interest free loans
·
Employer contribution to a
group registered retirement plan
·
Board and lodging
·
Subsidized meals
= Pensionable earnings
Less: Pay cycle exemption: CPP Basic exemption for a year = $3,500/52 -67.31
So we prorate it to pay cycle
= Contributory earnings = 687.69
X CPP contribution rate
(4.94%) x 4.95
= Employee’s CPP Contribution = 34.04
Employment Insurance (EI)
The Employment Insurance Act requires
all Canadian workers, who are not self-employed, to pay employment insurance
(EI) premiums.
EI is designated to give income
protection in the form of payments representing a portion of one’s earnings for
a limited period of time to employees who are:
1. temporarily laid off
2. on parental leave
3. Lose their jobs.
There is no basic yearly exemption and
you pay EI regardless of age.
Insurable Earnings
Gross
earnings (In most cases, this is Insurable Earnings)
Less: non-taxable allowances
Less: Payments related to termination
= Insurable earnings
X EI contribution rate (1.88%
for 2013)
= employee’s EI Premium
Note: Employer will match 1.4 times the
employees
Gross
earnings (In most cases, this is Insurable Earnings) 50,000
Less: non-taxable allowances
Less: Payments related to termination
= Insurable earnings 47,400
x 1.88% = 891.12
X EI contribution rate (1.88%
for 2013) 45000
x 1.88%
= employee’s EI Premium
Pensionable
earnings are generally same as gross pay =855
Less: Non-taxable allowances, such as
safety shoes allowance. -100
It is considered non-taxable, only if it is strictly for health and
safety. =755
An allowance
paid to employee for clothing to be work on the job.
It would be
considered taxable and pensionable.
Less: Earnings related to termination
such as severance pay or retiring allowances
Plus: Non-Cash taxable benefits included
in taxable income but not paid to employee.
Such amounts are:
·
Calculated automobile benefit
·
Premiums for group life
insurance
·
Benefit from low interest or
interest free loans
·
Employer contribution to a
group registered retirement plan
·
Board and lodging
·
Subsidized meals
= Pensionable earnings
Less: Pay cycle exemption: CPP Basic exemption for a year = $3,500/52 -67.31
So we prorate it to pay cycle
= Contributory earnings = 687.69
X CPP contribution rate
(4.94%) x 4.95
= Employee’s CPP Contribution = 34.04
Gross
earnings (In most cases, this is Insurable Earnings) = 855
Less: non-taxable allowances - 100
Less: Payments related to termination = 755
= Insurable earnings EI contribution
rate (1.88% for 2013) =
755 x 1.88%
= employee’s EI Premium =14.19
Income Taxes
Under the Income Tax Act, employers are
required to withhold income tax for employees as pay period. The amount to withhold is determined by 3
variables:
1. Province of employment since each province has different taxation
rated
2. Claim for personal credits claimed on a personal tax credits return
(known as TD 1 form) personal credits are amounts deducted from an individual’s
income tax and determine the amount of taxes to be withheld.
3. Certain specific deductions allowed for tax purposes:
Contributions
to a (company group) Registered Pension Plan (RPP)
Contributions
to Registered Retirement Saving Plan (RRSP)(optional to employee)
Employer
Contributions to the Employees RRSP (optional)
Union Dues
Other amounts
approved by CRA such as alimony or maintenance payments by court order
Net Taxable Income
Gross – non-Taxable
allowances + taxable benefits 755
Gross Taxable
Income (usually are as pensionable Earnings) 0
Less: Contributions
to a RPP 0
LESS EMPLOYER
CONTRIBUTION TO A RRSP 0
Less Union
Dues 0
Less Other
CRA APPROVED 0
= NET
TAXABLE INCOME 755
Federal claim 91.75
Provincial
claim
Example:
Biweekly pay cycle
Salary $39,000
Vacation pay paid later
Course tuition of job training $300
O/Thrs.Worked = 5 hrs.
