staying compliant in canada: a discussion of the rules that govern hrm considerations

Staying compliant in Canada: A discussion of the rules that govern HRM considerations

Table of contentsIntroduction 3

Canada Revenue Agency 3

Payroll deductions 4

Canada Pension Plan/Quebec Pension Plan 4

Employment insurance 4

Income tax 5

Enforcement 5

Beyond the Canada Revenue Agency 6

Workers’ compensation 6

Employment standards 7

Conclusion 7


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Introduction

Human resources are valuable assets to a business for many reasons. For example, employees are often at the center of interactions between prospects and clients and, as a result, crucial in delivering a consistently positive experience with a “brand.” Also, due to the hands-on nature of their work, employees are often a major source of fresh ideas and better practices suggestions. Plus, as employees gain experience, they learn how to do more in less time and become a talent pool potentially worthy of promotion. Thus, training and motivating a productive workforce is a fundamental element of success whether a company has one employee or thousands.

Of course, human resources demands systematic, strategic, specialized, and evolving management both to boost the performance of an enterprise and to maintain compliance with a wide array of legal requirements mandated by federal, provincial, and local governments. Human beings are complicated; so are the rules they institute as a society to provide for their safety and welfare. As a consequence, modern human resource management (HRM) is a complex undertaking. What follows is a discussion of some of the prominent regulatory provisions that govern HRM considerations in Canada.

Canada Revenue Agency

Numerous name changes have marked the history of the current Canada Revenue Agency (CRA) since its inception in 1927, but its basic mission is the same: to administer the tax laws of the government of Canada and many of her provinces and to deliver a variety of tax incentives and benefit programs to millions of Canadians. The CRA is a large agency with over 40,000 employees and many offices nationwide. The rules and regulations it administers change frequently.

All for-profit Canadian businesses—sole proprietorships, partnerships, and corporations—are required to register a business number with the CRA. Additionally, businesses with employees (essentially someone who is paid wages, a salary, benefits, or any other remuneration) must register a payroll deductions account, signified by the letters RP in a business number. This account is used to remit regularly scheduled payments of various taxes and premiums (outlined below) to the CRA.

It’s important to point out that the CRA requires paper or electronic documentation of business activity to provide proof of claims made in tax filings and dispute resolution for no less than six years. Business activity pertains to all income received and all outlays of money. In the case of businesses with employees, outlays include all forms of compensation paid. The CRA advises in the strongest terms that these business records be orderly. Orderly, up-to date records benefit businesses by keeping them consistently aware of how they are performing and by helping them avoid and possibly clear up disputes with the CRA that can lead to disallowed deductions and interest and penalty payments.

Training and motivating a productive workforce is a fundamental element of success whether a company has one employee or thousands.

For more information, contact the Canada Revenue Agency.

http://www.cra-arc.gc.ca


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Payroll deductions

As employers, Canadian businesses have the responsibility of deducting Canada Pension Plan or Quebec Pension Plan contributions, employment insurance premiums, and income tax from each employee’s total remuneration. Employers are responsible for remitting this money to the CRA at regularly scheduled intervals.

Canada Pension Plan/Quebec Pension Plan. The Canada Pension Plan (CPP) was devised as a way to provide financial assistance to Canadian retirees. Every person who works in Canada is eligible to receive CPP benefits upon retirement. The funds that pay for these benefits are deducted from each employee’s remuneration, matched by employers, and remitted by employers to the Receiver General for Canada.

Businesses located in Quebec deduct Quebec Pension Plan (QPP) contributions rather than the CPP and remit the payments to Revenu Quebec rather than the Receiver General for Canada.

Again, both employees and employers contribute equal amounts to the CPP and QPP, but it is employers who remit the funds on an established and strictly enforced schedule that varies according to employee classification. These employee categories, the specifics of what qualifies as pensionable income, payment schedules, and contribution rates for CPP and QPP often vary from year to year.

Fortunately, the latest information is available for both CPP and QPP on the CRA agency websites. Both agencies also publish paper guidebooks. Another worthwhile option is a modern HRM software solution with payroll functionality capable of automatically updating an accounting system to the latest payroll deduction rules and rates as soon as they go into effect.

Employment insurance. Employment insurance (EI) is a program administered by the Canadian federal government through the CRA to provide financial assistance and jobs training to unemployed Canadians. As with the CPP and QPP, both employees and employers pay the premiums on EI, with employers paying slightly more in general. Again, it the employer’s responsibility to deduct and remit employee contributions to EI premiums from insurable earnings.

