- Payroll processors play a crucial role in businesses as they are responsible for ensuring that your company makes accurate payments to employees while complying with laws and regulations.
- The biggest advantage that an EOR has when it comes to offering Payroll Processing services in Canada is that its company must have subsidiaries in the country to have employees in Canada. The EOR oversees hiring, payroll payments, and compliance with regulations.
- Canadian Payroll Services provides employer-of-record services, hands-on HR support, and compliance contractor payroll to businesses worldwide so they can work with the best Canadian talent. Get in touch today!
Hiring employees in a new country can be complex and daunting. Each jurisdiction has its own tax and payroll rules, which can often be intricate and challenging to navigate, especially for companies operating in multiple countries. Learning a whole new set of laws and regulations and understanding different employee payroll expectations is essential for payroll processing in Canada.
To avoid potential fines and legal consequences, international companies often outsource payroll to other global payroll providers to assist them with this process. To find a partner that truly meets your needs, it is important to understand the differences between payroll services and an EOR (Employer of Record Services) and know what to look for in a payroll partner. In this blog, we will explore payroll processing companies in Canada from a global business perspective, outlining the differences between payroll and EOR, and highlighting what you need to consider when choosing a payroll partner.
What is Payroll Processing?
Payroll processing is a comprehensive financial task that involves calculating and disbursing employee salaries within an organization.
This process encompasses several elements, including tracking work hours, applying relevant tax deductions, accounting for profits, and ensuring compliance with legal regulations. It also involves collecting data related to employee compensation, such as bonuses, overtime, and other allowances.
Payroll processors play a crucial role in ensuring accurate and timely employee payments while managing payroll taxes and deductions. They are directly responsible for compliance with laws, safeguarding the company from lawsuits, and addressing legal issues.
Payroll can be processed internally or through a third-party provider, such as Canadian Payroll Services.
If your company chooses to manage processes internally, it must ensure that employees are paid accurately and promptly, and that all necessary remittances and tax receipts are properly submitted.
Accurate records of hours worked, wages paid, and worker classifications, among other details, must be maintained. Calculations must be correct, and precise records of payments should be kept producing year-end tax documents and Records of Employment (ROE) for submission to the Canada Revenue Agency (CRA).
It’s crucial to have someone you trust managing this entire process. Keep in mind that handling your company’s payroll is a vital accounting process that requires serious consideration and may be overseen by a trained individual, such as the company’s CFO or a part-time accountant.
Third-Party Payroll Processing
On the other hand, outsourcing payroll processing services is a viable option. Numerous payroll service companies operate in Canada, with entities like Canadian Payroll Services providing this service to international companies looking to hire Canadian employees without dealing with the complexities of learning a new country’s rules or obtaining legal representation.
While some companies specialize solely in payroll services, others offer more comprehensive solutions, like EORs that extend their services to the HR realm, including assistance with hiring and employee benefits. As mentioned earlier, it’s crucial to note that many payroll companies cater only to companies registered in the country. Therefore, exercising caution when selecting your partner is essential to ensure they can provide the specific services your company needs.
Payroll Regulations in Canada
Every country has an entity that regulates many aspects of payroll processing. In the case of Canada, they are the CRA, Revenu Quebec (RQ), and Employment and Social Development Canada (ESDC). Likewise, there are labor standards defined by each province or federal labor standards for federally regulated industries.
Some of the laws you must comply with are:
Provincial or Federal Labour Standards Acts
In Canada, some industries are regulated under the Canadian Federal Labour Standards, while most employers are subject to the specific provincial employment standards laws of each province in which they operate.
These federal and provincial labor standards stipulate minimum hourly pay rates, overtime rates, the applicable hours for these rates, holiday pay rates, and eligibility for holiday pay. Therefore, it’s crucial to have an accurate means of tracking time and attendance to apply overtime wages in accordance with the laws of the Canadian jurisdictions in which the company operates.
In addition, these federal and provincial employment rules specify the records employers must maintain and for how long, the duration of vacation weeks, the information required on employees’ pay statements, and regulations regarding unpaid leave, bereavement leave, illness, etc.