Solution:
Regular 39000/26 = 1500
O/t 5 x 18.75 (1500/80) = 140.63
Course = 300
Gross = 1940.63
CPP
Gross = 1940.63
Less: Non-taxable = 300
Plus: Taxable = 0
= Pensionable
Earnings = 1640.63
CPP Exemption = 134.62
CPP Rate = 1506.01
CPP deduction = X 4.95%
= 74.55
EI
Gross = 1940.63
Less Tuition = 300
= 1640.63
EI DEDUCTION (1.88%) = 30.84
Income tax
Gross taxable 1640.63
Less union, etc… 0
=Net taxable 1640.63
Federal claim code: 1
Provincial Claim Code: 1
Non statutory Deductions
Court Orders (Garnishees): When an individual in Canada fails to pay an
obligation to another party, then, that party can file a claim with the
courts. If the court finds in favor with
the claimant and the individual does not immediately make payments the court
can issue a garnishment order for individual’s employer to withhold a portion
of the earnings to be paid to the court office.
The court office will then forward the funds to the plaintiff.
The situation is often expressed by
saying that wages have been garnished.
Employer has no options but the follow the instructions of the order
even if employee disagrees. The amount
to be deducted is calculated on
Gross earnings less statutory deductions
Max limit for family support is 50%,
All other orders limited to 20%
Non-Statutory Deductions:
Employer Compulsory:
An employers may have some deductions
that are considered necessary as part of the contract of employment such as
Union , Premiums for group insurance benefits, loan payments where employer has
provided a loan, social fund for employee, and etc.
Employer Optional (voluntary):
Although not required, an employer may
permit any other voluntary withholdings from employee’s earnings. The employee should acknowledge in writing
permission for the deductions such as charitable contributions to United Way or
Bonds or Parking fees.
Garnishee Example:
Biweekly
Monthly
salary = $3,333.33 X 12=40,000
O/T over 40
hrs.
Vacation 4%
paid later
Federal and
Provincial Tax code is 2
Family court
issue order for 50% wages
Calculate
garnishee amount:
Solution
Regular
(40000/26) 1538.46
O/T (10 x 19.23 x 1.5) 288.45
Gross Earning 1826.91
CPP
Gross 1826.91
Less:
Non-taxable allow 000000
Pensionable
earning 1826.91
CPP exemption
3500/26 134.61
Contributory
earnings 1692.3
CPP deduction
(4.95% 1692.3) 83.77
EI
Gross 1826.91
Less:
Non-taxable allow 0000
Insurable
earning 1826.91
EI deduction
(1.88% 1826.91) 34.35
Tax
Pensionable
Earning 1826.91
Less: Union 00000
=net taxable
Earnings 1826.91
Federal Tax
Code 2
Provincial
Tax Code 2
Garnishee
Deduction
Gross: 1826.91
Less: CPP -83.77
Less: EI -34.35
Less: Federal
Tax -187.5
Less: Provincial
Tax -94.8
Net Pay
before Garnishment 1426.49
Less: 50%
Garnishment 713.25
Net Pay 713.24
Pay Cycle Summary Steps (13 Steps)
1. Gather all information for payroll processing
·
Static information for employee
·
Pay cycle specific data for
employee
2. Calculate taxable benefits amounts needed for calculation of
pensionable and taxable income
3. Calculate Gross Earnings
·
Wages/Salaries,
·
Add Taxable Allowances
·
Add Non-taxable Allowances
4. Calculate Pensionable Earnings
·
Gross Earnings
·
Less Non Taxable Allowances
·
Less Termination
·
Plus Tax benefits
5. Calculate Insurance Earnings
·
Gross Earnings
·
Less Non Taxable Allowances
·
Less Termination
6. Calculate Canada Pension Plan Contributions
·
Pensionable Earnings
·
Less Pay cycle exemption
·
Multiply 4.95 %
7. Calculate Employment Insurance Premium
·
Insurable Earnings
·
Multiply 1.88%
8. Calculate Gross Taxable Earnings
·
Gross Earnings
·
Less Non Taxable Allowances
·
Add Tax Benefits
9. Calculate Net Taxable Earnings
·
Gross Taxable Earning
·
Less RPP,
·
Less RRSP,
·
Less Union Dues,
·
Less Personal Exemptions For
Living In A Prescribed Zone,
·
Less CRA Approved
10. Calculate Federal Income Tax From Tables Or PDOC (Payroll Deduction
Online Calculator)
11. Calculate Provincial Income Tax From Tables Or PDOC (Payroll
Deduction Online Calculator)
12. Calculate Total Deduction
13. Calculate Net Pay
Employee’s Earnings Record:
A separate record of an employee’s gross pay, payroll deductions, and net
pay for the calendar year is kept for each employee and updated after,
each pay period. It is called the
employee earning record and its accumulative payroll data are used by the
employer to:
1. Determine when an employee has reached the maximum earnings subject
to CPP and EI Premiums
2. File information returns with CRA
3. Give each employee a statement of gross pay and withholdings for the
year (T4)
(Step 1)Payroll Register:
In addition to employee earnings record,
many companies find it useful to prepare payroll register. This record accumulates the gross pay,
deductions, and net pay per employee for each pay period and becomes the
documentation for preparing pay cheques for each employee. First accounting record is done in register.
