1. Welcome Payroll Law in Canada (Ontario Specific) Disclaimer: All information provided is from Canada Revenue Agency and Canada Labour Department. Confer with your tax and legal counsel for specific information pertinent to your company. 1 Presented by Pamela Shull

2. You can download a copy of the presentation at www.slideboom.com Copies of Presentation PHK1104 2 File Name: Shull Payroll Law Canada ON

3. Objectives Understand the basics of major federal and provincial laws regarding tax withholding and reporting Comprehend basic labour and employment standards that affect payroll processing Undertake payroll document record retention Audit-proof your documentation Know the steps for special situations that can incur penalties, interest and fines Apply critical, need-to-know legal mandates that protect your organization 3 WB - 1

4. Federal? Provincial? Territorial? Which law do you follow Federal Industries that are inter-provincial or inter-national in scope Includes: banking, transportation, radio and television, Provincial Trade unions, hours of work, work comp, paid vacations Relationship between employer and employee Territory Under federal jurisdiction Administered by Department of Indian and Northern Affairs and Northern Development 4

5. Federally Regulated Industries 5 Banks Marine shipping, ferry and port services Air transportation, including airports, aerodromes and airlines Railway and road transportation that involves crossing provincial or international borders Canals, pipelines, tunnels and bridges (crossing provincial borders) Telephone, telegraph and cable systems Radio and television broadcasting Grain elevators, feed and seed mills Uranium mining and processing Businesses dealing with the protection of fisheries as a natural resource Many First Nation activities Most federal Crown corporations Private businesses necessary to the operation of a federal act

6. Canadian Payroll Basics Determine your status Opening a payroll account Hiring employees Calculating compensation Calculating deductions Remitting deductions Completing and filing information returns Employer’s requirements Payroll ‘s responsibilities 6 WB - 2

7. 7 7 Website References and Resources Canadian Master Labour Guide, pub. CCH Canadian Master Tax Guide, pub. CCH Labour and Employment Issues www.hrsdc.gc.ca – for basic Employment Standards: type “Employment Standards” into search tool mechanism www.hrsdc.gc.ca www.labour.gov.on.ca - tools www.labour.gov.on.ca Tax Issues www.cra.gc.ca – use search tool for specific tax questions www.cra.gc.ca http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/menu- eng.html - for specific payroll tax issues (T4001, T4130 Publications) http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/menu- eng.html 7

8. Required Recordkeeping On all employees keep: Hours worked by each employee CPP contributions, EI premiums and taxes Form TD1 Quėbec requires Form TP1015.3 Retention requirement Taxes: Six years from the end of the last tax year to which they relate. Employment: determined by province/territory – typically 3 years. 8 WB – 3 - 5

9. INDEPENDENT CONTRACTOR OR EMPLOYEE? PAGES 6 - 7 Section 1 9

10. Determine Worker Status Canada 4-point Test 1.Control 2.Ownership of tools/equipment 3.Chance of profit or risk of loss 4.Integration into the company 10 WB – 6 - 7 Behavioral Financial Control and Financial Responsibility Relationship of the parties

11. Recordkeeping Requirements Contractor Contract for services agreement Proof of business Invoices Tax Reports and deposits (T4A slips, if applicable) 11 Employee Contract of services or job description TD1 or TP1015.3-V Time or tracking records Payroll records of payments, withholdings, remittances T4 slips

12. LABOUR LAW ISSUES PAGES 8 - 17 Section 2 12

13. Minimum Wage - Ontario Currently: June 1, 2014 $11.00 per hour Student: $10.30 Student Wage: applies to students under the age of 18 who work 28 hours or less when school is in session or work during a recognized break (e.g. summer break) 13 WB-8

14. 14 Who Is Allowed To Be Salaried Without Overtime (exempt)? Managers, superintendents, and employees who carry out management functions are exempted from hourly remuneration (50% rule applies). Architects, dentists, engineers, lawyers, and medical doctors are also excluded. Special hours of work regulations in several industries exempt or set different standards for certain employees. WB-9

