Payroll in Canada: A Guide to Paying Remote Employees
Payroll in Canada, like in most countries, is complicated and so if you are a remote-first employer or looking to hire remotely in Canada it's important that you know the ins and outs of the local payroll system.
Payroll in Canada, like in most countries, is cumbersome. If you are a remote-first employer or looking to hire remotely in Canada, you will need to know the ins and outs of the local payroll system.
One of the distinguishing features of Canadian payroll is that income tax and contributions vary from province to province. This can cause your payroll workload to increase exponentially. Bureaucratic tasks like this can seriously distract from high ROI activities, which is why many companies are weary of employing remotely in countries like Canada.
But as difficult as payroll in Canada is, it definitely shouldn’t stop you from pursuing your path to remote employment. Here we breakdown the tedious but significant details of Canadian payroll and how Omnipresent can help you pay your remote staff efficiently.
Open a Payroll Program Account
All employers in Canada need to open one payroll program account in order to pay all their employees compliantly.
A 15-digit account number is assigned. This is the form of identification used when dealing with the Canadian Revenue Agency. The account number consists of:
- A Business Number: 9 digits, used by the federal government to identify your business and all your accounts
- “RP”: a 2-letter code identifying the payroll program
- 4-Digit Reference Number: this identifies each account that a business has
To open a payroll program account, you will need the following information:
- Date employees received their first wages
- Months covered for payroll and employees’ wages
- Type of pay period - this is up to the discretion of the employer and can be weekly, monthly, etc.
- Number of employees
- Payroll service name, if applicable
- Country of parent or affiliate company, if applicable
- Name of franchisor, if applicable
- Country of franchisor’s head office, if applicable
Once this is all ready, you can register via the government site.
Set Up a New Employee
To begin setting up a new employee on your payroll, you will need:
1. your remote employee’s social insurance number and
2. a completed form TD1, filled out by your employee.
The TD1 form records any changes to an employee’s personal tax credits for the year. This needs to be filed within 7 days of any changes. Not doing so will result in fines to be paid by your employee. Moreover, regardless of whether you have an employee’s social insurance number or Form TD1, you will still need to calculate and withhold any applicable payroll deductions at this stage.
Calculate Deductions and Contributions
Calculating deductions and contributions is arguably the most daunting part of Canadian payroll. For each employee, you will need to calculate and withhold:
- Canada Pension Plan contributions
- Employment Insurance contributions
- Income Tax
These will be calculated according to their salary as well as which province or territory in Canada they are located in. To make matters more complicated, Quebec has an entirely separate pension scheme - the Quebec Pension Plan. You can use this calculator to calculate employee contributions across Canada, or use the version for Quebec.
Income tax is also calculated according to the province or territory where your employee is based. You will need to consult the relevant payroll deductions table to determine the amount of income tax owed.
In addition to deducting the employee’s own contributions from their pay, you will also have to calculate your share. These need to be held in a separate account from your ordinary business account for the Receiver General.
Pay Deductions and Contributions
As the employer, you will withhold the deductions mentioned above from your employees’ salaries and pay these accordingly to the Canadian Revenue Agency.
When you have to pay these will depend on your payroll cycle. The payroll cycle is determined according to an employer’s remitter type. This is based on your Average Monthly Withholding Amount (AMWA) over the last two years. Your AMWA is calculated as follows: the total of all Canada Pension Plan, Employment Insurance, and income tax / number of months paid in a year. The Canadian Revenue Agency will check your remitter status each year and inform you of any changes. This will determine when you have to pay all deductions and contributions.
To make the payment (also called remittance), you will need:
- Your payroll program account number
- The paydays you are remitting for
- Your remitting period and date
- Your gross payroll within this period
- The number of employees you paid on the last payday
- Your remitter type and remitter frequency
- Your due date
Depending on whether you are paying income tax, contributions or deductions, you will have different payment options. Needless to say, the system is complex and gruelling when you have to navigate it regularly.
Send your Payroll Information Returns
At the end of each calendar year, you will have to file your payroll information returns. These declare all the payments (deductions, contributions, income tax, salary, taxable allowances) paid for your employees that year. You will need to fill out T4 slips, which are due on the last day of February of the following calendar year.
Omnipresent: Payroll Made Simple
The moral of the story is that no matter how simple federal governments want payroll to be, it is always a massive bureaucratic hurdle. Canada is no exception. If you are going to employ remotely and across the world, you will need to be smart about it.
Fortunately, Omnipresent has everything you need for compliant and efficient payroll. As a global Employer of Record (EoR), we specialise in tackling all the logistical obstacles to remote employment. Our experienced team can handle all the menial tasks of payroll, including opening a payroll program account, making payments, and helping you file T4 slips. This means you can focus on growing your remote team and other high ROI activities.
No matter where in the world your company is based, whether you have 5 remote employees or 500, we can help you develop the best payroll solution for each and every one of your remote staff. Get in touch to find out how we can help.