(Step 2): Journal Entry:
We then prepare journal entries that
record the payroll expenses and liabilities for the employer. From the register, we do this in 2 separate
entries to keep track of the costs for employee and employer.
One Entry for Salaries Expense
Wages
Expenses
|
CPP Payable
|
EI
Payable
|
Income Tax Payable
|
Health Insurance Payable
|
Wages Payable
|
Debit; Salaries Payable Credit, EI Payable,
CPP Payable, Federal Tax Payable, Provincial Tax payable
Second Entry for Contribution of
Employer side
Employee
Benefits Expense
|
CPP Payable 495 X 1
|
EI Payable173 X 1.4
|
1.4 Time of EI Salaries Expense Debit,
CPP Credit EI contributions payable
(Step 3): General Ledger:
The ledger gives the balance in each
account. It also shows increases and
decreases made to each account. We
update and post to the general ledger after entry is made.
Example:
Register shows Gross wages = $ 10,000
for the week ended July 11 Paid on Aug 15
Total Deductions: CPP = $ 495; EI = $ 173,
Income Tax = $ 3,965, Health Insurance = $ 950
Record the Entry.
General Journal
|
|||||
Date
|
Account Titles and Explanation
|
PR
|
Debit
|
Credit
|
|
July
11,
|
1
|
Wages
Expenses
|
$ 10,000
|
||
CPP Payable
|
$ 495
|
||||
EI
Payable
|
173
|
||||
Income Tax Payable
|
3,965
|
||||
Health Insurance Payable
|
950
|
||||
Wages Payable
|
4,417
|
||||
To record the accrue wages
|
|||||
2
|
Employee
Benefits Expense
|
737
|
|||
CPP Payable 495 X 1
|
495
|
||||
EI Payable173 X 1.4
|
242
|
||||
To record Employers Contribution
|
|||||
August
|
15
|
CPP
Payable (495+495)
|
990
|
||
EI Payable (173+242)
|
415
|
||||
Income
Tax Payable
|
3,965
|
||||
Cash
|
5,370
|
||||
To Record CRA Payment
|
|||||
Example2:
Gross Pay = 10,000
CPP = 500:EI = 300
Federal Income Tax= 700; Provincial
Income Tax=300
United Way = 200; Union Dues = 100
Make an Entry to Accrue Expenses and
Liabilities on Sept 1
Make an Entry to Pay Remittances to
Appropriate Parties on Oct 15
Pay the Employees on Oct 20.
General Journal
|
|||||
Date
|
Account Titles and Explanation
|
PR
|
Debit
|
Credit
|
|
Sept
1,
|
1
|
Wages
Expenses
|
$ 10,000
|
||
CPP Payable
|
$ 500
|
||||
EI
Payable
|
300
|
||||
Income Tax Payable (700 + 300)
|
1,000
|
||||
United Way
|
200
|
||||
Union Dues
|
100
|
||||
Wages Payable
|
8,000
|
||||
To record the accrue wages
|
|||||
2
|
CPP
Expense 500 X 1
|
500
|
|||
EI Expense 300 X 1.4
|
420
|
||||
CPP Payable 500 X 1
|
500
|
||||
EI Payable 300 X 1.4
|
420
|
||||
To record Employers Contribution
|
|||||
Oct
15
|
CPP
Payable (500+500)
|
1000
|
|||
EI Payable (300+420)
|
720
|
||||
Income
Tax Payable
|
1000
|
||||
Cash
|
2720
|
||||
To Record CRA Payment
|
|||||
United
Way Payable
|
200
|
||||
Cash
|
200
|
||||
To Record United way Payment
|
|||||
Union
Dues Payable
|
100
|
||||
Cash
|
100
|
||||
To Record Union Dues Payment
|
|||||
Oct
20
|
Salaries
and Wages Payable
|
7900
|
|||
Cash
|
7900
|
||||
To Record Salaries paid
|
|||||
Remittances
The statutory withholdings from employee
and employer needs to be sent to Receiver General. In order to remit, you need to apply for a
business number (BN) and register for a payroll program account number.
