Payroll & Benefits

Prepared by Maggie Fitzpatrick, CPA, CGA

Topics:
1. Introduction to Payroll in Canada
2. Labour Standards in Canada
3. Gross Earnings
4. Statutory Deductions
5. Non-Statutory Deductions
6. Net Pay
7. Employer Payroll Taxes: Canada Revenue Agency
8. Employer Payroll Taxes: Workers Compensation
9. Employer Payroll Taxes: Health Taxes
10.Accounting for Payroll
11.Termination of Employment
12.Year End Reporting
Module 3

Gross Earnings
Prepared by Maggie Fitzpatrick, CPA, CGA
Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Employment Earnings
• Includes all types of remuneration including:
 Wages
 Salary
 Overtime pay
 Commissions
 Piecework
 Bonuses
 Vacation pay
 Taxable allowances and benefits

LO1
Salary and Wages
• As per employment contract
• Salary may be stated as annual amount
 Must convert to pay cycle amount

• Common pay cycles:

 Weekly
 Bi-weekly
 Semi-monthly
 Monthly

LO1
Overtime in Manitoba
• Standard hours: 8 per day, 40 per week

• Example #1:
Sun Mon Tues Wed Thurs Fri Sat Total
8 8 8 8 8 8 48

Regular: 40 hours Overtime: 8 hours

LO1
Overtime in Manitoba
• Standard hours: 8 per day, 40 per week

• Example #2:
Sun Mon Tues Wed Thurs Fri Sat Total
8 6 6 8 10 38

Regular: 36 hours Overtime: 2 hours

LO1
Overtime in Manitoba
• Standard hours: 8 per day, 40 per week

• Example #3:
Sun Mon Tues Wed Thurs Fri Sat Total
10 6 10 6 10 42

Regular: 36 hours Overtime: 6 hours

LO1
Overtime in Manitoba
• Standard hours: 8 per day, 40 per week

• Example #4:
Sun Mon Tues Wed Thurs Fri Sat Total
7 6 8 7 7 8 43

Regular: 40 hours Overtime: 3 hours

LO1
Overtime in Manitoba
• Salaried employees are also entitled to overtime.
 Convert salary to hourly wage

• Example: An employee earns $480 per week and is expected to

work 40 hours per week. What is the overtime rate?
$480 / 40 hours = $12 per hour regular pay
$12 x 1.5 = $18 per hour of overtime

LO1
Overtime in Manitoba
• Remember: Salaried employees are also entitled to overtime.

• Exceptions:
 Managers that have substantial control over their hours AND earn at
least 2x the Manitoba Industrial Average Wage
(Earn more than $103,224.16 as of June 1, 2021)

 Election officials, enumerators and other temporary workers appointed

under The Elections Act

LO1
Vacation pay
• Calculated each pay cycle and either:
 Paid each pay cycle, or
 Accrued (paid at a later date)

Vacation time Calculation

2 weeks 4% of gross earnings
3 weeks 6% of gross earnings

• 2% for each additional week

• Included in gross earnings when it is paid to the employee.
LO1
Vacation pay
• Example: An employee is entitled to two weeks vacation and
earns $2,000 this pay cycle. How much is vacation pay?
$2,000 x 4% = $80

• $80 will either be paid this pay cycle (included in gross earnings)
OR
• $80 will be accrued (and later paid when the employee takes
vacation time)

LO1
Module 3
LO1 Identify the sources of employment earnings.
• Employment earnings
• Salary & wages
• Overtime in Manitoba
• Vacation Pay
To do:
• Read (in Learn):
 LO1, LO1.1, LO1.2

• Complete:
 Exercises 3-1, 3-2, 3-3, 3-4
Module 3

Gross Earnings
Prepared by Maggie Fitzpatrick, CPA, CGA
Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Earnings, allowances, benefits
• Earnings: remuneration such as salary/wages (regular &
overtime), vacation pay, general holiday pay, bonuses,
commissions, etc.