“ Employer payrolls continue to be frequently subject to audits. CRA, which refers to these as Employer Compliance Audits, has special teams in place to ensure you’ve withheld and remitted any income tax, CPP, and EI premiums on both cash and noncash payments and your employees’ taxable benefits. The auditors will review the timing of payments to see that you are remitting this money as frequently as you are required to. While penalties for late employer payroll remittance were occasionally being waived for first-time offenses, this is no longer the case; increasingly, CRA is strictly imposing penalties to ensure compliance.”

Disputes with the CRA“Audit check-up: What’s on the taxman’s radar,” Financial Post, June 9, 2014

Canada Pension Plan (CPP)

Quebec Pension Plan (QPP)


Both employees and employers contribute equal amounts to the CPP and QPP, but it is employers who remit the funds on an established and strictly enforced schedule that varies according to employee classification.

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The EI rates paid by employees, the rates paid by employers, the specifics of what qualifies as insurable income, and payment schedules can vary from year to year. Also, even though EI is administered federally, rates also vary according to province or territory. Employers can visit the applicable CRA website, consult the latest paper CRA guidebook or an accounting professional, or deploy HRM software with payroll functionality to comply with the latest EI requirements.

Income tax. Employers are responsible for deducting income tax from the wages, salaries, and other forms of remuneration they pay employees. This responsibility is the most complicated of all payroll deductions due to the seemingly endless categories of employees, graduated tax brackets that rise with income levels, and numerous forms of remuneration receiving special tax treatment. For instance, employing fisherman or employing people who earn commissions and claim expenses complicate the income tax calculation a business must deduct. Employers are required to submit TD1 forms (with worksheets) that account for the special tax credits that apply from one individual employee to the next.

The topic of forms leads to mention of the “Statement of Remuneration Paid,” commonly known as the T4 slip. This statement summarizes each employee’s various forms of remuneration and the deductions each qualifies for. Employers are required to fill out and give each employee a copy of his or her T4 slip no later than the end of February after the calendar year for which it applies. The rules and regulations that govern income tax deductions, as well as the T4 slips themselves, vary according to province and territory. For more information on income tax calculations (as well as CPP and EI calculations), visit this CRA website to view a Payroll Deductions Online Calculator: www.cra.gc.ca/pdoc

Obviously, payroll deductions can be complicated. That’s why the CRA encourages employers to visit www.cra.gc.ca/payroll or call 1-800-959-5525. Plus, the CRA offers an on-site consultative service to provide help with payroll deductions as part of its Employer Visits Program.

Enforcement. It is vital to point out that the CRA doesn’t create tax law; parliament does. The CRA is tasked with collecting on-time tax and premium payments from individuals and businesses but also with being a benefit to the Canadian people, businesses, and economic growth. With this in mind, the agency states in its Guide for Canadian Small Businesses that it strives “to improve services, reduce paperwork burden and the cost and time of compliance, and maintain confidence in Canada’s tax system.” To the credit of the CRA and Canadians themselves, it is typical in any given year for well over 90% of Canadian individuals and businesses to properly comply with their tax responsibilities. Also, the fast and convenient filing of taxes online is now commonplace and continuing to trend upward.

However, the confidence that Canadians have in the tax system is based upon their faith in the fact that everyone plays by the rules and that if and when mistakes are made or rules are broken, those in error or willful offenders will rectify the problems or face consequences. Hence, the audit system and late payment penalties that are designed to accomplish just that.

CRA audits are inspections of various account records intended to uncover tax payment discrepancies by individuals and businesses. The payroll records of employers are most certainly subject to inspection. The CRA has computer programs and human inspectors searching for tax discrepancies, but audits occur for other reasons as well. Some audits uncover overpayments that result in refunds to taxpayers. Most, though, result in assessments of additional payments due, and these are very likely to include penalties and interest added to the assessment. Taxpayers have numerous ways to appeal such

To the credit of the CRA and Canadians themselves, it is typical in any given year for well over 90% of Canadian individuals and businesses to properly comply with their tax responsibilities.


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assessments—having the orderly, accurate records mentioned above is essential—but interest (currently, 5% compounded daily) continues to accrue throughout the appeals process. Although it’s rare, egregious or particularly large willful infractions against the tax code are referred for criminal prosecution.