Remittance can be made to CRA by:
1. Check mailed or taken to an agency office
2. From your bank
3. Online or telephone banking
4. Third party service provider
Average Monthly Withholding Amount
(AMWA)
AMWA in 2nd preceding year. For example 2010 remittances will be based
on actual 2008 remittances
|
Remitter Type
|
< 3,000
Either 1st or 2nd yr. ago and perfect
compliance history
|
Quarterly
|
< 15,000 or are a new remitter 2
yrs. Ago (2008)
known as “Regular Remitter”
|
Monthly
|
15,000 – 49,999.99
|
Accelerated 1 (Threshold 1)
|
> 50,000
Must pay at a financial institution
|
Accelerated 2 (Threshold 2)
|
Note:
1. If your due-date falls on a Saturday, Sunday or a Public holiday
your remittance will be due on the next business day.
2. To make the current remittance, form PD7A has to be sent along with
the payment
Remitter Type
|
Pay Cycle
|
Due Date
|
Paying
|
Quarterly
|
Jan 1 – Mar 31
|
April 15
|
On or before
|
Apr 1 – June 30
|
July 15
|
On or before
|
|
July 1 – Sept 30
|
Oct 15
|
On or before
|
|
Oct 1 – Dec 31
|
Jan 15
|
On or before
|
|
Monthly
|
1st to End of Month
|
15thof the following
month
|
On or before
|
Accelerated 1
|
1st to 15th of Month
|
25thof the same
month
|
Paid 1 FULL DAY
before due date
If paid on, then
3%
penalty charged
on amount due
|
16th to End of Month
|
10thof the following
month
|
||
Accelerated 2
|
1st to 7th of Month
|
3rdbusiness day following end
of period day
|
|
8th to 14th of Month
|
|||
15th to 21st of Month
|
|||
22nd to End of Month
|
Record of Employment (ROE)
This important document is used to
determine:
1. Whether or not claimant is entitled to receive EI Benefits
2. No. of weeks claimant is entitled for benefits
3. The dollar value of benefits per week that claimant is entitled to
receive
The ROE needs to be issued whenever
there is an “interruption of earnings.”
ROE not needed for employees with no
regular work schedule.
Note:
In most cases you must have worked a
minimum of 420 to 700 insurable hours, depending on where you live in Canada
and employment rate in the economic region.
In some instances, it is 910 insurable hours to qualify.
Interruption of Earnings
Has had 7 consecutive days without work
or insurable earnings.
Has a salary that falls below 60% of
regular insurable earnings.
Layoffs:
Temporary if re-called within 13 weeks
of last re-scheduled work.
Terminated: not called within 13 weeks.
