Chapter 11
Payroll
329
Income Taxes
Every business is required to withhold income tax from an employee’s gross pay. There is no age
limit for paying taxes and there is no maximum on the total earnings for which taxes must be paid.
The more an employee earns, the more tax will be deducted from their pay.The business does not
have to make any extra payments regarding the income tax withheld from an employee’s pay.
Income tax is deducted in two parts: there is the federal income tax and the provincial income
tax component. In Quebec, the federal income tax portion is sent to the CRA and the provincial
income tax portion is sent to Revenu Quebec. In the rest of the country, businesses must send both
federal and provincial income taxes to the CRA.
The calculation of CPP, EI and income taxes is usually done automatically by accounting software.
For a business that does not use accounting software, the CRA provides payroll deduction tables
based on gross pay and the pay period frequency. There is also the Payroll Deductions Online
Calculator which will calculate all statutory deductions to provide a net pay.More details on calcu-
lating income tax are in the chapter 11 appendix.
Voluntary Deductions
A voluntary deduction is a deduction that is not a requirement from the government. This could
include items such as union dues, health plan contributions, charitable donations or saving plans.
Some, such as charitable donations and savings plans, are usually plans set up by the employer in
which the employee has an option to participate. Employees must sign up for these plans; they
cannot be taken from an employee’s paycheque without permission.
Other deductions, such as union dues or health plans, may be required as part of the employment
agreement.Thus, once an employee starts working for the business, these deductions will be taken
automatically. By agreeing to work for the business, the employee is agreeing to these deductions.
Employer Payroll Contributions
As already mentioned, both CPP and EI require the employer to pay an additional amount to these
programs on behalf of their employees. These employer portions are expenses which are the sole
responsibility of the employer.The employer is not allowed to deduct these extra amounts from the
employee’s pay.
In addition to the CPP and EI contributions, employers must usually contribute to their provincial
workers’ compensation board.These are private programs that fund income replacement, rehabilita-
tion and re-training for employees injured on the job.The amount paid for workers compensation
for each employee depends on the risk of injury in the industry and the company’s own safety record.
Like the employer portions of CPP and EI, the employer is responsible for these payments and
cannot deduct these amounts from the employee’s pay.Also, since workers' compensation is a required
deduction, failure to make these payments can result in penalties and interest. For the examples in
the textbook, we will assume a percentage of gross pay must be paid to the workers’ compensation
board. More details on calculating workers' compensation is in the chapter 11 appendix.