• Other amounts pay also be paid to employees

 Allowances
 Expense Reimbursement

• Taxable Benefits: ”Extras” received by the employee

LO2
Expense Reimbursements
• An employee pays for an expense on behalf of the company and the
employer pays them back.

• Examples:
 Office supplies
 Travel expenses
 Entertainment

• Employee provides receipt or documentation and company pays them

back through Accounts Payable
• Expense reimbursement are not taxable
LO2
Allowances
• Amount paid to employee to help the employee pay for certain
expenses.
Examples:
• Car allowance
 An employee uses a personal vehicle for work.
 Employer may pay an allowance based on km driven.

• Meal allowance
 Employer may pay an allowance based on type and number of meals
per day.
LO2
Allowances
• Paid “in cash”
• May be taxable or non-taxable.

 Allowances paid for the benefit of the employee are generally taxable.
 i.e. Clothing allowance to purchase business attire
 “Cash Taxable Benefit”

 Allowances paid for the benefit of the employer are generally non-
taxable.
 i.e. Safety shoe or safety glasses allowance
 “Cash non-taxable allowance”
LO2
Taxable Benefits
• “Taxable” as it is for the employee’s personal use

• Cash taxable benefits vs. non-cash taxable benefits

• Cash taxable benefit

 An allowance paid to the employee for the benefit of the employee
 i.e. clothing allowance for business attire

LO2
Taxable Benefits

Remember!

A benefit is only “taxable” if it is for the

employee’s personal use

LO2
Taxable Benefits
Would the following be a taxable benefit:

• Taking a company paid job-related course as directed by a

supervisor
No, this is not a taxable benefit!
• Taking a company paid general interest course without job
relevance
Yes, this is a taxable benefit!

LO2
Taxable Benefits
• Non-cash taxable benefit
 Employee receives an additional “perk” for the benefit of the
employee.
 “Non-cash” mean the employee receives the befits rather than
receiving money

• Examples of non-cash taxable benefits:

 Use of company cell phone for personal use
 Use of a company vehicle for personal use
 Low-interest loan

LO2
Taxable Benefits
• Non-cash taxable benefit
 Fair Market Value (FMV) must be determined

• For many taxable benefits, Canada Revenue Agency provides specific

rules and calculations for determining the value of non-cash taxable
benefits.
• We will study two examples of CRA’s detailed calculations:
 Taxable Automobile Benefit
 Low Interest Loan Benefit

LO2
Taxable Automobile Benefit
• Employee has access to employer vehicle for personal use
• Benefit is calculated based on three factors:
 Standby charge
 Operating cost
 Employee reimbursements

• Online calculator is available on CRA website

LO2
Taxable Automobile Benefit
• For employer-owned automobile:

1. Standby charge:
Cost of vehicle (including taxes) x 2% x # of months
2. Operating cost:
Personal km driven x fixed rate per km
3. Reductions:
Deduct any employee reimbursements

LO3
Taxable Automobile Benefit
• Exercise 3-5 (in Exercise Booklet)

LO3
Module 3
• Expense reimbursements
• Allowances
• Taxable benefits
 Cash vs. non-cash taxable benefits
 Taxable automobile benefit
To do:
• Read (in Learn):
 LO2, LO2.1, LO3

• Complete:
 Exercise 3-5
Module 3

Gross Earnings
Prepared by Maggie Fitzpatrick, CPA, CGA
Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Taxable Automobile Benefit
• For employer-owned automobile (in 2021):

1. Standby charge:
Cost of vehicle (including taxes) x 2% x # of months
2. Operating cost:
Personal km driven x $0.27 per km
3. Reductions:
Deduct any employee reimbursements

LO3
Ways to reduce the auto benefit
• The Standby Charge can be reduced if:
 More than 50% of the km driven were for business use, AND
 Less than 1,667 personal km are driven per month.

