INTRODUCTION TO CANADIAN PAYROLL¶
+Payroll is a necessary function in every organization that has employees, +as each employee expects to be paid for the work they perform. While the +amount of maximum remuneration that an employee receives for their work is +not legislated by any government (unless the employee is a federal or +provincial/territorial civil servant), there is legislation in place at +both the federal and provincial/territorial levels that governs many +aspects of processing employeesâ pay, their taxable benefits and observing +their rights as employees.
+t is important to note that this course deals with payroll, the function of paying employees +for work performed for employers. Self-employed workers or contractors, who submit +invoices for the work they perform and receive payment through accounts payable and not +payroll, are not employees.
+Both the federal and the Québec governments provide factors that can be used to determine +whether an employee-employer relationship exists. It is crucial to know how to determine the +type of relationship that exists between the worker and the organization and to ensure that +any payments made comply with legislation.
+Payroll Objectives and Definitions¶
+The primary objective of the payroll function in every organization is to +pay employees accurately and on time, in compliance with legislative +requirements, for a full annual payroll cycle.
+Every employee expects to receive their pay on the day it is due in the +manner arranged with their employer, either by cheque or direct deposit. +In addition to ensuring that employees have been paid, payroll +practitioners must also be able to communicate payroll information to +all stakeholders.
+-
+
Payroll is the process of paying employees in exchange for the services they perform.
+Legislation refers to laws enacted by a legislative body. In Canada
+
there are many legislative sources that payroll practitioners must comply +with at two separate levels: the federal and the provincial/territorial +governments. Later in the chapter we will explore the compliance +requirements for the various pieces of legislation from these sources.
+-
+
Compliance is the observance of official requirements. For payroll
+
practitioners, this means performing payroll functions according to +federal and provincial/territorial legislative and non-governmental +stakeholder requirements.
+The legislative requirements are termed statutory. This means they are +enacted, created, or regulated by statute, a law enacted by the legislative +branch of a government. Fines and penalties can be imposed if an organization +is not in compliance with the legislative requirements in each jurisdiction.
+When dealing with federal and provincial/territorial government agencies, +payroll administrator must know the many pieces of legislation that +regulate their work and the compliance requirements associated with each. +Payroll administrators are responsible for ensuring their organization is +compliant with all payroll related legislation, thus eliminating the +potential for any fines or penalties.
+In payroll, there are also compliance requirements from other non-government stakeholders, +for example, union collective agreements or group insurance policies. Payroll administrator +must therefore ensure the organization is compliant with all stakeholder requirements.
+The responsibilities of the payroll administrator will differ depending on +the size of the organization, the number of jurisdictions in which they pay, +the reporting structure under which they work, and whether there are other +related departments, such as human resources, finance and administration in +the organization.
+Small and medium-sized organizations may have payroll administrators whose +positions include other functions that, in a larger organization, would +fall under other departments. This payroll practitioner may be required to +handle multiple tasks, such as employee recruitment, human resource policy +development, benefits administration, accounts payable, accounts receivable, +budgets and/or administration.
+Larger organizations may have a distinct payroll department with specific +payroll positions, in addition to separate human resources, accounting and +administration groups. Even in a multi-departmental organization, payroll +administrators must have knowledge of the various stages of the life cycle +of an employee. From hiring through termination of employment, many of +these stages will impact how to produce the employeeâs pay and prepare +required reports.
+The payroll department in a large organization may have:
++++
+- +
payroll administrators who are responsible for entering payroll data into the system and making required payroll remittances
- +
payroll coordinators who are responsible for preparing the payroll journal entries and reconciling the payroll related accounts
- +
payroll managers who manage the payroll function, the payroll staff and represent payroll at the management level
Legislation vs. regulation¶
+The legislation specifies the __requirements__.
+The regulation specifies the __methods__ of applying the legislation.
