4. PAYROLL COMPLIANCE AND REGULATIONS¶

4.1. Learning Objectives¶

By the end of this chapter, you will have a foundational understanding of payroll compliance and regulations in Canada. This includes the various stakeholders involved, the objectives of payroll, and the legal frameworks that govern payroll processes. You will also learn how to differentiate between federal and provincial/territorial jurisdictions, and how they affect payroll administration. Additionally, you will understand the Canada Revenue Agency’s criteria for determining whether an individual is classified as an employee or self-employed.

This chapter will cover the following topics:

  1. Identify four uses of the term payroll

  2. Describe payroll’s objectives

  3. Describe who payroll’s stakeholders are

  4. Differentiate between federal and provincial/territorial jurisdictions

  5. Explain how each stakeholder affects payroll processes and procedures

  6. Apply the Canada Revenue Agency’s factors for determining whether an individual is an employee or self-employed

4.1.1. Introduction¶

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 employees’ pay, their taxable benefits and observing their rights as employees.

It is important to note that for the scope of this course, the payroll includes 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. This chapter illustrates how to determine if an employeeemployer relationship exists. Once an employee-employer relationship has been established, the correct method of payment for services can be determined.

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.

4.1.2. What are Payroll’s Objectives?¶

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. The term payroll can refer to:

  • the department that administers the payroll

  • the total number of people employed by an organization

  • the wages and salaries paid out in a year

  • a list of employees to be paid and the amount due to each

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 practitioners must know the many pieces of legislation that regulate their work and the compliance requirements associated with each. Payroll practitioners 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 practitioners must therefore ensure the organization is compliant with all stakeholder requirements.