2. 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 employees’ 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.
2.1. 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 employee’s 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
2.2. 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, Workers’ 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.
2.3. 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.
2.4. 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
2.5. 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
2.6. 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.
2.7. Review Questions¶
What is the primary objective of the payroll department?