Filing Deadline for ROE
Need to file
within 5 calendar days of:
1. The 1st day of interruption of earnings, or
2. First day employer is aware of interruption of earnings
Completing ROE
Pay period type Block 6
|
Number of consecutive pay period to report for Total Hours
|
Number of consecutive pay period to report for Total Earnings(15B) or (15B) and Detailed
Earning (15C)
|
Weekly
|
Last 53 pay period
(or less if period of employment shorter)
|
Last 27 pay period
(or less if period of employment shorter)
|
Bi-Weekly
|
Last 27 pay period
(or less if period of employment shorter)
|
Last 14 pay period
(or less if period of employment shorter)
|
Semi-Monthly
|
Last 25 pay period
(or less if period of employment shorter)
|
Last 13 pay period
(or less if period of employment shorter)
|
Monthly
|
Last 13 pay period
(or less if period of employment shorter)
|
Last 7 pay period
(or less if period of employment shorter)
|
13 pay periods
|
Last 14 pay period
(or less if period of employment shorter)
|
Last 7 pay period
(or less if period of employment shorter)
|
Summary of Codes
A
|
Shortage of Work
|
H
|
Work Sharing
|
B
|
Strike or Lockout
|
J
|
Apprentice Training
|
C
|
Return to School
|
M
|
Dismissal Fired
|
D
|
Illness or injury
|
N
|
Leave of Absence
|
E
|
Quit
|
P
|
Parental
|
F
|
Pregnancy/Parental
|
K
|
Other
|
G
|
Retirement
|
Z
|
Compassionate Leave (January 2004)
|
T4
This document is required for employees
to prepare and submit their personal income tax return which is generally
required to be submitted by April 30th of the subsequent year. It has to be submitted by February’s last day
for employer to send to CRA.
·
T4 = Employment income, taxable
benefits, and retiring allowances
·
T4A = Other Income CRA approves
such as scholarship, grants, pension Funds
·
T4 Summary = Used to verify
employer has remitted correct funds.
Note: if you have less than 50 employees
you can send it manually, if over 50 it should be electronically
Net Pay Example Comprehensive:
The following information is for an
Ontario employee, Jeanette Duhaney. She
is employed as a Cashier and is paid on a bi-weekly
basis. Jeanette was hire on
January 1, 2007 and during the 2 weeks ended January 23, 2010 she worked 80 hours at regular rate plus 4hours of overtime at time and a half. She is paid 4%
vacation pay with each pay cycle based on earnings, not including
allowances. She is paid $10 each pay for a clothing allowance to
compensate her for wear and cleaning of her clothes. Jeanette’s birth
date is Jan 15, 1987 and her social insurance number is 987-654-321.
She has completed a TD1 form and is claiming the basic exemption for
bother federal and provincial purposes.
Her regular rate of pay is $16 per hour,
and she pays $5 per pay in union dues. She has authorized the employer to deduct $7.5 per pay for the united way. The employer provides group life insurance
for each employee and the premium for Jeanette is
$12 per pay including taxes. Calculate her net pay and make the
appropriate entries to accrue the deductions?
Solution: (13 Steps)
1. Gather all information for payroll processing
·
Static information for employee
Name:
Jeanette Duhaney
S.I.N.
987-654-321
DOB Jan 23,
1987
·
Pay cycle specific data for
employee
Bi-weekly
pay
Regular Rate
$ 16
Over time
1.5 times
Vacation 4%
with pay
Federal
Exemption 1
Ontario
Exemption 1
Clothing
Allowance $10/pay
Union $
5/pay
United Way
$7.5/pay
80
hrs.regular
4
hrs.overtime
2. Calculate taxable benefits amounts needed for calculation of
pensionable and taxable income
$12 group
life insurance
3. Calculate Gross Earnings
·
Wages/Salaries,
Regular 80 x
$16 = 1280
O/T 4 x
$16 x 1.5 = 96
Vacation Pay (1280+96) x
4% = 55.04
Clothing Allowance 10
Gross Pay 1441.04
·
Add Taxable Allowances 0
·
Add Non-taxable Allowances 0
4. Calculate Pensionable Earnings
·
Gross Earnings 1441.04
·
Less Non Taxable Allowances 0
·
Less Termination 0
·
Plus Taxable benefits 12
1453.04
5. Calculate Insurance Earnings
·
Gross Earnings 1441.04
·
Less Non Taxable Allowances 0
·
Less Termination 0
1441.04
6. Calculate Canada Pension Plan Contributions
·
Pensionable Earnings 1453.04