15. Non-Management Duties Clerical, manual labour Routine, repetitive, directed-type work Front line workers Support staff 15

16. Special Exemption Industries - Ontario EMS, Healthcare and Health Professionals Manufacturing, Construction, Mining Hospitality Services, Sales Transportation Agriculture, Growing, Breeding, Keeping, and Fishing Household, Landscaping and Residential Building Services Government www.labour.gov.on.ca/english/es/tools/srt/index.php 16

17. Salaried – Fixed – Ontario Employee is paid salaried but does not qualify for overtime exemption. Employee’s hours of work change from day to day but their weekly pay stays the same. Employee salary is for all non-overtime hours up to 44. Sharon’s salary is $500 per week. One week she works 50 hours. $500 ÷ 44 = $11.36 $11.36 x 1½ = $17.04 $17.04 x 6 = $102.24 $500 + $102.24 = $602.24 17

18. 18 Salaried – Fluctuating - Ontario Employee is paid salaried but does not qualify for overtime exemption. Employee has set hours and a salary that is adjusted for variations in the set hours. Employee is hired on the understanding that they will be paid $450 per week for 40 hours. Salary is adjusted when they work more or less than hours hired for. Sharon’s salary is $450 per week. One week she works 50 hours. $450 ÷ 40 = $11.25 $11.25 x 44 = $495.00 $11.25 x 1½ = $16.88 $16.88 x 6 = $101.28 $495.00 + $101.28 = $596.28 18

19. Ontario Hours of Work Rules Minimum 3 hours Overtime paid after 44 – Averaging allowed upon approval (3 years) – Must be part of a “posted” schedule Meal period – 30 minutes for 5 consecutive hours of work Rest periods – 11 consecutive hours free per day – 24 consecutive hours in every work week – 48 consecutive hours in every period of two consecutive work weeks 19 WB-10

20. Minimum 3 Hour Rule – Ontario When an employee is required to report to work for a shift of 3 hours or longer but works less than 3 hours, they must be paid whichever of the following amounts is the highest: 3 hours at minimum wage or the employee’s regular wage for the time worked Exceptions to the rule: Students Employees whose regular shift is 3 hours or less Where the cause of the employee not being able to work at least 3 hours was beyond the employer’s control. 20

21. Averaging With Averaging Agreement – hours of work to be averaged over a period of one, two, three or four weeks. Employees may agree to work up to 48 hours in a week, without being paid overtime Employers may schedule 4 days at 11 hours a day - requires Director approval. RULES: – Be in writing – Specify work schedule for each day – Be signed by employer and employee before start date – Be approved by the Director of Labour Standards 21

22. Lieu Time - Ontario Must have agreements with employees Allowed to take the time off within 3 months of time worked Must be banked at time and a half for all hours worked over 44 in a workweek or by averaging agreement Recordkeeping must accurately depict worked hours, accounting for the hours and when the hours were taken subsequently 22 Canadian Master Labour Guide, 6305 WB-11

23. Training Time - Ontario Time spent by an employee in training that is required by the employer or by law is counted as work time. For example, where the training is required because the employee is a new employee or where it is required as a condition of continued employment in a position, the training time is considered to be work time. Time spent in training that is not required by the employer or by law in order for an employee to do his or her job is not counted as work time. For example, where an employee hoping for a promotion with the employer takes training in order to qualify for it, time spent taking the training is not considered to be work time. 23

24. Travel Time - Ontario Commuting time is the time it takes an employee to get to work from home and vice-versa. This is not counted as work time for the purposes of the ESA. However, there are a number of exceptions to this rule. If the employee takes a work vehicle home in the evening for the convenience of the employer, the work time begins when the employee leaves home in the morning and ends when he or she arrives home in the evening. If the employee is required to transport other staff or supplies to or from the workplace or work site, time so spent must be counted as work time. If the employee has a usual workplace but is required to travel to another location to perform work, the time traveling to and from that other location is counted as work time. Time spent travelling during the course of the workday is considered to be work time. 24

