Decoding Canadian and U.S. Payroll Differences. What U.S. practitioners and employers need to know about managing Canadian Payroll

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Peter Harper
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1 Decoding Canadian and U.S. Payroll Differences What U.S. practitioners and employers need to know about managing Canadian Payroll 1

INTRODUCTION While Canada and the U.S. share many cultural similarities, their payroll processes and systems are incredibly different. Cross-border payroll is becoming increasingly common.

Many others have functional responsibility for a Canadian payroll from their offices in the States. Does this sounds familiar? Your head may be spinning RRSP vs. 401(k)? CPP vs. FICA? CIT, QIT vs.

2 INTRODUCTION While Canada and the U.S. share many cultural similarities, their payroll processes and systems are incredibly different. Cross-border payroll is becoming increasingly common. Many organizations have moved to a dual payroll model managing both Canadian and American payrolls within one payroll department. Many others have functional responsibility for a Canadian payroll from their offices in the States. Does this sounds familiar? Your head may be spinning RRSP vs. 401(k)? CPP vs. FICA? CIT, QIT vs. FIT, W2 vs. T4 and RL-1? What does it all mean? Canada s unique payroll practices offer additional complexity for practitioners unfamiliar with the payroll legislative and regulatory landscape north of the border. What s more, when factoring in the added challenges of two official languages, the multifaceted legislative requirements and disparate governing bodies of Quebec, and the multijurisdictional challenges placed upon practitioners, the complexity of Canada remains exceptionally high. There are several key (and crucial) differences that set Canada apart from the U.S. when it comes to payroll. Understanding these differences is a sure way to bridge the gap in your cross-border payroll operations, ensuring you and your organization remain accurate and compliant. Like any good neighbour, we re here to help. 1

3 DID YOU KNOW? Canada doesn t have a federal MINIMUM WAGE. In 1996, the Federal Government of Canada chose to eliminate the minimum wage for federally regulated employers covered by Canada Labour Code, part III. Since this change, employers have been required to use the prevailing minimum wage rate established in the province or territory in which it employs workers. The following chart illustrates the current minimum wage rates (as of February 2018) as well as pending increases. Jurisdiction Rate/hour Effective date Federal (Canada Labour Code, Part III) Aligned with provincial/ territorial minimum wage in each jurisdiction December 1996 Alberta $13.60 $15.00 October 1, 2017 October 1, 2018 British Columbia General $11.35 $12.65 $13.85 $14.60 $15.20 September 15, 2017 June 1, 2018 June 1, 2019 June 1, 2020 June 1, 2021 Liquor servers $10.10 September 15, 2017 Manitoba General $11.15 October 1, 2017 Security guard workers $13.40 October 1, 2017 New Brunswick 1 $11.00 April 1, 2017 Newfoundland and Labrador $11.00 October 1,

4 Jurisdiction Rate/hour Effective date Northwest Territories $12.50 $13.46 June 1, 2015 April 1, 2018 Nova Scotia Experienced workers $10.85 April 1, 2017 Inexperienced workers 2 $10.35 April 1, 2017 Nunavut $13.00 April 1, 2016 Ontario General $14.00 $15.00 January 1, 2018 January 1, 2019 Students under 18 working 28 hours week or less Serving alcohol on licensed property $13.15 $14.10 $12.20 $13.05 January 1, 2018 January 1, 2019 January 1, 2018 January 1, 2019 Prince Edward Island $11.25 $11.55 Quebec General $11.25 $12.00 Employees receiving tips $9.45 $9.80 April 1, 2017 April 1, 2018 May 1, 2017 May 1, 2018 May 1, 2017 May 1, 2018 Saskatchewan $10.96 October 1, 2017 Yukon $ April 1, There are special minimum wage rates for certain categories of employees in government construction work, and counsellors and program staff at residential summer camps. 2 An inexperienced employee is an employee who has not been employed by their current employer or other employers to do their current job for three calendar months. 3 Will increase each year based on the Consumer Price Index (CPI). More information on this topic, including ongoing minimum wage announcements, is covered in the CPA s e-source, a legislative compliance newsletter distributed electronically to CPA members. 3

TERMINATIONS may result in a much higher mandatory pay out.

provide a mandatory notice period. This notice period may be worked or paid as wages in lieu of notice. Depending on length of service, this notice period will range from one to eight weeks.

5 TERMINATIONS may result in a much higher mandatory pay out. In Canada, each provincial or territorial Employment/Labour Standards Act or Code provides mandatory requirements for providing notice, and in some cases severance, when terminating an employee without cause. Once an employee has completed a probation period, generally between three to six months as determined by the prevailing Act, if the employer chooses to terminate employment they must provide a mandatory notice period. This notice period may be worked or paid as wages in lieu of notice. Depending on length of service, this notice period will range from one to eight weeks. In addition, employees covered under Canada Labour Code, part III, or the Ontario Employment Standards Act, 2000, may be eligible for a mandatory severance payment in addition to notice if certain eligibility requirements have been met. Additional Resources: Want more information on Terminations? Check out our free Terminations Checklist on our website: CLICK HERE Members have unlimited access to the Termination Payroll Best Practices Guideline, Termination Checklist and Calculator at payroll.ca 4