+Payroll Content Knowledge¶
+Payroll administrators should know the following to effectively perform +their duties:
++++
+- +
Payroll Compliance Legislation: the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act, Employment/Labour Standards, privacy legislation, Workersâ Compensation and provincial/territorial payroll-specific legislation
- +
Payroll Processes: the remuneration and deduction components of payroll and how to use these components to calculate a net pay in both regular and non-regular circumstances
- +
Payroll Reporting: how to calculate and remit amounts due to government agencies, insurance companies, unions and other third parties.
In addition, payroll reporting includes accounting for payroll expenses and accruals to internal financial systems and federal and provincial/territorial year-end reporting.
+Technical Skills¶
+The technical skills required by payroll professionals include proficiency in +computer programs such as payroll software and financial systems, +spreadsheets, databases and word processing.
+Organizations often change their payroll and business systems to meet new +technology requirements and corporate reporting needs. It is important for +payroll personnel to have the ability to be adaptable to changing systems. +As a payroll practitioner, you must be prepared and willing to embrace +continuous learning.
+Personal and Professional Skills¶
+The following personal and professional skills will assist payroll +administrators in dealing with the various stakeholders involved in the +payroll process:
++++
+- +
written communication skills, such as preparing employee emails and memos, management reports, policies and procedures and correspondence with various levels of government
- +
verbal communication skills, to be able to respond to internal and external stakeholder inquiries
- +
the ability to read, understand and interpret legal terminology found in documents such as collective agreements, benefit contracts and government regulations
- +
excellent mathematical skills to perform various calculations
- +
problem solving, decision-making, time management and organizational skills
Behavioural and Ethical Standards¶
+Behaviour and ethics are two areas that build on the skills that an effective payroll practitioner +must have. Effective payroll professionals should be:
++++
+- +
trustworthy, as the potential for fraud is ever present
- +
conscientious, with a keen attention to detail
- +
discreet, due to the confidential nature of information being handled
- +
tactful in dealing with employees who can be very sensitive when
discussing their financial issues
++
+- +
perceptive, able to understand all sides of an issue
- +
able to work under the pressures of absolute deadlines
- +
able to use common sense in order to recognize problems quickly and
apply sound solutions
++
+- +
able to remain objective and maintain a factual perspective when
dealing with questions and inquiries
+
Payroll Stakeholders¶
+Stakeholders are the individuals, groups and agencies, both internal +and external to the organization, who share an interest in the function and +output of the payroll department. Stakeholders can be considered customers of the payroll department and payroll practitioners +can take a proactive customer service approach to serving these individuals and groups.
+Payroll Management Stakeholders¶
+Payroll Management Stakeholders are the federal and provincial/territorial governments, +the internal stakeholders and the external stakeholders. Internal stakeholders +include employees, employers and other departments within the organization. +External stakeholders include benefit carriers, courts, unions, pension +providers, charities, third party administrators and outsource/software vendors.
+Government Stakeholders¶
+Government legislation provides the rules and regulations that the payroll function must +administer with respect to payments made to employees. For this reason, it is important for +the payroll practitioner to understand both the scope and the source of payroll-related +legislation.
+Canada is ruled by a federal government with ten largely self-governing provinces and three +territories controlled by the federal government. Payroll practitioners have to be compliant +not only with the federal government legislation, but with the provincial and territorial +governmentsâ legislation as well.
+As a result, payroll practitioners and their organizations are affected by the enactment of +legislation at both the federal and provincial/territorial level. +The federal parliament has the power to make laws for the peace, order and good government +of Canada. The federal cabinet is responsible for most of the legislation introduced by +parliament, and has the sole power to prepare and introduce tax legislation involving the +expenditure of public money.
+The provincial/territorial legislatures have power over direct taxation in the province or +territory for the purposes of natural resources, prisons (except for federal penitentiaries), +charitable institutions, hospitals (except marine hospitals), municipal institutions, education, +licences for provincial/territorial and municipal revenue purposes, local works, incorporation +of provincial/territorial organizations, the creation of courts and the administration of justice, +fines and penalties for breaking provincial/territorial laws.