25. Wage Calculation for Commissions If an employee’s pay is based completely or partly on commission, it must amount to at least the minimum wage for each hour the employee has worked: Lisa works on commission and has a weekly pay period. One week in April she earned $150 in commission and worked 25 hours. The minimum wage applicable is $11.00 an hour. 25 x $11.00 = $275.00 $275.00 - $150 = $125.00 Employer owes Lisa the commission plus the difference for the hours worked. 25

26. STAT Holidays In Ontario New Year's Day Family Day Good Friday Victoria Day Canada Day Labour Day Thanksgiving Day Christmas Day Boxing Day (December 26). 26 WB-12-13

27. Federal Stat Holidays New Year's Day Good Friday Victoria Day Canada Day Labour Day Thanksgiving Day Remembrance Day Christmas Day Boxing Day (December 26). 27

28. Holiday – Ontario If employee works on holiday: 1½ times regular rate plus regular wages or Regular rate for hours worked and receive another day off with public holiday pay. Length of Service Entitlement Not specified If holiday falls on non-working day Employee can substitute another day off with pay or receive public holiday pay for the holiday 28 WB – 12-13

29. Wages Included In Stat Holiday When calculating public holiday pay, gross regular wages include: Regular earnings Commissions Bonuses and gifts that are non-discretionary or that are related to hours of work, production or efficiency Allowances for room and board 29 WB-12-13

30. Wages NOT Included in Stat Holiday Do NOT include Overtime pay, vacation pay, premium pay, termination pay and severance pay Exception: vacation pay is included if: On paid vacation during all or part of the 4 week calculating period or Paid a lump sum vacation pay during 4 week calculation period or Paid 4% or more vacation pay every cheque 30 WB-12-13

31. Stat Holiday Pay Calculation Previous 4 weeks pay divided by 20 or Previous 4 weeks employee received a total of $1600 $1600 / 20 = $80.00 If schedule does not change – regular daily pay Regular schedule 8 hours at $11.00 per hour $11 x 8 = $88.00 31 WB-12-13

32. Stat Vacation Time and Pay Eligibility: 1 year of service Time: 2 weeks each year Pay: 4% of annual wages If an employee quits or his or her employment is terminated before he or she is able to take the vacation time, the employee must be paid 4% of the total gross wages earned up to that time, less any vacation pay already paid. Gross wages include regular earned wages before deductions; as well as commissions, bonuses and gifts that are non-discretionary or that are related to hours of work, production or efficiency; allowances for room and board; overtime pay; public holiday pay; and termination pay. If an employee has worked for less than 12 months before employment ended, and the employer did not pay vacation pay in every pay period, then the employee is owed 4% of his or her total gross wages at the end of employment. 32 WB – 14

33. Final Vacation Pay Calculation An employee started employment on January 1, 2013 at a salary of $500 per week, earning a total of $26,000 in 2013. He earned 2 weeks of vacation time for 2013 plus 4% on the total gross wages, which equals $1040.00 If the employee takes 1 week of vacation with half of the vacation pay in February 2014 and quits on March 31, 2014 the employer still owes the employee $520 vacation pay earned in 2013, plus 4%of total gross wages earned between January 1 and March 31, 2014. 33

34. Sample Calculation Period for which vacation pay claimed Gross Wages earned during this Period Total Vacation Pay earned during this period Total Vacation Pay paid for this period ***Total Vacation Pay Owing for this Period Jan 1, 2013 – Dec 31, 2013 $26,000$1040$520 Jan 1, 2014 – Mar 31, 2014 (12 weeks regular pay) $6,000$ 240$0.00$240 Total Vacation Pay Owed $760 34 ***Total Vacation Pay Owing = Total Vacation Pay Earned – Total Vacation Paid

35. Maternity/Parental Leave - Ontario Pregnancy Qualifying period – 13 weeks prior to estimated delivery date Length of leave – 17 weeks Extension – 6 weeks Seniority/Benefits – included Parental Qualifying period – 13 weeks Length of leave – 37 weeks, 35 weeks if pregnancy leave is taken 35 WB – 15