Federal Employment Insurance (EI)
While not applicable to all cases, EI requires deducting a portion of each employee’s wages (including most types of income and some taxable benefits) to fund Employment Insurance benefits.
EI deductions must be made each pay period. In 2024, the rate is $1.66 per $100 for employees outside Quebec and $1.32 per $100 for those in Quebec. Employers must also remit an employer contribution, up to $2.32 in 2024, depending on the employer’s location or EI premium rate.
Canada Pension Plan and Quebec Pension Plan (CPP and QPP)
Employees begin having CPP (for non-Quebec employees) or QPP (for Quebec employees) deducted from their pay on the first pay date of the month following their 18th birthday. The maximum subject wages are $68,500—increased from $66,600 in 2024 for all of Canada.
There is a $3,500.00 annual exemption amount converted to its per-pay equivalent when calculating CPP/QPP on a given pay. Subject wages include most types of earnings and most taxable benefits; some taxable benefits deemed subject to QPP in Quebec may not be considered subject to CPP federally. QPP deductions continue for Quebec employees until retirement. For non-Quebec employees, CPP deductions continue until the first pay of the month following their seventieth birthday or until the month following the employee’s sixty-fifth birthday if they opted to start collecting CPP before turning seventy. Employers also contribute to CPP and QPP as a dollar-for-dollar match of their employees’ contributions.
Canada Pension Plan and Quebec Pension Plan (CPP and QPP)
In addition to federal regulations, compliance with provincial payroll processing laws is essential. Each province has its own set of rules regarding minimum wage, overtime, additional remittances, record-keeping, and payday schedules. The stringency of these laws can vary between provinces. If your business operates across provinces, ensuring compliance with payroll regulations becomes even more challenging.
To stay compliant, assign an executive or someone from the legal department to compile all applicable labor laws. Regularly review this list, at least once a month, to adapt your operations accordingly and avoid penalties. Keep track of any changes to existing laws and document any proposed new laws.
How to Do Payroll in Canada 101
We have already seen that many laws in Canada regulate payroll processes at both the provincial and federal levels. This makes the payroll process very delicate, so we will review it here.
1. Open or Manage a Payroll Account
To open and manage a payroll account in Canada, follow these steps for regulatory compliance. Begin by registering with the Canada Revenue Agency (CRA) to obtain a business number online or by completing Form RC1, Business Number Registration.
Upon registration, receive program accounts, including one for payroll deductions. After obtaining the business number, set up the payroll system, which involves collecting essential employee information, determining the payroll schedule, and calculating deductions accurately. Ensure timely submission of deducted taxes and contributions to the CRA, following the prescribed frequency based on the total withholding amount. Maintain meticulous records of payroll transactions for compliance, as the CRA may conduct audits. Stay informed about updates or changes to tax laws and payroll regulations, seeking professional advice or using payroll software for accuracy.
2. Set Up and Manage Employee Payroll Information
Setting up and managing employee payroll information in line with Canadian laws requires a systematic approach for accuracy and transparency. Gather comprehensive employee details, including Social Insurance Numbers (SIN), employment contracts, and relevant tax forms.
This information forms the basis for calculating gross pay, accounting for hourly wages, salaries, overtime, bonuses, and other allowances. Deductions, including income taxes, Canada Pension Plan (CPP), and Employment Insurance (EI) contributions, must be accurately calculated based on prescribed rates and guidelines from the CRA.
Mandated by Canadian law, issue detailed employee pays statements reflecting gross pay, deductions, and net pay. Maintain meticulous records of employee payroll transactions for at least six years for compliance with CRA regulations.
3. Calculate Payroll Deductions and Contributions
Calculate deductions following guidelines provided by the CRA for income taxes, Canada Pension Plan (CPP), and Employment Insurance (EI) contributions. Income tax deductions depend on federal and provincial tax rates, varying based on income and province of residence.
CPP contributions, a percentage of pensionable earnings subject to an annual limit, and EI contributions based on insurable earnings with a yearly limit, require regular updates to ensure precise calculations, avoiding penalties and maintaining compliance with Canadian tax laws.