To reiterate, avoiding errors that look suspicious and that can lead to run-ins with CRA auditors is more likely when employers consult accounting professionals with experience in human resource matters and/or deploy HRM software to track payroll deductions.

Beyond the Canada Revenue Agency

Further significant employer HRM responsibilities exist outside the scope of the CRA.

Workers’ compensation. Depending upon the hazardous nature of their industry, many employers are required to register with a provincial or territorial Workers’ Compensation Board (WCB) and make additional workers’ compensation insurance payments. Workers’ compensation insurance is an agreement between employers and their employees designed to eliminate negligence lawsuits and debilitating settlements paid to workers injured on the job by placing adjudication of those injuries in the hands of a neutral party, in this case the WCB. Besides registering with a WCB, employers mandated to pay workers’ compensation are expected to educate workers to better prevent on-the-job injuries, to report such injuries, and to help workers return to work postrecovery.

“ In 2012-2013, we exceeded two important performance targets: We adjusted a higher percentage of tax returns we audited, and our audit activities generated a higher fiscal impact per full-time equivalent (auditor). We did, however, complete a lower number of total audits than we did in 2011-2012. This is in part because of our strategic decision to focus more resources on auditing high-risk files. As we move forward, we expect that our new approach to selecting high-risk files and using specialized teams will continue to increase the fiscal impact of our Small and Medium Enterprises Program.”

Auditing less, collecting more: CRA targets high-risk SME filers CRA Annual Report to Parliament (2012-2013)

“ . . . in Canada it’s not the medical benefits that drive costs higher, it’s the time away from work that hurts employers most. Even one lost time day can add up . . . for each day an employee loses time from work, the employer pays five to seven times their normal pay amount in experience claims costs. For example, if an employee earns $100 per day, it is estimated that the employer pays $500-$700 per day while this employee remains off work. Having a proactive and consistent return to work program in place that makes offers of modified duties immediately will make the biggest impact to employers costs control efforts.”

The true workers’ compensation cost driver Third-party administrators Crawford and Company

Employers mandated to pay workers’ compensation are expected to educate workers to better prevent on-the-job injuries, to report such injuries, and to help workers return to work postrecovery.


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Needless to say, premium rates and regulations vary from year to year, according to province or territory, once again reinforcing the wisdom of consulting accounting professionals and/or deploying HRM software featuring automatic workers’ compensation updates to ensure proper compliance.

Employment standards. Starting with the Employment Standards Act signed into law in Ontario in 2000, every province and territory has codified an extensive list of employment standards covering virtually every Canadian employee. An extensive list of federal standards administered by the government of Canada’s Labour Program applies as well.

The reasoning behind all Canadian employment standards boils down to fairness, which proponents of the standards view as good for Canadian society and the economy. For example, insofar as antidiscrimination standards promote equal access to employment, the Canadian economy is better positioned to take advantage of the skills, talents, and productivity of the widest possible pool of citizens. Proponents of the standards also contend that the rules have helped build more positive workplace environments overall and more proactive relationships between employers and employees.

Have employment standards eliminated the ages-old power struggle between management and labour? No. However, they do provide a playing field upon which to measure relative positions. As they currently concern employers, suffice it to say that employment standards are multifold, complicated, and various. For instance, all 13 provinces and territories have their own minimum wage, ranging (in June 2014) from $9.95/hour in Alberta to $11.00/hour in Ontario and Nunavut.

Various minimum wages are merely one illustration of why it’s important for employers to carefully track rest periods, break times, paid time off due to a multitude of circumstances, paid holidays, averaging irregularly distributed hours of work, and an incredible range of other work-related factors: Employees hold employers accountable for complying with a lengthy set of employment standards, and employees can and do seek remediation of grievances based upon those standards.

Conclusion

Human resources are valuable assets to a business but also a large and complicated responsibility. Recognizing that responsibility, Canada has implemented a network of laws and regulations governing employer obligations regarding tax and insurance premium payments, workers’ compensation, and workers’ rights. Nonfulfillment of these obligations can be costly. Human resource managers are well-advised to take the steps necessary to comply and stay up to date with the rules created for the benefit of employees and employers alike.

The reasoning behind all Canadian employment standards boils down to fairness, which proponents of the standards view as good for Canadian society and the economy.


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