·
Less Pay cycle exemption (3500/26) 134.61
·
Multiply 4.95 % (1453.04-134.61)
1318.43x4.95% 65.26
7. Calculate Employment Insurance Premium
·
Insurable Earnings 1441.04
·
Multiply 1.88% (1441.04 x
1.88%) 27.09
8. Calculate Gross Taxable Earnings
·
Gross Earnings 1441.04
·
Less Non Taxable Allowances 0
·
Add Tax Benefits 12
1453.04
9. Calculate Net Taxable Earnings
·
Gross Taxable Earning 1453.04
·
Less RPP, 0
·
Less RRSP, 0
·
Less Union Dues, 5
·
Less Personal Exemptions For
Living In A Presc. Zone, 0
·
Less CRA Approved 0
1448.04
10. Calculate Federal Income Tax From Tables Or PDOC 170.1
11. Calculate Provincial Income Tax From Tables Or PDOC 82.3
12. Calculate Total Deduction
CPP 65.26
EI 27.09
Fed Tax 170.1
ON Tax 82.3
Union Dues 5
United Way 7.5
Total 357.25
13. Calculate Net Pay
Gross 1441.04
Deduction 357.25
Net
Pay 1083.79
General Journal
|
|||||
Date
|
Account Titles and Explanation
|
PR
|
Debit
|
Credit
|
|
1
|
Wages
Expenses
|
||||
CPP Payable
|
|||||
EI
Payable
|
|||||
Income Tax Payable ( +
)
|
|||||
United Way
|
|||||
Union Dues
|
|||||
Wages Payable
|
|||||
To record the accrue wages
|
|||||
2
|
CPP
Expense X 1
|
||||
EI Expense
X 1.4
|
|||||
CPP Payable X 1
|
|||||
EI Payable X 1.4
|
|||||
To record Employers Contribution
|
|||||
CPP
Payable ( + )
|
|||||
EI Payable (
+ )
|
|||||
Income
Tax Payable
|
|||||
Cash
|
|||||
To Record CRA Payment
|
|||||
United
Way Payable
|
|||||
Cash
|
|||||
To Record United way Payment
|
|||||
Union
Dues Payable
|
|||||
Cash
|
|||||
To Record Union Dues Payment
|
|||||
Salaries
and Wages Payable
|
|||||
Cash
|
|||||
To Record Salaries paid
|
|||||
Comprehensive Net Pay Assignment (30% of Final Grade)
The following information is for an Ontario employee, Cheryl Li. She
works as a manager and is paid on a
bi-weekly basis. Cheryl was hired on January 1, 2006 and her
date of birth is Dec 31, 1987. Her annual salary is $50,000. Although many managers are not paid overtime, she is one of the
lucky ones and her boss has authorized 10 hours of overtime for
this pay cycle which is paid at time
and a half in excess of 44 hours per week. Since Cheryl has been with the company for 6 years, she
is now paid 6% vacation pay with each cycle based on earnings, not including allowances. She will be given a
one-time allowance for work
boots this pay period to be worn for safety $100. She will also be reimbursed for tuition $50 for course not
related to job. Her social insurance number is 527-123-456. When
she was hired, she was given a TD1 form and she
claimed the basic personal exemption and the tuition credit for both federal
and provincial purposes. As a
result of this, her Federal and Provincial Tax claim code
is 2. This information has not changed
since the employee was hired and the claim code remains the same every year.
According to company policy, she must pay $15 in Union Dues per pay
period. The company also provides group
life insurance $15 per pay period which
is paid on behalf of the employees. Cheryl’s
company contributes $40 into the Registered Pension Plan per pay period. Cheryl wishes that she could have her employer take out a
voluntary deduction of $5 to Salvation Army but has not yet written a letter to
the employer for the authorization. The payroll administrator received a court order from Family
Court to deduct 50% of wages per pay and remit to court. Cheryl’s next pay date
is scheduled to be January 23, 2013.
Instructions:
- Calculate Net
Pay according to the 13 steps discussed in class (Use 2013 rates where
required)
- Prepare the
journal entries to pay Cheryl on January 23, 2013.
- Prepare
the journal entry to pay CRA for the necessary statutory deductions. The
company is a Quarterly remitter and the 1st
quarter has finished. The company pays exactly on the due date. (Hint:
Find the date to remit).
It is advisable to also find Net Pay using the Payroll Online Deduction Calculator using the CRA website for practice. Please refer to the CD as handed out where needed to calculate any amounts. Please do not forget to write your name in the assignment! Show all calculations for full marks.
Solution:
1.