4. Remit (Pay) Payroll Deductions and Contributions
Remitting payroll deductions and contributions in Canada involves timely and accurate payments to the CRA. Employers are responsible for remitting deducted amounts according to the prescribed schedule, covering income taxes, CPP, and EI contributions.
The remittance frequency depends on the total amount of payroll deductions and contributions within a specific period. Vigilance about deadlines is crucial to avoid penalties and maintain compliance with Canadian tax laws. The CRA provides various remittance methods, including online options.
Keep accurate records of remittances to prevent discrepancies leading to audits or penalties. Prioritize timely and accurate remittance to contribute to the financial stability of government programs and fulfill legal obligations in Canada.
5. File Payroll Information Returns (Slips and Summaries)
Filing payroll information returns, including slips and summaries, is crucial for employer reporting in Canada. Provide T4 slips for employees and T4A slips for other income to individuals and the CRA at the end of each tax year.
The T4 slip outlines details such as employment income, deductions, and contributions, while the T4A slip covers various types of income like pensions and self-employment income. Ensure the accuracy of information in these slips and submit them to the CRA by the specified deadline, typically the end of February. File these slips electronically through the CRA’s online services or compatible software. Retain copies for at least six years for audits or inquiries. Compliance with filing requirements is essential for transparency, meeting legal obligations, and avoiding penalties.
What You Need to Know About Payroll Companies in Canada
Now that you understand the complexities of payroll processes in Canada, let’s explore the companies that can assist you in making this process easier.
In Canada, payroll companies specialize in various aspects of payroll processing, handling salary calculations, tax deductions, and ensuring compliance with Canadian tax laws discussed in previous sections. Outsourcing payroll services offers a key advantage, bringing expertise to fully comply with federal and provincial regulations, helping businesses stay informed about tax rates, deductions, and reporting requirements.
Different entities, such as payroll companies, can provide these services, specializing either in all regulations or as EORs. However, many Canadian companies exclusively serve businesses registered in the country and not international companies looking to hire Canadian talent. Understanding the difference between a payroll company and an EOR can help you choose the right solution for your needs.
The Difference Between EOR And Payroll Companies
Many international companies require more than a payroll processor; they need an EOR. Employer of Record solutions are international payroll processing companies providing payroll, human resources, and employment outsourcing services to global companies, enabling them to hire workers without opening a local subsidiary.
EORs become the legal employers of your team while you manage their daily activities. Other differences include:
Payroll processing companies offer cost-effective services, focusing solely on payroll. EORs, with more complex services, tend to cost more. However, a direct cost comparison overlooks the savings EORs offer in avoiding the substantial time and cost investment required to register a subsidiary and establish local payroll.
While payroll processing companies focus solely on payroll outsourcing, EORs offer the same service along with the ability to hire Canadian employees internationally without a local subsidiary. EORs create compliant contracts, handle payroll, and provide ongoing human resources support, including advice on discipline, termination, and workforce expansion.
Remitting Taxes and Worker’s Compensation
Payroll providers ensure correct tax processing, but you, as the client, must register your business and pay taxes in your name. In contrast, EORs collect and remit taxes and premiums using their accounts, handling all aspects of payroll compliance without a local subsidiary.
Who is the Employer?
Payroll companies process payroll without employer obligations. With EORs, they become the employer of record for your team, signing them onto their payroll while you remain the true employer, directing their day-to-day activities. From the worker’s perspective, the EOR offers outsourced payroll and HR support without influencing their daily operations.
Work With An EOR Like Canadian Payroll Services
Payroll companies in Canada are an excellent option for businesses looking to outsource their payroll. However, for global companies that want to hire in Canada, EORs are the right choice.
At Canadian Payroll Services we offer employer-of-record services and compliant contractor payroll to businesses worldwide. But more than that, we provide hands-on HR support that payroll companies can’t match. Our team of certified payroll administrators and HR account managers keep you compliant and stay on top of changes in Canadian payroll and tax laws so that you don’t have to.
Want to learn more about how we can help with your Canadian payroll? Get in touch today!