36. Emergency Leave - Ontario Applies to employers with 50+ workers 10 days’ unpaid leave each calendar year 36 WB – 16

37. Family Medical Leave (Compassionate Care Leave) Policy and Procedures Up to 8 weeks to provide care or support to family member for serious medical condition with significant risk of death within 26 weeks Medical certificate required within 15 days after employee’s return to work Employees under federal jurisdiction entitled to take FML regardless of length of service Cannot suspend, discipline, terminate, lay-off, or demote an employee for taking FML Must be reinstated to former position, salary and benefits 37 WB-16

38. Termination Chart Length of ServiceRequired Notice/Pay by Employer 3 to 12 months1 week 1 to 3 years2 weeks 3 yrs to 4 yrs3 weeks 4 yrs to 5 years4 weeks 5 yrs to 6 years5 weeks 6 years to 7 yrs6 weeks 7 years to 8 yrs7 weeks 8 years or more8 weeks 38 WB – 17

39. Payment of Wages on Termination - Ontario Within 7 days of date of termination, or By the day that would have been the employee’s next pay day Must provide written statement of wages Amount of gross vacation pay and gross termination or severance pay along with how amounts were calculated 39

40. TAXABLE OR NONTAXABLE PAGES 18 - 32 Section 3 40

41. Withholdings: Taxable vs. Nontaxable Government regulated withholdings: Employment Insurance (EI) Canada Pension Plan (CPP) Quėbec Pension Plan (QPP) Federal and Provincial Income Taxes The courts can regulate Garnishments Maintenance Orders for Support 41 WB – 18

42. Service Canada Website www.servicecanada.gc.ca Use it to file ROE (Record of Employment) Report on Hirings The Report on Hirings (ROH) program is a voluntary verification program that allows employers to submit the Social Insurance Number and the first day worked for newly hired or recalled employees to Service Canada each month using a secure online application. You will benefit from ROH if you: have a high turnover in staff; do a lot of hiring over the course of an average year; and complete several Records of Employment (ROEs) over the course of an average year. 42 WB – 19

43. Gifts Tangible Property or Gift Card or Cash A gift (either in cash or in kind) from an employer to an employee is a benefit derived during or because of the individual's employment. A gift has to be for a special occasion such as Christmas gift, birth of a child, marriage, etc. An employee can receive unlimited number of tangible property gifts with a value up to $500 on a nontaxable basis. Anything over $500 cumulative for the year will be taxable. Example: Employee receives $650 in tangible property gifts. $150 is taxable. Cash and near-cash are taxable (special rules apply) 43 WB – 23

44. Awards vs. Reward Award - Must be given for an employment- related accomplishment to be nontaxable – Outstanding service, employees’ suggestions, or meeting or exceeding safety standards. – It must be recognition of an employee’s overall contribution to the workplace –not recognition of job performance. Reward – given to employee for performance-related reasons - taxable 44 WB – 23-24

45. Rules for Gifts and Awards Example 1: You give your employee a $100 gift card or gift certificate to a department store. The employee can use this to choose whatever merchandise or service the store offers. Gift is taxable benefit because there is an element of choice. Example 2: You give employee tickets to an event on a specific date and time. Gift is non-taxable because there is no element of choice. 45

46. Awards Must be employment-related accomplishment. Long-service award rules: Value up to $500 – tangible property only - non- taxable Must be for a minimum of five years of service Must be at least 5 years since you gave the employee the last long-service or anniversary award Is not included in other gift or award benefits 46

47. Prize Draws and Social Committees Taxable: Item given to one employee by an employer via a prize draw Item paid for by the employer and given via a draw to an employee of a high-performing team Nontaxable (Unless otherwise specified) Item paid for by a social committee and given via a draw Committee must be entirely funded by the employee If funded by employer – taxable If funded by both – employer percentage is taxable – employee percentage is nontaxable. 47 WB – 24

