CanadianPayroll/docs/source/introduction.rst

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INTRODUCTION TO CANADIAN PAYROLL
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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.

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

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, 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.

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
governments’ 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 survivor’s 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:
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regulation of trade and commerce
Employment Insurance
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 employees’ and employers’ 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:
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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:
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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 Association’s 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
=================

1. What is the primary objective of the payroll department?