+In the case of old age, disability, and survivorâs pensions, again both the federal and +provincial/territorial governments have power. In this instance, if their laws conflict, the +provincial/territorial power prevails.
+The federal government cannot transfer any of its powers to a provincial/territorial +legislature, nor can a provincial/territorial legislature transfer any of its powers to the federal +government. The federal government can, however, delegate the administration of a federal +act to a provincial/territorial agency, and a provincial/territorial legislature can delegate the +administration of a provincial/territorial act to a federal agency.
+Federal Government¶
+The Constitution Act of 1867 outlined the division of legislative power and authority between +federal and provincial/territorial jurisdictional governments. The exclusive legislative +authority of the Parliament of Canada extends to all matters regarding:
++++
+- +
the regulation of trade and commerce
- +
the raising of money by any mode or system of taxation
- +
the borrowing of money on the public credit
- +
the postal service
- +
fixing and providing salaries and allowances for civil and other officers of the Government of Canada
- +
navigation and shipping
- +
ferries between a province and any British or foreign country or between two provinces
- +
criminal law, except the Constitution of Courts of Criminal Jurisdiction, but including the Procedure in Criminal Matters
- +
anything not specifically assigned to the provinces under this Act
The Canada Labour Code is legislation that consolidates certain statutes respecting labour. +Part I deals with Industrial Relations, Part II deals with Occupational Health and Safety and +Part III deals with Labour Standards. The primary objective of Part III is to establish and +protect employeesâ and employersâ rights to fair and equitable conditions of employment.
+Part III provisions establish minimum requirements concerning the working conditions of +employees under federal jurisdiction in the following industries and organizations:
++++
+- +
industries and undertakings of inter-provincial/territorial, national, or international nature, that is, transportation, communications, radio and television broadcasting, banking, uranium mining, grain elevators, and flour and feed operations
- +
organizations whose operations have been declared for the general advantage of Canada or two or more provinces, and such Crown corporations as Canada Post Corporation, and the Canadian Broadcasting Corporation (CBC)
Provincial/Territorial Governments¶
+Under the Constitution Act of 1867, the exclusive legislative authority of the provinces and +territories exists over:
++++
+- +
all laws regarding property and civil rights, which give the provinces/territories the authority to enact legislation to establish employment standards for working conditions
- +
employment in manufacturing, mining, construction, wholesale and retail trade, service industries, local businesses and any industry or occupation not specifically covered under federal jurisdiction
The existing divisions between federal and provincial/territorial control impact payroll when +dealing with employment/labour standards. Employment/labour standards are rules legislated +by each provincial/territorial jurisdiction that dictate issues such as hours of work, minimum +wage, overtime, vacation pay and termination pay requirements.
+Employers must follow the employment/labour standards legislated by the jurisdiction in +which their employees work, unless they are governed by federal labour standards. Federal +labour standards apply to certain industries and organizations, regardless of where the +employees work.
+The person or persons performing the payroll function must clearly understand under which +employment/labour standards jurisdiction the employees of the organization fall. +Organizations may have some employees who fall under federal jurisdiction and another +group of employees who fall under provincial/territorial legislation.
+Internal Stakeholders¶
+Internal stakeholders are those individuals or departments closely related to the organization +that the payroll department is serving. This group includes employers, employees and other +departments in the organization.
+Employers - Management may require certain information from payroll to make sound +business decisions.
+Employees - Employees require that their pay is received in a timely and accurate manner to +meet personal obligations. Employees must also be assured that their personal information is +kept confidential.
+Other departments - Many departments interact with payroll, either for information or +reporting. According to the Canadian Payroll Associationâs 2020 National Payroll Week +(NPW) Payroll Professional Research Survey, fifty-five percent of payroll practitioners +report through the finance department and thirty-two percent report through the human +resources department.
+Information such as general ledger posting, payroll and benefit costs +and salary information must flow between payroll, human resources and finance in formats +needed for their various requirements.
+In addition, other departments such as contracts and manufacturing often need payroll +information for budgeting, analytical and quality purposes.
