Our Program Manager, Cheryl Miki, details the process of payroll deductions in their second post in a three-part series exploring the hiring of new staff . For part 1, click here How do you Pay Them?
Hiring New Staff Part 2:About Payroll Deductions
Be aware that you need to remit the CPP, EI and taxes you deducted from your employee’s paycheques PLUS an equal amount of CPP, PLUS 1.4 times the EI. Let’s make that a bit clearer. Both the employee and the employer contribute to CPP and EI. For example, if the employee deductions are $1 CPP, $1 EI and $1 taxes, the employer sends the following to the government:
$1 CPP (employee’s portion deducted off their cheque)
$1 EI (employee’s portion deducted off their cheque)
$1 taxes (employee’s portion deducted off their cheque)
$1 CPP (employer’s portion)
$1.40 EI (employer’s portion)
Total: $5.40 to remit to the government.
Remittances are due by the 15th of the month following the month the employee was paid. So, if they were paid September 15th and 30th, the remittances for the month of September are due by October 15th.
But how do you calculate just how much CPP, EI and taxes to deduct?
Let me introduce you to the CRA’s handy payroll deductions calculator. https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/payroll-deductions-online-calculator.html
This website will calculate your deductions and tell you how much to remit to the government. Here’s how to fill it in:
Page 1: Asks you what kind of pay this is. Select “Salary”
Page 2: Asks you to identify when and where the employee is paid. Input the province where the employee worked, how often they are paid (eg. Bi-weekly or bi-monthly) and the date of the paycheque.
Page 3: Asks you to input their earnings. Put in their gross pay and their vacation pay (usually 4% of their gross). This page also has a section to add any other taxable benefits the employee might be receiving. Check off any that apply. What is a taxable benefit? Basically it means other benefits, like a cell phone allowance or a parking spot that count as part of the employee’s income.
For a complete listing of taxable benefits, see the CRA website here: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4130/employers-guide-taxable-benefits-allowances.html#P1334_178946
Page 4: This is where you put in the information from the employees TD1 form that you had your new hire complete on their first day of work. The website defaults to the basic personal deductions that everyone is allowed. But if the completed TD1 form includes other deduction amounts, then select the appropriate deduction amount from the drop down menu.
There is also an area where extra tax may be deducted if the employee wishes. That info is also found on the TD1 form.
Next up are the CPP and EI sections. For a full list of insurable earnings, see the CRA website: https://www.canada.ca/en/services/benefits/ei/earnings-chart.html. Enter the pensionable earnings year to date (this is a fancy way of saying their gross earnings so far this calendar year). You get this from your handy payroll-tracking sheet. Then enter how much CPP you’ve already deducted from their pay so far this year. If this is your first pay period for your new hire, leave them both blank.
Now do the same for EI. Enter the insurable earnings year to date (eg. total gross payroll for the year so far) and the amount of EI you’ve already deducted. Again, if this is your first pay period for your new hire, leave them both blank.
The result shows you the gross pay (pay plus vacation pay), the taxes, CPP and EI to deduct from their pay, and the net pay due to the employee. If you hit the “Combined Result” button at the bottom of the page, you will see the above information, PLUS the amount that you, the employer, have to remit as well.
I will return next week with Hiring New Staff Part 3: Budgeting for your New Hire.