• The Operating Cost can be reduced if:

 More than 50% of the km driven were for business use, AND
 The employee files an election

• Temporary measure due to COVID-19:

 If an employee used an automobile more than 50% for business use in 2019, they
will be considered to have used the automobile more than 50% for business use in
2020 and 2021.
LO3
Taxable Automobile Benefit
1. Standby charge:

[Cost of vehicle x 2% x # of months] x personal km

(1,667 x # of months)
2. Operating cost:
Personal km driven x $0.27 per km, OR
50% of the standby charge
3. Reductions:
Deduct any employee reimbursements

LO3
Taxable Automobile Benefit
• Exercise 3-6 (in Exercise Booklet)

LO3
Module 3
• Taxable automobile benefit
 Employer-owned automobile
 Standby charge reduction
 Operating cost reduction
To do:
• Read (in Learn):
 LO2.1

• Complete:
 Exercise 3-6, 3-7, 3-8
Module 3

Gross Earnings
Prepared by Maggie Fitzpatrick, CPA, CGA
Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Review: Taxable Automobile Benefit
1. Standby charge:

[Cost of vehicle x 2% x # of months] x personal km

(1,667 x # of months)
2. Operating cost:
Personal km driven x $0.27 per km, OR
50% of the standby charge
3. Reductions:
Deduct any employee reimbursements

LO3
Employer-leased vehicles
1. Standby charge:

[Monthly lease cost x 2/3 x # of months] x personal km

(1,667 x # of months)
2. Operating cost:
Personal km driven x $0.27 per km, OR
50% of the standby charge
3. Reductions:
Deduct any employee reimbursements

LO3
Taxable Automobile Benefit
• Exercise 3-9 (in Exercise Booklet)

LO3
Module 3
• Taxable automobile benefit
 Employer-leased automobile
To do:
• Read (in Learn):
 LO2.1

• Complete:
 Exercise 3-9, 3-10
Module 3

Gross Earnings
Prepared by Maggie Fitzpatrick, CPA, CGA
Learning Objectives

• LO1 Identify the sources of employment earnings.

• LO2 Define earnings, benefits and allowances.

• LO3 Calculate earnings.

Low-Interest Employee Loans
• Company provides a loan to employee with either:
 No interest or
 Interest rate lower than CRA’s prescribed rate
• Non-cash taxable benefit

• Value of the benefit:

 Difference between the interest using CRA’s prescribed rate and the
interest paid by the employee (if any)

LO3
Low-Interest Employee Loans
• Prescribed interest rates are set by Canada Revenue Agency each quarter
• Prescribed rate in 2019:
 2% all year

• Prescribed rate in 2020:

 2% for first and second quarters
 Decreased to 1% for rest of the year

• Prescribed rate in 2021:

 1% all year

• Like all non-cash taxable benefits, it is subject to CPP and Income taxes (but not EI).

LO3
Prescribed annual interest rate for taxable benefits for
employees from interest-free and low interest loans
  2019 2020 2021
 
1st quarter 2% 2% 1%
2nd quarter 2% 2% 1%
3rd quarter 2% 1% 1%
4th quarter 2% 1% 1%
Types of Employee Loans
• Loans that typically result in a taxable benefit are:
1. A loan received because of employment
2. A home purchase loan
3. A home relocation loan

LO3
Loan received because of employment
• Must be a loan with expectations of repayment.

• Benefit is calculated as the difference between the prescribed rate and

the interest rate, if any, charged by the employer.

• Interest = Principal x Rate x Time (i=prt)

• Calculated monthly and pro-rated to the pay period.

LO3
Loan received because of employment
Example
• $10,000 personal loan, interest free with repayments of $500 monthly.
• Non-cash taxable benefit for the first month would be:
i=prt
i = $10,000 x (1% - 0%) x 1/12
i = $8.33
• $8.33 would be included when calculating the employee’s CPP and
income taxes.

LO3
Low-Interest Employee Loans
• Exercise 3-11 (in Exercise Booklet)

LO3
Module 3
• Low-interest employee loans
To do:
• Read (in Learn):
 LO2.2

• Complete:
 Exercise 3-11
 Module 3 Online Exercise