48. Type of RemunerationTaxableNon-Taxable Gift Tangible Property Gift Card Cash If there is an element of choice yes Up to $500 per year There is no element of choice Award (Exception) Length of service tangible property - 5 year increments Same as above Up to $500 – separate from all other awards and gifts Reward Tangible Property Gift Card Cash yes Prize Drawings From employerYes From social committee funded by employees Funded by employer Funded by both No Yes Based on percent 48

49. Automobile Allowance Personal use of company vehicle is taxable. Use “stand-by charge” method calculation (available on CRA website: www.cra.gc.ca/autobenefits- calculator) pub. T4130.www.cra.gc.ca/autobenefits- calculator Reasonable per-kilometre allowance - nontaxable 55₵ per kilometre for the first 5,000 kilometres driven and 49₵ per kilometres driven after that. Flat rate allowance - taxable 49 WB – 25

50. Cellular Phone Service Personal use of company cell phone is taxable Employer has responsibility to determine FMV (fair market value) of personal use. Must justify calculations Exception to the rule (all must apply): The plan’s cost is reasonable The plan is a basic plan with a fixed cost Your employee’s personal use of the service does not result in charges that are ore than the basic plan cost. 50

51. Internet Service When employer provides internet service for employee for home use – the fair market value of the service for business use must be calculated. Employee should be taxed on FMV of personal use. 51

52. Meal Allowances Detailed method Price on receipts Simplified method $17 per meal; not to exceed $51 per day Must keep documentary evidence 52

53. Education Benefits Allowances for children – taxable (some exceptions apply) Scholarships, busaries, tuition and training Employment-related training – for benefit of employer – not taxable Personal interest training – taxable Family member – post-secondary education – reported on T4A slip for the family member 53

54. Airline Bonus Points Your employees may collect loyalty points, such as frequent flyer points or air miles, on their personal credit cards when travelling on business trips, even though you reimburse them for the amounts they spend. Usually, these points can be exchanged or cashed in for rewards (goods or services, including gift cards and certificates). 54

55. Airline Points Continued Your employees do not have to include in their income the value of the rewards they received or enjoyed from the points they collect on these business trips, unless any of the following applies: The points are converted to cash. The plan or arrangement between you and the employee seems to be a form of additional remuneration. The plan or arrangement is a form of tax avoidance. If any of the conditions above are met, the employee has to declare the fair market value of any personal rewards he or she received on an income tax and benefit return. 55

56. Airline Points Continued Exception to the rule: If you control the points (such as when an employee uses a company credit card, you have to report on their T4 slip the fair market value of any personal rewards he or she received from redeeming the points. You have to include any GST/HST that applies in the value of this benefit. 56

57. Example 1 Personal credit card - Taxable benefit Pauline's employer allows her to use her personal credit cards whenever possible to pay for business expenses, which the employer then reimburses to her. To maximize the points earned, Pauline used her personal credit cards to pay for various employer business costs, including travel expenses of other employees. CRA views this arrangement as a form of additional remuneration provided to Pauline. Pauline would not normally pay for employer business costs other than her own work-related expenses, incurred in the normal course of working. She would not normally cover the cost of business expenses of other employees. Pauline will have to calculate the fair market value of any personal reward she receives when she redeems the points. She will then have to declare the value as income on her income tax and benefit return. 57

58. Example 2 Company credit card points for benefit of the employee Jennifer's employer has a company credit card, under which loyalty points are earned. Jennifer uses the card for employment-related purchases. The employer is billed, pays the credit card charges, and receives the loyalty point statement. The employer allows Jennifer to redeem the points for personal rewards. In this case, the fair market value of the goods or services received by Jennifer is a taxable employment benefit, as her employer controls the tracking and disbursement of the points. The employer has to report the value of the goods or services on her T4 slip in the year that the points are redeemed. Alternately, if the employer did not control the tracking and redemption of the points, the value of any points redeemed by Jennifer for personal rewards would not have to be included on her T4 slip. Jennifer may have to declare the income on her income tax and benefit return. 58

