22 Payroll
Payroll is the function of paying your employees in exchange for services rendered. The primary objective of your payroll system is to ensure that you pay your employees accurately and on time. Being paid is a basic expectation and right of your employees, so it is important to understand how important it is to have a timely and accurate payment system, and how not having one can negatively impact morale and ultimately the ability to retain your staff.
Employees and non-employees
It is important to classify the individuals who work for you as either employees or non-employees. Pay for employees is processed through your payroll system and includes required deductions, such as income tax and employment insurance premiums. You are required to remit any employee income taxes withheld at source to the government. In general, if someone regularly works at your place of business, and you direct the person’s work, he or she is an employee.
Non-employees, such as independent contractors and consultants, are not part of your payroll and you are not required to pay benefits or withhold taxes. Instead, contractors and consultants are considered to be independently employed and typically submit an invoice to cover the cost of services they have provided to your company.
If you have any doubts about the appropriate status of your workers, you should check with the Canada Revenue Agency website at www.cra-arc.gc.ca or BC Employment Standards website at http://www.labour.gov.bc.ca/esb/facshts/employee.htm
How to pay wages
The government legislates a pay period that requires an employer to pay at least semi-monthly and within eight days after the expiration of each pay period. Under the Income Tax Act, every employer paying wages is required to withhold tax from these payments.
You are also legally responsible for making many other deductions from your employee’s paycheque, such as the income tax, Canada Pension Plan (CPP) and Employment Insurance (EI). WorkSafeBC premiums are an additional cost, based on wages but are entirely an employer’s expense (see www.worksafebc.com).
Since some of these deductions have percentages that change, you will need to verify them each year. To ensure you are following the rules according to the Canada Revenue Agency (CRA), check their website: http://www.cra-arc.gc.ca./
Most software accounting packages that are used in industry also send updates with new tax rate information at the beginning of each year.
Employers also have payroll-related obligations under the British Columbia Employment Standards Act. For example, payroll records must include certain employee information, including name, date of birth, and occupation. These records must be kept at the employer’s principal place of business and be retained by the employer for two years after the employment terminates. These provincial record-keeping requirements should not be confused with CRA’s record-keeping requirements. Please refer to the following links for the most up-to-date information.
- The Employment Standards Act and regulations (along with an interpretation guide): http://www.labour.gov.bc.ca/esb/
- Video on hours of work and overtime in BC: https://www.youtube.com/watch?v=Yw5BQJkXApk
- Video on termination of employment: https://www.youtube.com/watch?v=_7mxo-Hrnpo&feature=youtu.be
- Video on “10 things BC employers should know”: https://www.youtube.com/watch?v=XUhzYNNbOio&feature=youtu.be
- Current Employment Standards Act fact sheet: https://www.labour.gov.bc.ca/esb/esaguide/guide.pdf
Ensuring accurate and timely payroll processing can be a time-consuming function. Given the time and expertise required, many smaller independent businesses find that outsourcing payroll to an independent bookkeeper can offer many advantages to their business and employees. In addition to processing your payroll, these experienced professionals can also be responsible for maintaining updated knowledge of all legislation, making technological changes to comply with legislative changes, and providing answers to any payroll-related questions from employees.