Payroll Deductions

As an employer, you’re responsible for paying your staff what’s owed. You’re also responsible for managing payroll deductions, some of which are a legal requirement.

It’s important you understand your responsibilities when it comes to employer payroll deductions. Failure to deduct correctly can lead to heavy fines for your business.

In this article, we’ll explain the different types of wage deductions, what you’re allowed to deduct for, and how to calculate payroll deductions.

What are payroll deductions?

Payroll deductions are amounts of money taken off your employees’ wage. The amount leftover is the net wage, which you will then pay your staff.

Payroll deductions are either tax which are mandatory, or wages being reduced for a specific reason, like a payroll error.

Are employers allowed to deduct money from wages?

You have the right to make non-mandatory deductions from your employersemployer’s wages. You can deduct an employeesemployee’s wage for the following reasons:

  • An error with payroll, for example an employee being over paid.
  • Any pay advances you’ve given.
  • The cost of a training course – be aware you can’t deduct the cost of a training course that has no value outside of work.

Illegal Payroll Deductions

As an employer, you don’t have the right to deduct wages for everything. You aren’t allowed to deduct pay for the following reasons:

  • If an employee has broken a tool or equipment.
  • If an employee made a mistake that costcost, you money.
  • If there’s something wrong with a product made by an employee.
  • Cost of any uniform (British Columbia and Alberta)..

It’s important you don’t make any illegal wage deductions. These deductions could lead to a breach of contract and an employment law dispute.

Can you deduct pay for lateness?

You can’t deduct an employees’ wage for being late directly. However, you only have to pay for the time worked. Even if an employee is late by two minutes, you are under no requirement to pay for that time.

You must still pay for any paid vacation time you’ve authorized.

Which mandatory payroll deductions do you have to make?

When paying your employees, you must subtract payroll tax deductions. Canada Revenue Agency deductions (CRA deductions) are payroll source deductions. They’re a legal requirement for employers, and are made up of:

  • Provincial and federal payroll deductions (income tax).
  • Employment Insurance (EI) benefits.
  • Canada Pension Plan (CPP) contribution.

Employees are also required to make contributions from their wages. Employee deductions are contributions to both EI and CPP. For payroll deduction tables and more information, visit the Canadian Government website.

How to calculate payroll deductions

When filling out your employees T4 payslip, you must calculate the deduction amounts correctly:

Provincial and federal income tax: Add the total of tax and subtract from basic salary. Employment insurance premium: The employment insurance premium rate is 1.58%. For example, if you pay someone $3000 monthly, the deduction will be $47.40. Canada pension plan: The contribution rate is 5.45%. If you pay someone $3000 monthly, the deduction will be $163.50.

It’s important you deduct the correct amounts from your employees pay. Failure to do so could lead to a 10% fine (Canadian Government), rising to 20% for a second offence.

How to submit payroll deductions online

You can remit your payroll deductions online via the government website. You can also remint your payroll deductions via mail. The payroll deduction form can be submitted monthly or quarterly, via your business account in the CRA portal.

When are payroll deductions due?

You must follow your payroll remittance schedule as outlined by the Canadian Government. Your due date is normally based on your average monthly withholding amount (AMWA) from two years ago.

Your AMWA is the sum of all the payroll deductions paid to the CRA within a year, averaged on a monthly basis.

Failure to submit your payroll deduction amount on time could land you with an unneeded charge. The following punishments could be handed down to you:

  • 3% if payment is one to three days late.
  • 5% if payment is four to five days late.
  • 7% if payment is six to seven days late.
  • 10% if payment is more than seven days late, or no amount paid at all.
  • 20% for recurring penalties in one calendar year.

Changing payroll deductions

When increasing an employees’ salary, you need to make sure you’re deducting the correct EI and CPP amounts. Don’t assume it will stay the same, a penalty of 10% of the amount that should have been deducted can be given.

After tax payroll deductions

You may also make further non-mandatory payroll deductions to your employees pay slip. They might be deducted as part of your employee benefit package:

  • Heath care benefits.
  • Private pension plan.
  • Membership to a workersworker’s union.

Get help with payroll deductions today with BrightHR

It’s important that you get your payroll deductions correct and submit them on time. Late submission could land you with a heavy fine.

BrightHR can help you streamline your payroll deductions process. Our payroll navigator allows you to manage your payroll deductions in seconds.

Contact us on 18882204924 or book a demo today.


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