59. Example 3 Personal loyalty points card - Non-taxable Frank has a personal credit card he uses for both personal and work-related expenses. The card offers loyalty points which can be cashed in for travel rewards, but which cannot be redeemed for cash. Frank decides to redeem some of the points to take his family on vacation. Since Frank controls the points, and this arrangement does not seem to be a form of additional remuneration, he does not have to include the value of the points earned from work- related expenses as income on his income tax and benefit return. 59

60. Group Term Life Insurance Policies – Employer Paid Premiums Calculating the benefit: If the premiums are paid regularly and the premium rate for each individual does not depend on age or gender, the benefit is: The premiums payable for term insurance on the individual’s life - plus The total of all sales taxes and excise tax that apply – minus The premiums and any taxes the employee paid directly or through reimbursements to the employer If taxable it is pensionable but not insurable 60

61. Internet Service When employer provides internet service for employee for home use – the fair market value of the service for business use must be calculated. Employee should be taxed on FMV of personal use. 61

62. Private Insurance Premiums Premiums under Private Health Services Plans Where an employer makes a contribution to a private health services plan in respect of an employee, no taxable benefit arises to the employee. Benefits provided to an employee under a private health services plan are not subject to tax in the employee's hands. "Private health services plan" is defined in subsection 248(1). (See also the current version of IT-339, "Meaning of Private Health Services Plan" and IT-85, "Health and Welfare Trusts for Employees".) 62

63. Private Insurance Premiums Employer's Contribution under Provincial Hospitalization and Medical Care Insurance Plans Where an employer is required, under a provincial hospital insurance plan, a provincial medical care insurance plan, or both, to pay amounts to the provincial authority administering such plan or plans (other than with respect to the contributions or premiums that an employee is required to make under the plan), the payment of such amounts does not give rise to a taxable benefit to employees. 63

64. When Are the Premiums Taxable? Premiums under Provincial Hospitalization and Medical Care Insurance Plans Where an employer pays all or a part of the premiums or contributions that an employee is otherwise required to pay to a provincial authority administering a provincial hospital insurance plan, a provincial medical care insurance plan, or both, the amount paid is a taxable benefit to the employee. Where an employer pays an amount to an employee in respect of the employee's premium under a provincial hospital or provincial medical care insurance plan, the amount paid is a taxable benefit to the employee. 64

65. Health Spending Arrangements/Accounts (HSA) Non Taxable as long as Expenses are covered as outlined in IT-519 Taxable If used for expenses not allowed in IT-519 65

66. Withholding Remitting What type of remitter are you? Regular remitter Quarterly remitter Accelerated remitter Remitting guidelines are based on amounts of withholdings to be remitted. 66 WB – 26

67. Penalties Incurred Through PIER Penalties and Interest Based on lateness of remittance Failure to remit Interest can be charged on unpaid penalties in addition to amounts owed Interest in compounded daily from date remittance was first due or penalty was first assessed. 67 WB – 28

68. GARNISHEES IN CANADA PAGE 29 Section 4 68

69. Withholdings: Garnishees Types of Garnishees Creditors Tax garnishees from CRA (Canada Revenue Agency) Child Support/Maintenance Orders 69 WB – 29, Appendix 43-44

70. Creditor Garnishees Court ordered Cannot terminate the employee for one garnishee Fine: $1,000 or face imprisonment with a duration of one year. Deduction controlled by federal and provincial laws 70

71. Tax Garnishees from CRA Allowed without a court order No limit Usually last resort 71

72. Child Support/Maintenance Orders Court may order be paid in periodic payments, lump sum or both Limits are governed by federal and provincial law Cannot terminate an employee for garnishee 72

73. Employer Liability If you receive a Requirement to Pay notice and you do not comply with the requirements: YOUR COMPANY MAY BE HELD RESPONSIBLE FOR THE AMOUNTS YOU DIDN’T REMIT! 73

74. SPECIAL CONSIDERATIONS PAGES 30-31 Section 5 74

75. Special Payroll Concerns Final Pay Calculate the employee’s earnings and deductions for year to date Give employee T4 slip File government copy by the last day of February of the following year Complete the Record of Employment (ROE) 75 WB – 30