If you pay salaries or wages, bonuses, vacation pay, tips or provide taxable benefits to an employee you are considered an employer. There are a number of requirements from the CRA for employers, not limited to:
Opening and maintaining a payroll account - If you are an employer, you need to register and maintain a payroll account with the CRA.
Obtain employee’s social insurance – Every employee must provide their social insurance number in order to work in Canada.
Obtain a TD1 form from employee – A TD1 (federal and possibly provincial) form is used to help determine the amount of tax to be withheld from an employees remuneration.
Deduct Canadian Pension Plan Contributions, Employment Insurance and Income tax – As an employer you are require to deduct and remit the employees share of CPP, EI and income tax from remuneration before it is paid. These amounts must be held in trust and remitted to the receiver general.
Remit Employer share of CPP contributions and EI premiums – In addition to deducting and remitting the employee’s portion, the employer is also required to remit an employer’s portion or share of CPP contributions and EI premiums.
Report employee income and deductions – As an employer you are required to file an information return that reports the employee’s income and deductions on a T4 or T4A slip with the CRA on or before the last day of February of the following calendar year.
Complete and issue a Record of Employment - An ROE is required whenever an employee stops working and has an interruption of earnings.
Keep adequate records - Adequate records in relation to employment remuneration, benefits, employment history to support all of the preceding requirements must be maintained.
CRA Website - Employers' Guide - Payroll Deductions and Remittances
When paying a worker, there are generally two different methods. The worker is either considered an employee of the company or considered an independent contractor. The employment status of a worker has drastic effects on the tax treatment for both the worker and the payer of that worker. The most notable is the treatment of the worker under the Employment Insurance Act, the Canada Pension Plan, and the Income Tax Act.
If the worker is considered an employee, the payer of that worker is deemed the employer. Employers are responsible for deducting and remitting Canadian Pension Plan (CPP) contributions, Employee Insurance (EI) premiums and income tax from the remuneration and other amounts paid to the employee. In addition the employer must also remit their share of CPP contributions and EI premiums.
If the employer fails to deduct the required CPP contributions and EI premiums, they are required to pay not only the employer’s share, but also any employee share of contributions and premiums (in addition to any penalties and interest). To avoid such as cost it is crucial that you determine whether your workers are employees or independent contractors.
Generally speaking there is not always a right or wrong answer to the question of employee vs. independent contractor however the CRA has outlined a number of factors to consider:
Control – how much autonomy or control does the worker have concerning the manner in which the work is done?
Tools and equipment – does the worker provide the tools and equipment that are required to accomplish the work?
Subcontracting work or hiring assistance – is the work able to hire on subcontractors or assistants?
Financial risk – what level of financial risk that the worker is taking on?
Responsibility over investment and management – what is the degree of investment required by the worker?
Opportunity for profit – can the worker realize a profit or suffer a loss?
There is generally no single factor or factors that can determine the nature of the relationship. In some situations it can be very difficult to determine whether a worker is an employee or contractor however the CRA provides some guidance and examples. However as mentioned it can be costly to inappropriately conclude employee or contract. As such, if you are unsure you can request a ruling through the CRA.
While you might consider some of the benefits that you get from working at a business to be ‘perks of the job’ they may actually be taxable benefits. Generally speaking a taxable benefit is a benefit that the employer provides to the employee in which the employees sees a personal gain or benefit. The CRA defines a taxable benefit as follows:
"Your employee is considered to have received a benefit if you pay or provide something that is personal in nature:
- to him or her; or
- to a person who does not deal at arm's length with the employee (such as the employee's spouse, child or sibling)."
If you provide anything that the CRA considers to be a taxable benefit, you will likely be required to report the value of the benefit in the employee’s income. Every situation is different; however a taxable benefit is often determined by the type and reason for receiving the benefit. Benefits may be received in the form of cash, or in non-cash items (such as parking spots, personal fuel or cell phone use, or even gifts).
Every situation is different, so it can be difficult and sometimes arbitrary to determine whether a benefit is considered taxable. The CRA has a an excellent guide as to what is and is not considered a taxable benefit.
CRA Website – Other Benefits