6 The tax treatment of EMPLOYER BENEFIT PLANS differs from the pre-tax and post-tax methods used in the USA. Many employer-provided benefits are considered taxable benefits and must be included in income subject to statutory withholding of Canada Pension Plan or Quebec Pension Plan contributions, Employment Insurance premiums, Quebec Parental Insurance Plan premiums, and federal and provincial income taxes. A fundamental responsibility all employers in Canada have is determining whether the fringe benefits they offer are taxable. For employers operating in the province of Quebec, this becomes even more complex as the Canada Revenue Agency (CRA) and Revenu Québec (RQ) have differing regulations on the tax treatment of some benefits. Outside of the province of Quebec, the CRA establishes the rules on the taxability of benefits for federal and provincial income taxes. Employers in Quebec must follow both the federal legislation and the provincial legislation applicable in Quebec. For example, an employer-provided group supplemental health and dental plan is not considered a taxable benefit under CRA legislation, but it is under RQ legislation for employees in Quebec. Additional Resources: Interested in more information on Employee Benefits? Check out our archived Webinar, Employee Benefits: Analyzing Funding and Risk Model (available until May 26, 2018) ACCESS NOW 5

7 OVERTIME EXEMPT EMPLOYEE under Employment and Labour Standards legislation in Canada is not the same as the definition under the FLSA. In Canada, to determine whether an employee is eligible to be paid overtime for additional hours worked, it is important to understand that Employment/Labour Standards Acts and Codes do not apply a salary level test to determine if overtime is required. While certain occupations are exempt from various basic requirements under Employment/Labour Standards legislation, including eligibility for overtime, there is no exemption applied based on the employee being paid an annual salary. It is also important to understand that exemptions are determined under the prevailing Act and legislation differs between jurisdictions. For example, many jurisdictions exempt employees whose duties are considered primarily management from the overtime requirements. However this is not the case in New Brunswick, Newfoundland and Labrador, Nova Scotia or Prince Edward Island where managers may under certain conditions be eligible for overtime pay. Additional Resources: The CPA offers in-class Employment Standards seminars across Canada, as well as recent webinars: Ontario Statutory Holiday Legislative Changes (available until Feb 2, 2019) Vacations Assessing Your Policies and Procedures (available until Mar 14, 2019) WATCH NOW 6

8 HEALTHCARE is funded through employer levies and general tax revenue. In Canada, standard healthcare is a publicly funded system that provides residents reasonable access to necessary physician and hospital services without having to pay out of pocket. Each province and territory is responsible for the management of the health care system in their jurisdiction. In some jurisdictions, the funding for healthcare is partially collected from employers through health taxes or levies. Currently, employers in Manitoba, Ontario, Newfoundland and Labrador, and Quebec are subject to a health tax or levy based on compensation paid to employees in those jurisdictions. Additional Resources: The Payroll Compliance Practitioner Certification is the foundation for a career in Canadian payroll. Unlike the U.S. exam-based payroll certifications, PCP Certification consists of four courses and can be taken online through the CPA. Each course starts monthly and is taught by highly-rated instructors. Learn more CONCLUSION Practitioners and organizations managing Canadian payroll are navigating an ever-changing regulatory landscape. Beyond this, changes to technology and industry influences add additional challenges for all organizations. But, cross-border payroll doesn t have to send your head spinning. Despite the added complexity that comes with managing Canadian payroll, there is also a plethora of resources designed specifically with you in mind. While we may be separated by the longest international border in the world, we are united as allies and friends. The Canadian Payroll Association (CPA) and the American Payroll Association s long-standing strategic alliance is staunch in its goal to provide the most current payroll education to practitioners and organizations. If you are responsible for Canadian payroll operations, the CPA is never more than a phone call or away. 7

9 Border length: 8,891km (5,525 mi) World s largest trading partners United States Canada States/Provinces Territories 5 3 Official Languages English English and French S Currency USD ($) CAD ($) Measurement system Standard Metric Income Tax legislation Internal Revenue Code Income Tax Act Time Zones 9 6 8

With nearly 20,000 individual and organization members representing over 43,000 payroll practitioners, the CPA is committed to providing the payroll-related services that those in payroll, and their

For as low as $235 a year, you can join us and have access to: Payroll InfoLine Legislative Compliance Rates Sheet Payroll InfoLine is the CPA s most popular member service with over 43,000 email and

10 With nearly 20,000 individual and organization members representing over 43,000 payroll practitioners, the CPA is committed to providing the payroll-related services that those in payroll, and their employers, need to be compliant and knowledgeable. For as low as $235 a year, you can join us and have access to: Payroll InfoLine Legislative Compliance Rates Sheet Payroll InfoLine is the CPA s most popular member service with over 43,000 and telephone inquiries answered each year. This removable and repositionable cling sheet contains all the mandatory payroll remittance rates, maximums and deadlines for you to refer to throughout the year. Payroll.ca Your online source for payroll information, including: Federal and provincial legislative updates Payroll Best Practices Guidelines Forms, checklists and reference material JobConnectTM (online job and resume posting service) And many more benefits Join today Publications DIALOGUE magazine, published six times per year, is the CPA s official member publication. The CPA e-sourcetm, a bi-monthly e-newsletter, is your source for the latest legislation and compliance updates.

Federal and Provincial/Territorial Tax Rates for Income Earned

Federal and Provincial/Territorial Tax Rates for Income Earned by a CCPC Effective January 1, 2015 and 2016 by a CCPC Effective January 1, 2015 1 Federal rates General corporate rate 38.0% 38.0% 38.0% Federal abatement (10.0) (10.0) (10.0) 28.0 28.0 28.0 business