What is Payroll Remittance?

As a newbie in the world of business, there are some things you need to understand before diving into it fully. One important aspect of business every entrepreneur must not ignore is payroll remittance. Although this aspect is quite complex, it is one that you must not ignore to avoid severe penalties. This article discusses what is payroll remittance and other questions related to the topic. The information will serve as a guideline for navigating the complex process of remitting your payroll.  

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What is a payroll remittance?

A payroll remittance is a specific amount business owners or managers must pay to the Canadian Revenue Agency (CRA) after disbursing remunerations or allotting a taxable allowance to employees on their payroll.

Remunerations are the benefits and compensations that the law mandates you to give to your employees. They include things like wages, salaries, taxable benefits, commissions, and pension income.

‍When you pay your workers remuneration, like salary or wages, or give them a taxable benefit, you need to make source deductions from the amount. Thereafter, you have to pay these deductions from the remunerations to the CRA. The source deductions, include EI premiums, CPP contributions, and income tax. We'll discuss these source deductions in the later part of this article.

According to the CRA, every employer has to make these deductions from their employees’ salaries, withhold them, and remit them, alongside the employer's share of the CPP contributions and EI premiums. That is what makes up a payroll remittance. So when you think of the question, “What is payroll remittance?”, all we have outlined above should come to your mind for better understanding.

How do I calculate payroll deductions?

The easiest way you can calculate your payroll deductions is by using the Payroll Deductions Online Calculator (PDOC). Basically, this calculator will help you to determine the number of source deductions to make and input on your statement of earnings to be paid to the CRA. You need to input the right of money or risk facing a penalty for inaccurate reporting.

Note that your payroll deductions calculator is just as good as the accuracy of the information you enter. Hence, you have to provide accurate information to get accurate answers.

It is your responsibility as an employee to cross-check and ensure that the calculations are accurate, even if you outsource this process.

Fortunately, there are some precautions you can take to ensure that the PDOC functions well for you. Also, this limits the chances that your data will fall into the wrong hands. These precautions include:

1. Create your statements of earnings

While the calculator can give you accurate calculations, it is best not to file it as your official statement of earnings with the CRA. This is because there are some other information needed on the official statement of earnings that the PDOC does not contain. Just draft out an official statement of earnings using the employment standard listed in your province.

2. Erase your cache at the end of your calculation session

The PDOC will always retain the details of information for about thirty minutes after you finish calculating. Hence, you need to erase your internet browser cache and close the browser once you finish with your calculations.

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How often should I remit payroll deductions?

Whenever you pay your workers' remunerations, you must make the necessary source deductions from these amounts. After the deductions, you must remit the total deducted amount to the CRA.

How often you remit your deductions primarily depends on the type of register you are entitled to. Hence, you must find out your remitter type (and its frequency) to enable you to know your expected date of payroll remittance. This will prevent you from facing any extreme penalties made for defaulters.

Generally, the CRA determines your type of remitter based on your average monthly withholding amount (AMWA). Your AMWA has to be from the last two calendar years before the period of reporting. The AMWA is calculated by totalling all of the Canada Pension Plan (CPP), income tax, and employment insurance (EI) that you remitted for the year, divided by the total number of months (maximum of 12) that you remitted them for.

Usually, they classify new remitters as either regular remitters or quarterly remitters, based on the size of the employer. While small employers will be tagged as quarterly remitters, they tag new employers that cannot be classified as 'small', as regular remitters.

Once you identify your remitter type successfully, you will know how often the CRA expects you to remit your payroll deductions.

What do I need to pay a CRA payroll remittance?

Before you pay your CRA payroll remittance, you need to have some information that will be required from you. Hence, we will be walking you through the list of things you require to make your payroll remittance. Here is the information you must readily have beforehand:

• Account number for your payroll program (RP). Note that you have to open a payroll account if you don't have one.
• The number of paydays you are making remittances for
• The date your remitting period ends
• Your gross payroll during the remitting period
• The number of workers you paid on your previous payday during the remitting period
• Your remitter type and its remitting frequency
• Remittance due date
• Your remittance voucher

Once you have gotten all the information on this list, you can go ahead to remit your payroll. Read further for more information about this. ‍

How do I pay my CRA payroll remittance?

There are different ways you can pay payroll remittance depending on your remitter type. These ways include:  

1. For those whose category falls under Regular, Quarterly, and Threshold 1 accelerated remitter, you can use your mail to pay your remittance.

2. If your category falls under Threshold 2 accelerated remitter, you cannot send your remittance via mail.  You must do your remittance either electronically or through any Canadian financial institution.

