Source Deductions
Source deductions are the sums the employer must deduct from the employee remuneration. Once the deductions have been made, the employee receives their net salary. Source deductions are the contributions that the employee is required to pay; however, the employer is responsible for deducting them from his gross salary and delivering/dispensing them to the appropriate tax agency at the appropriate time. The frequency of payments varies depending on several factors, including the number of standard charges paid and the estimated payroll. Knowing the distinction between these elements is essential when hiring employees.
Source deductions include:
- Provincial tax by period
- Federal tax by period
Contributions
Employers have the responsibility to contribute specific amounts from their income, which align with the deductions from the employee’s gross salary. This mutual participation ensures that both employees and employers are invested in the same plans. How the contributions owed by the employer are determined is based on the gross salary and not on the net salary paid. The contribution rate can also vary depending on the company’s payroll, the nature of the business, or the businesses associated with the business in question.
The contributions payable by the employer (based on the employee’s salary) include:
- The Pension Plan.
- Employment Insurance (EI) Premium
- The Health Service Fund
An example
If we take as an example an employee who lives alone and is paid every two weeks (26 periods per year), who is subject to employment insurance, and who has a basic salary of $1,000.00 per period, then the situation would be the next one:
Source deductions represent the first section and are deducted from the employee’s wages, and “cost to the employer” represents their contributions. In this example, the employer deducts $1,76.41 from the employee’s gross salary (he gives the employee $823.59 and not $1,000), and the employer must pay, out of his income, $136.30 for contributions.
How to Legally Comply as a New Employer
When you become an employer, you must open an account to remit employee deductions and make your contributions.
Open a Payroll Deduction Program Account
In the case of Revenue, the account must be created before the date on which the first deduction is due. This first payment is due no later than the 15th of the month following the month in which you started to deduct the deductions (therefore following the first payment).
If you already have a business number (BN), add a deduction program account to your existing BN. If you do not have a BN, you must request one and register for a Payroll Deduction Program account before your first payment is due.
The Pay Slips
As an employer, it is required to give each employee, with their salary, a pay slip or a pay stub, which will allow them to check the calculation of their salary and the deductions.
This bulletin must contain the following information:
- the name of the employer
- the name of the employee
- the job held
- the period covered by the pay
- the number of hours paid at the standard rate
- the number of overtime hours paid or replaced by leaves, including the rate that applies (if applicable)
- the nature and amount of the premiums, indemnities, allowances, or commissions paid
- hourly wages
- the number of gross wages
- the nature and amount of the deductions received
- the number of net wages
- the number of tips that the employee declared or that the employer attributed to him
As you can see, hiring and growing your business requires complying with several requirements. If you need assistance in your efforts and want to know more about the issues related to hiring employees, you need to be careful.
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