Gather all information for
payroll processing
·
Static information for
employee
Name: Cheryl Li
S.I.N. 527-123-456
Hired on January 1, 2006
DOB Dec 31, 1987
·
Pay cycle specific data for employee
Salary $50,000
annual
Bi-weekly pay ($50,000 / 26) = 1923.08
Regular Rate $ (1923.08/88) = $ 21.85
Over time 1.5 times
Vacation
6% with pay
Federal
Exemption 2
Ontario
Exemption 2
Union $
15/pay
44 x 2 =
88 hrs. regular
10 hours
of overtime
Safety
Shoes $100 this time only
Group Life
Insurance $15 pay period
Course not
job related $ 50
Retirement
Pension Plan $40
Court
Order 50% remit to court
2.
Calculate taxable benefits amounts needed for calculation of pensionable
and taxable income
$15 pay
period group life insurance
$50 course
not job related
3.
Calculate Gross Earnings
·
Wages/Salaries, Bi-weekly pay
($50,000/26) = 1923.08
Regular Rate $ (1923.08/88) = $ 21.85
Regular Pay (88 x $21.85) 1,922.80
O/T (10
x $21.85 x 1.5) 327.75
Safety Shoes (this time
only) 100.00
Vacation Pay(1922.8+327.75+100)2,350.55x 6% 141.03
Course (not
job related) 50.00
Gross Earning 2,541.58
·
Add Taxable Allowances 0
·
Add Non-taxable Allowances 0
4.
Calculate Pensionable Earnings
·
Gross Earnings 2,541.58
·
Less Non Taxable Allowances
(Safety Shoes) 100.00
·
Less Termination 0
·
Plus Taxable benefits – group
life Insurance 15.00
·
Plus Taxable benefits – non
job related course 50.00
2,506.58
5.
Calculate Insurance
Earnings
·
Gross Earnings 2,541.58
·
Less Non Taxable Allowances 0
·
Less Termination 0
Insurable
Earnings
2,541.58
6.
Calculate Canada Pension Plan Contributions
·
Pensionable Earnings 2,541.58
·
Less Pay cycle exemption
(3500/26) 134.61
·
Multiply 4.95 % (2,541.58 - 134.61)2,406.97 x 4.95% 119.15
7.
Calculate Employment Insurance Premium
·
Insurable Earnings 2,541.58
·
Multiply 1.88% (2,541.58 x 1.88%) 46.09
8.
Calculate Gross Taxable Earnings
·
Gross Earnings 2,541.58
·
Less Non Taxable Allowances –
Safety Shoes 100.00
·
Add Taxable benefits – group
life Insurance 15.00
·
Add Taxable benefits – non
job related course
50.00
2,506.58
9.
Calculate Net Taxable Earnings
·
Gross Taxable Earning 2,506.58
·
Less RPP, 40.00
·
Less RRSP, 0.00
·
Less Union Dues, 15.00
·
Less Personal Exemptions for
Living In A Pres. Zone, 0.00
·
Less CRA Approved
0.00
2,451.58
10.
Calculate Federal Income Tax
From Tables Or PDOC 2 325.80
11.
Calculate Provincial Income
Tax From Tables Or PDOC 2 157.50
12.
Calculate Total Deduction
Canada Pension Plana
(CPP) 119.15
Employment Insurance
(EI) 46.09
Federal Income Tax Code 2 325.80
Ontario Income Tax Code 2 157.50
Union Dues 15.00
Total:- 663.54
13.
Calculate Net Pay
Gross Earning 2,541.58
Total Deduction: 663.54
Net
Pay before garnishment (Court order):- 1,878.04
Family Court Order
50%
939.02
Net Pay after
Garnishment 939.02
|
General Journal
|
|||||
Date
|
Account Titles and Explanation
|
PR
|
Debit
|
Credit
|
|
Jan.
