The previous page of this Guide to Canadian Payroll Deductions explained how to open a payroll account with the Canada Revenue Agency ( CRA), collecting required information from employees, and how to deduct income tax and Canada Pension Plan contributions from employees' pay each pay period.
On this page, you will find information on:
- deducting Employment Insurance premiums from employees' pay,
- remitting your payroll deductions to the Canada Revenue Agency,
- and completing T4 slips and the T4 Summary form.
Guide to Canadian Payroll Deductions continued
3) Deducting Employment Insurance (EI) Premiums
Normally, you deduct EI premiums from employees' pay on each dollar of insurable earnings up to the yearly maximum and contribute 1.4 times the EI premium withheld for each employee. Note that unlike CPP, there is no age limit for deducting EI premiums. When your employee EI deductions reach the yearly maximum amount, you stop deducting them.
In 2011, then, the Maximum Annual Insurable Earnings are $44,200 and payroll deductions are to be made at a Federal Rate of 1.78% (1.41% in Quebec) with a Maximum Annual Employee Federal Premium of $786.76 ($623.22 in Quebec).
The Maximum Annual Federal Employer Premium is $1,101.46 ($872.51 in Quebec). These figures are taken from the Canada Revenue Agency's chart of EI premium rates and maximums.
As with other payroll deductions, you can use the Canada Revenue Agency's Payroll Deductions Online Calculator to calculate the amount of Employment Insurance you need to deduct for any pay period.
You may also use the tables provided by the Canada Revenue Agency, Guide T4302, Payroll Deductions Tables and Guide T4008, Payroll Deductions Supplementary Tables or calculate them manually using this method.
Some benefits and payments you give to employees are not subject to Employment Insurance; see this Canada Revenue Agency list.
As a Canadian employer, there may also be special situations that affect your EI deductions; see the Canada Revenue Agency's Employment Insurance page for information on topics such as employment outside Canada, special payments, and hiring a family member.
Step 4) Remit your employee payroll deductions, along with the employer's contributions, to the Canada Revenue Agency.
Normally, the Canada Revenue Agency sends you a remittance form in the mail each time a payroll deductions remittance is due. However, as a new Canadian employer, you won't have a remittance form for your first payment, so you will need to send a cheque or money order payable to the Receiver General with your Business Number (BN) printed on the back to the appropriate tax center.
With this cheque or money order, you need to include a letter that states:
- that you are a new remitter,
- the period your remittance covers,
- your complete employer name, address, and business telephone number; and
- your Business Number.
New employers are classed as regular remitters by the CRA, which means you have to remit your deductions so the Canada Revenue Agency receives them on or before the 15th day of the month following the month you made the deductions. Later, once you have established a remittance history, you may find yourself reclassified as a quarterly or accelerated remitter and having to complete less paperwork.
For more information on remittance, including how to correct payroll remitting errors, see the CRA's Remitting payroll deductions page.
Step 5) Complete all T4 slips and information returns.
Lastly, as an employer, each year you need to complete a T4 Slip for each employee and complete the T4 Summary form.
You have to file the T4 information return and give the T4 slips to the employees on or before the last day of February following the calendar year to which the information return applies.
T4 Slips may be filled out electronically using the Canada Revenue Agency's T4 Web Forms application (which lets you file one to six original or amended T4 slips) or filled out online using a PDF fillable T4 form.
For more information on T4 slips, see the CRA's T4 - Information for Employers page.
The T4 Summary form may also be filled out and filed electronically. You may also file it in paper form, in which case you will need to send the original summary and related T4 slips to the Ottawa Technology Centre. You will find a link to this address and to line by line instructions for filling out the T4 Summary form by following the link at the beginning of this paragraph.
More Information on Running Payroll in Canada
All of your business records, including your records relating to payroll, must be kept at your place of business or at your residence in Canada unless the Canada Revenue Agency has given you permission to keep them elsewhere.
Note too that business records and supporting documents "that are required to determine your tax obligations and entitlements" must be kept for a period of six years.
You may also wish to know that the penalties for complying with Canadian payroll requirements range from fines of $1,000 to $25,000, imprisonment for up to 12 months or a combination of both. This Penalties page provides the details for particular offenses and omissions from failing to make the appropriate payroll deductions to filing information forms late.
More Payroll in Canada Resources
The Canada Revenue Agency has many resources relating to payroll. Besides the CRA resources cited above, you may find these Employers' Guides particularly useful:
- T4001: Employers' Guide – Payroll Deductions and Remittances
- T4130: Employers' Guide – Taxable Benefits and Allowances
On this website, you will find more information on the subject in the Payroll Taxes section.