Chapter 1 - Payroll and Its Compliance Environment Flashcards
What is the primary objective of the payroll function?
To pay employees accurately and on time, in compliance with legislative requirements, for a full annual payroll cycle
What is payroll?
the process of paying employees in exchange for the services they perform
This refers to laws enacted by a legislative body
Legislation
In Canada, there are many legislative sources that payroll professionals must comply with at two separate levels, what are these two levels?
The federal and the provincial/territorial governments
The observance of official requirements. This means performing payroll functions according to federal and provincial/territorial legislative and non-governmental stakeholder requirements for payroll professionals.
Compliance
Other term for legislative requirements
Statutory
What is the responsibility of payroll professionals?
Ensuring their organization is compliant with all payroll related legislation, thus eliminating the potential for any fines or penalties
Example of compliance requirements from other non-government stakeholders?
union collective agreements or group insurance policies
Information needed by payroll professionals to process payroll
Payroll Compliance, Payroll Processes and Payroll Reporting
Skills needed by payroll professional to process payroll
Technical skills, Personal skills and Professional skills
who are responsible for entering payroll data into the system and making required payroll remittances
Payroll administrators
who are responsible for preparing the payroll journal entries and reconciling the payroll related accounts
Payroll coordinators
who manage the payroll function the payroll staff and represent payroll at the management level
Payroll managers
What are the different payroll compliance legislations?
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
What are the different 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
What are the different payroll reporting?
calculating and remitting amounts due to government agencies, insurance companies, unions and other third parties, accounting for payroll expenses and accruals to internal financial systems and federal and provincial/territorial year-end reporting
What are the technical skills required?
proficiency in computer programs such as payroll software and financial systems, spreadsheets, databases and word processing
What are the personal and professional skills required?
- 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
What are the behavioural and ethical standards required?
- trustworthy, as the potential for fraud is ever present
- conscientious, with keen attention to detail
- discreet due to the confidential nature of the 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 to recognize problems quickly and apply sound solutions
- able to remain objective and maintain a factual perspective when dealing with questions and inquiries
Provides the minimum standards of professional behaviour that apply to all members and students and addresses personal accountability and integrity issues
The Code of Professional Conduct (by National payroll institute)
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 professionals can take a proactive customer service approach to serve these individuals and groups
Stakeholders
Who are the internal stakeholders?
employees, employers and other departments within the organization
Who are the external stakeholders?
include benefit carriers, courts, unions, pension providers, charities, third party administrators, and outsource/software vendors
Who are the government stakeholders
federal and provincial/territorial governments
Provides the rules and regulations that the payroll function must administer concerning payments made to employees
Government legislation
Has the power to make laws for Canada’s peace, order and good government.
federal parliament
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
federal cabinet
have power over direct taxation in the province or territory regarding 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
provincial/territorial legislatures
As all provinces and territories (except Québec) have delegated this administration of the collection of income tax deductions to the federal government.
The Canada Revenue Agency (CRA)
collects income tax withheld from employees under both federal and provincial/territorial requirements.
The Canada Revenue Agency (CRA)
TRUE OR FALSE: Québec collects its provincial income tax directly.
TRUE
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:
- 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
legislation that consolidates certain statutes respecting labour.
The Canada Labour Code
Under the Constitution Act of 1867, the exclusive legislative authority of the provinces and territories exists over:
- 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
determine how the rules are to be applied
Regulations
determines the rules
Legislation
This system utilizes the data provided on the T4 information slips issued at year-end to validate the amounts of CPP contributions and EI premiums deducted by employers and identifies any remittance deficiencies
The Canada Revenue Agency’s Pensionable and Insurable Earnings Review (PIER) is an annual compliance review system.
Management may require certain information from payroll to make sound business decisions
Employers
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
Employees
TRUE OR FALSE: Any changes impacting an employee’s net pay should be communicated in advance for personal planning purposes
TRUE
TRUE OR FALSE: Changes to the rates for Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums will affect departmental expenses and should be communicated to those responsible for the budget process.
TRUE
Insurance companies that provide benefit coverage to employees
Benefit Carriers
Require payroll to deduct accurately and remit amounts ordered to be withheld through garnishments, third party demands, requirements to pay and support deduction orders
Courts and the CRA
Require that payroll accurately deduct and remit union dues and initiation fees and ensure that the terms of the collective agreement are followed
Unions
TRUE OR FALSE: It is estimated that just under one-third of the workforce in Canada belongs to a trade union.
TRUE
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
Pension Providers
Have arrangements with some organizations to facilitate employee donations through payroll deductions
Charities
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 employee contributions and remitting employer and employee contributions to the plan administrator
Third Party Administrators
Payroll service providers or payroll software vendors that work with the payroll department to ensure the payroll is being processed accurately and efficiently
Outsource/Software vendors
Where an employee-employer relationship exists, the CRA requires the employer to:
- register with the Canada Revenue Agency for a Business Number (BN)
- withhold the statutory deductions of income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums on amounts paid to employees
- remit the amounts withheld as well as the required employer’s share of CPP contributions and EI premiums to the Canada Revenue Agency
- report the employees’ income and deductions on the appropriate information return
- give the employees copies of their T4 slips by the end of February of the following calendar year
an arrangement whereby an individual (the employee) agrees to work on a full-time or part-time basis for an employer for a specified or indeterminate period
Contract of Service
is a business relationship whereby one party agrees to perform certain specific work stipulated in the contract for another party
Contract for Service
A person who carries out a contract for service may be considered a _______________
a contract worker, a self-employed person or an independent contractor
Under a contract of service, one party serves another in return for a _____________________
salary or some other form of remuneration
verbal or written agreement in which a self-employed individual agrees to perform specific work for a payer in return for payment
business relationship
Deemed to exist where the organization exercises, or has the right to exercise, direct control over the individual.
An employee-employer relationship
are not considered employees of the organization, provided no employee-employer relationship exists
Independent contractors or self-employed individuals
If the organization is unsure as to whether or not a relationship exists, the Canada Revenue Agency (CRA) form Request for a CPP/EI Ruling – Employee or Self-Employed?
CPT1 should be submitted to the CRA
The CRA uses this type of approach to determine the relationship between to worker and the payer (outside of Quebec)
two-step approach
Step 1 of the two step approach
establish what the intent was when the worker and the payer entered into the working arrangement
Step 2 of the two step approach
- the level of control the payer has over the worker
- whether or not the worker provides the tools and equipment
- whether the worker can subcontract the work or hire assistants
- the degree of financial risk taken by the worker
- the degree of responsibility for investment and management held by the worker
- the worker’s opportunity for profit
- any other relevant factors, such as written contracts