Ensure that you pay it off to your Canadian financial institution on or before the third working day at the end of these periods:

• from the 1st to the 7th day of the month
• from the 8th to the 14th day of the month
• from the 15th to the 21st day of the month
• from the 22nd to the last day of the month

Note that this doesn't include working days like Saturdays, Sundays, and any other CRA-recognized public holidays.

How can I remit by mail?

As stated earlier, all other remitter types, except the Threshold 2 accelerated remitters, can pay their payroll remittances via mail. If you decide to remit by mail, make sure that your payment is directed to the Receiver General. Thereafter, print your payroll account number on it and mail it with your remittance voucher to the Sudbury Tax Centre. If you have paid your remittance before the due date, you can post-date your payment to the remittance due date.

If you don't have any remittance voucher yet, include this information with your payment:

• The account number of your payroll program (RP)
• That you are just a new remitter, if pertinent
• The complete legal name of your business, its address, and telephone number
• The remitting period that your remittance covers. Give a breakdown of the remitting period (if it covers more than one period)
• That you did not get any remittance voucher, if pertinent

When do I pay my CRA payroll remittance?

Similar to your payroll remittance frequency, the day you pay the CRA your payroll remittance is determined based on your remitter type. So your due dates for remittance are determined by your type of remitter. Note that the CRA must get your payroll remittance no later than your due date.

What are the types of payroll remittances?

Basically, there are two major categories of payroll remittances. These categories include:

1. Source deductions

Source deductions are the specific amounts of money you must deduct from your worker's wages, salaries or any other taxable benefits that they receive from the company.

For instance, if you pay one of your employees $2,000, they will not receive that whole amount. The worker will receive the remaining funds after you have minus the specific amount of money you are obligated to pay as your payroll remittance. Usually, this depends on federal and provincial laws.

What are the common types of source deductions?

The common types of source deductions you must withhold from your employees and remit directly to the CRA include:

a. Income Tax

You need to make use of the provincial tables to find the amount of money deductible from each province that is under income tax. To calculate this easily, you can use CRA’s digital payroll deductions calculator.

b. Employment Insurance Premiums

Generally, employers deduct insurance premiums from each dollar of the insurable fee that workers earn. To calculate the annual EI deductions, you have to refer to the standard CRA's EI premium rates as well as its maximums chart.

c. Canadian Pension Plan (CPP)

It is compulsory for employers to deduct CPP if a worker is between the ages of 18 and 69, has no disability, and has a pensionable job. For more information, pertaining to this, visit the CRA's Canada Pension Plan website.  

2. Employer’s compulsory contributions to the payroll remittances.

This is the second type of payroll remittance. As an employer, the CRA expects you to make a compulsory contribution to your employees' deductions and remittances.

For instance, as an employer, you have to contribute 1.4 times the amount you deduct from your employee's remuneration for the Canadian Pension Plan (CPP). These contributions form the other fraction of the payroll remittances.

Is there a penalty if my payroll remittance is late?

Yes, there is a severe penalty if you pay your payroll remittance late. Hence, you must set up a system that ensures the timely processing and payment of your payroll remittance.

When can an employer face penalties for late payment of payroll remittance?

You can face harsh penalties when you do any of the following;

• If the amount of money you deduct is more than $500 but you do not send it to CRA
• The amount of money you deduct is over $500 but you send them late to CRA
• You deduct amounts below $500, and deliberately or under other circumstances of total negligence do not send it to CRA or send it late.

Generally, the penalty you will face for sending in your payroll remittance late varies depending on how long you fail to pay it. So the earlier you send it the better for you. Here’s a breakdown of the various penalties you are likely to face depending on how late your payment is:

• 3% if the remittance amount is just one to three days late
• 5% if the amount is four or five days late
• 7% if the amount is six or seven days late
• 10% if it is over seven days late or you don't remit any amount
• 20% at the second or subsequent time you are found guilty of this penalty in one calendar year even if you made the blunders knowingly or under the circumstances of total negligence

Note that if the due date for your payroll remittance falls on any public holiday acknowledged by CRA or on a weekend, it will not be assumed late. However, you must send it on the next workday after the public holiday or weekend.

Also, note that there are other things the CRA can penalize you for; it is not just for late payments. You will face penalties for any of the following;

• Inaccurate calculation or deduction
• Wrong method of payment (for remittance)
• Late filing for information return
• The wrong procedure for filing your information return

Bottom line

At this point, you should be able to answer your first question, “What is payroll remittance?”. It is the amount you deduct from your employee's remuneration to pay to the CRA. Although the process seems very simple, it is far more complex in reality. Hence, you must ensure that you set up a strategy for your business to send this fee to the CRA before the due date. If you don't do this, you can face severe penalties that may put a strain on the finances of your business.

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