23
|
1
|
Wages
Expenses
|
2541.58
|
||
CPP Payable
|
119.15
|
||||
EI
Payable
|
46.09
|
||||
Income Tax Payable (325.80 + 157.5 )
|
483.30
|
||||
Union Dues Payable
|
15.00
|
||||
Cash
to Cheryl Li
|
939.02
|
||||
Cash to Court
|
939.02
|
||||
To record the payment wages to Cheryl Li
|
|||||
2
|
Union
Dues Payable
|
15.00
|
|||
Cash
|
15.00
|
||||
To Record Union Dues Payment
|
|||||
3
|
CPP
Expense (119.15 X 1 )
|
119.15
|
|||
EI Expense
(46.09 X 1.4 )
|
64.53
|
||||
CPP Payable ( 119.15 X 1 )
|
119.15
|
||||
EI Payable ( 46.09 X 1.4 )
|
64.53
|
||||
To record Employers Contribution
|
|||||
Apr
15
|
1
|
CPP
Payable ( 119.15 +
119.15 )
|
238.30
|
||
EI Payable (
46.09 + 64.53
)
|
110.62
|
||||
Income
Tax Payable (325.80 + 157.5 )
|
483.30
|
||||
Cash
|
832.22
|
||||
To Record CRA Payment
|
|||||
Union
Dues Payable
|
15.00
|
||||
Cash
|
15.00
|
||||
To Record Union Dues Payment
|
|||||
Primary objective: pay employee accurate
on time
Minimum standard employer must abide by
40 hours 8 hr./ per day
Statutory deduction
EI CPP Tax court 50%
Non statutory charity or Union dues
Gross – statutory deduction = times
court order
Minimum age is 14
Student under 18 still in school
Student home working wage higher than
minimum.
9 Public holidays in Canada
Times plus time and have minimum 30 days
4% for 5 years which is 2 weeks (52
week)
6% for 6 years
Pay cycle
Weekly
Bi-weekly
Semi-monthly
Monthly
Wage
O/T
Shift Pay
Bonus
Allowance
Benefits
CRA - Receiver General Canada
CPP
18-70
Already receiving CPP
4.95
Pensionable earning:
Gross earning
Less non tax able allowances (like
safety shoes)
Less Termination
Less Retirement Allowance
Less Severance Pay
Add Non cash taxable benefit (group life
insurance.
Pensionable earning
Less Pay cycle Exemption 3500/12
Contributory earning
CPP 4.95%
Insurable earning
Gross earning
Less non tax able allowances (like
safety shoes)
Less Termination
Less Retirement Allowance
Less Severance Pay
Insurable Earning
Contributory earning
1.88%
Net Taxable Earning
Calculate Gross
Taxable Earnings
·
Gross Earnings
·
Less Non Taxable Allowances –
Safety Shoes
·
Add Taxable benefits – group
life Insurance
·
Add Taxable benefits – non job
related course
14. Calculate Net Taxable Earnings
·
Gross Taxable Earning
·
Less RPP,
·
Less RRSP,
·
Less Union Dues,
·
Less Personal Exemptions for
Living In A Pres. Zone,
·
Less CRA Approved
Example:
Kumar works for an employer which pays
on a bi-weekly pay cycle and earns the following:-
Salary of 40,000; O/T in excess of 40
hrs.: Vacation 4% pay later; Union $20; Group Life Insurance $10
RPP $50; 10 hrs. O/T; Federal and
Provincial Code is 1; 50% wages for garnishee.
Regular
(40,000/26) 1,538.46
O/T
(1538/80)19.23 X 1.5 X 10 288.46
Gross 1,826.91
CPP EI
Gross 1,826.91 1,826.91
Less:
Non-taxable Allow - -
Less:
Termination - -
Add:
Non-Cash Taxable Benefits 10
Pensionable/Insurable
Earning 1,836.91 1,826.91
Less: Pay
cycle Exemption 134.61
Contributory
Earning 1,702.31 1,826.91
Rate x
4.95% x
1.88%
Deduction: 84.26 34.35
Total
Deduction
CPP 84.26
EI 34.35
Fed.Tax 183.60
Ont.Tax 91.20
Garnishee 716.75
RPP 50.00
Union 20.00
1180.16
Net Pay
Gross 1826.91
Less: Total Deduction 1180.16
Net Pay 646.75
|
Gross
Taxable (Pensionable) 1,836.91
Less: RPP 50
Less:
Union 20
Net
Taxable 1766.91
Garnishee
Gross 1,826.91
Less: CPP 84.26
Less: EI 34.35
Less:
Fed.Tax 183.60
Less:
Ont.Tax 91.20
Net pay
before Garnishment 1433.50
Rate 50% 716.75
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