Year End Payroll Taxes—How Much Should You Be Paying?

Category: Accounting Taxation

Payroll is an unavoidable part of running any business. It can also be time-consuming and confusing if you are unfamiliar with the process. Many small business owners choose to manage their payroll in-house, so in this article, we’ll look at the main deductions and tax payments you have to make on behalf of your employees to the Canada Revenue Agency (CRA).

We’ll also look at what your options are if you don’t want to deal with the payroll process yourself.

What are your payroll responsibilities as an employer?

As a small business owner in Alberta, similar to the rest of Canada, it is your responsibility to ensure the necessary deductions made on employee salaries are accurate and paid over to the CRA on time.

Your first step is to open a payroll program account with the CRA that will allow you to make payments to them. You will also have to set up individual employees in the program with their unique social insurance numbers (SIN) and a completed Form TD1, which will help you to determine how much tax should be deducted every month.

What deductions do you have to make from employee salaries, and how much?

There are three categories of deductions you as an employer are responsible for deducting and paying to the CRA. The amount to be deducted will depend on how much you pay each employee.

This includes:

  • Canada Pension Plan contributions (CPP)
  • Employment Insurance premiums (EI)
  • Income tax deductions

Canada Pension Plan contributions (CPP)

When you employ anyone between the ages of 18 and 65, subject to certain conditions, you must deduct CPP contributions from the employee’s salary and also make contributions that are equal to the deductions you have made.

Deductions and contributions are based on a government chart and provide financial benefits to the employee upon retirement.

Employment Insurance premiums (EI)

There are no age limits for deducting EI premiums, which provide employees with temporary financial assistance in the event of sickness, pregnancy, caring for newborn children, and caring for seriously ill family members.

Similar to CPP contributions, EI premiums are based on a set EI premium rates and maximums table, which also includes the amount employers have to contribute on top of the employee premium.

Income tax deductions

All employment income is taxable, including bonuses and commissions received. As the employer, you are responsible for calculating the amount of tax that should be withheld. Referring to the employee’s SIN and completed Form TD1 will help employers to determine the amount that has to be deducted.

The CRA also provides a handy Payroll Deductions Online Calculator that makes calculating all these employee deductions and contributions much more manageable.

What do you have to prepare for the year-end?

How often you have to pay employee deductions and contributions to the CRA will depend on your average monthly withholding amount (AMWA). Usually, this will be on a monthly basis.

At year-end, you will have to complete a T4 Slip for each employee that you remunerated during the year. A T4 Summary gives you the final amount you were supposed to pay to the CRA during the year, and you use this to reconcile it to the amount you have actually remitted. Any shortfalls will then have to be paid, and any surpluses will be refunded.

T4 Slips must be completed and sent to employees by February 28 of the next calendar year (e.g., February 28, 2019, for the 2018 tax year).

Conclusion

As a small business owner, you are ultimately responsible for calculating and collecting the necessary payroll deductions from your employees. You are also responsible for making contributions to their CPP and EI plans and paying these amounts to the CRA on time.

This can be a confusing and time-consuming process that may not the best use of your time if you are a busy entrepreneur looking to grow your business. Therefore, as an excellent alternative to managing your payroll in-house, you can save yourself time and frustration by outsourcing your payroll function to a reliable payroll management service provider, like Enkel, that will ensure your employees are paid accurately and on time, without the hassle.

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About the Author

Gracia Chua

Brand Marketing Strategist, Enkel Backoffice Solutions Inc.

Gracia Chua is the Brand Marketing Strategist at Enkel BackOffice Solutions, a Vancouver-based accounting firm that provides day-to-day bookkeeping services for small and medium-sized businesses. Enkel strives to provide fellow entrepreneurs with a better system for managing their bookkeeping, cash flow, and financial data, so they can focus on growing their businesses.