+External Stakeholders¶
+External stakeholders are organizations that are neither government nor internal stakeholders, +yet have a close working relationship with the payroll function. Compliance with external +stakeholder requirements is also a responsibility of the payroll department. In most cases, +compliance will require that payroll request a cheque from accounts payable and send it to +the external organization along with supporting documentation.
+Benefit Carriers are insurance companies that provide benefit coverage to employees. +Payroll is responsible for deducting and remitting premiums for the insurance coverage to the +carriers and for providing reports on employee enrolment and coverage levels.
+Courts and the CRA require payroll to accurately deduct and remit amounts ordered to be +withheld through garnishments, third party demands, requirements to pay and support +deduction orders.
+Unions require that payroll accurately deduct and remit union dues and initiation fees, and to +ensure that the terms of the collective agreement are adhered to. It is estimated that just under +one-third of the workforce in Canada belongs to a trade union. Payroll professionals must be +familiar with the role and activities of trade unions and the responsibilities of the employer +and the payroll department in a unionized environment.
+Trade unions negotiate with the employer, through collective bargaining, the wages, benefits, +allowances and other terms and conditions of employment on behalf of their member +employees. The outcome of negotiations is a collective agreement, which is a legally binding +contract between the employer, the union and the employees.
+Pension Providers are third party pension plan providers that may require payroll to provide +enrolment reports on participating employees and length of service calculations, and to remit +employee deductions and employer contributions.
+Charities have arrangements with some organizations to facilitate employee donations +through payroll deductions. Payroll is responsible for remitting these deductions to the +charity.
+Third Party Administrators are organizations that affect the administration of the payroll +function. Examples of these external stakeholders are banking institutions or benefit +organizations that offer Group Registered Retirement Saving Plans (RRSP). Payroll is +responsible for deducting any employee contributions and remitting employer and employee +contributions to the plan administrator.
+Outsource/Software vendors are payroll service providers or payroll software vendors that +work with the payroll department to ensure the payroll is being processed accurately and +efficiently.
+Content Review¶
++++
+- +
The primary objective of the payroll function in every organization is to pay employees accurately and on time, in compliance with legislative requirements, for a full annual payroll cycle.
- +
Payroll is the process of paying employees in exchange for the services they perform.
- +
Legislation refers to laws enacted by a legislative body.
- +
Compliance is the observance of official requirements.
- +
Payroll practitioner knowledge consists of information on payroll compliance legislation, payroll processes and payroll reporting as well as technical, personal and professional skills.
- +
Stakeholders are the individuals, groups and agencies, both internal and external to the organization, who share an interest in the function and output of the payroll department.
- +
Payroll management stakeholders are the federal and provincial/territorial governments, the internal stakeholders, and the external stakeholders. Internal stakeholders include employees, employers and other departments within the organization.
- +
External stakeholders include benefit carriers, courts, unions, pension providers, charities, third party administrators and outsource/software vendors.
- +
The federal parliament has the power to make laws for the peace, order and good government of Canada.
- +
The provincial/territorial legislatures have power over direct taxation in the province/territory for provincial/territorial purposes.
- +
Federal control exists over industries and undertakings of inter-provincial/territorial, national, or international nature and organizations whose operations have been declared for the general advantage of Canada or two or more provinces and Crown corporations.
- +
Provincial/territorial legislation exists over all laws regarding property and civil rights, and employment in manufacturing, mining, construction, wholesale and retail trade, service industries, local businesses and any industry or occupation not specifically covered under federal jurisdiction.
- +
Employers must follow the employment/labour standards legislated by the jurisdiction in which their employees work, unless they are governed by federal labour standards.
- +
Where legislation requires employer compliance, there are financial penalties or the possibility of legal action to encourage compliance.
Review Questions¶
+-
+
What is the primary objective of the payroll department?
+List the three types of payroll management stakeholders and provide an example of each.
+Explain the difference between legislation and regulation.
+List three external stakeholders and explain their compliance requirements.
+
