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An Introduction to Payroll Administration 3rd Edition
An Introduction to Payroll Administration 3rd Edition
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AN INTRODUCTION TOPAYROLL ADMINISTRATION
THIRD CANADIAN EDITION
Alan W. Dryden
CPA, CGA, ACIS, MBA, PCP
,Introduction to Payroll Administration
Third Edition
Copyright © 2019, 2016 by McGraw-Hill Education LLC. All rights reserved. No part of this publication may be reproduced
or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission
of McGraw-Hill Ryerson Limited, or in the case of photocopying or other reprographic copying, a license from The Canadian
Copyright Licensing Agency (Access Copyright). For an Access Copyright license, visit www.accesscopyright.ca or call toll
free to 1-800-893-5777.
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a Web site does not indicate
an endorsement by the authors or McGraw-Hill Ryerson, and McGraw-Hill Ryerson does not guarantee the accuracy of the
information presented at these sites.
ISBN-13: 978-1-25-965472-5
ISBN-10: 1-25-965472-9
1 2 3 4 5 6 7 8 9 10 WEB 23 22 21 20 19
Printed and bound in Canada.
Care has been taken to trace ownership of copyright material contained in this text; however, the publisher will welcome any
information that enables them to rectify any reference or credit for subsequent editions.
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,i
Author Biography
Alan Dryden, CPA, CGA, MBA, ACIS, PCP is a dynamic professor
teaching business, accounting, human resource and payroll related
courses at post-secondary schools in the Toronto area.
His academic qualifications are demonstrated through the attain-
ment of professional designations in accounting, payroll and
administration. These are complemented with a Master of Business
Administration degree from the University of Western Ontario.
Prior to transitioning to full time teaching, Alan spent many years
in industry in accounting and general management positions. This
included being a successful entrepreneur. Throughout his career he
was responsible for payroll administration either directly or by man-
aging payroll staff in Canada, the United States and Mexico.
Currently Alan is a member of the Chartered Professional Accoun-
tants’ Association, Institute of Chartered Secretaries, and Canadian
Payroll Association where he participates in the National Education Council.
Alan teaches at Centennial, Durham, Humber and Seneca Colleges and may be contacted at: intro2can-
payadmin@bell.net
,v
Summary of Contents
Preface x
Acknowledgements xiv
Chapter 1 Introduction to Canadian Payroll 1
Chapter 2 Labour and Employment Standards 10
Chapter 3 Calculation of Gross Earnings 24
Chapter 4 Pensionable, Insurable and Taxable Earnings 37
Chapter 5 Non-Statutory Withholdings from Payroll 58
Chapter 6 Calculation of Net Pay 65
Chapter 7 Employer Payroll Taxes and Premiums 74
Chapter 8 Accounting for Payroll 83
Chapter 9 Payroll Information Systems 92
Chapter 10 Payroll Remittances 108
Chapter 11 Termination of Employment 116
Chapter 12 Year-end Payroll Reporting 125
,Contents
Preface x
Acknowledgements xiv
Chapter 1 Introduction to Canadian Payroll 1
Introduction 2
Employment or Contractor Determinations 2
Employment or Contractor Outside of Quebec 2
Employment or Contractor in Quebec 5
Social Insurance Number 5
Employment Legislation Jurisdiction 5
Stakeholders 6
Review Questions 7
Suggested Exercises 7
Assessment Questions 8
Chapter 2 Labour and Employment Standards 10
Introduction 11
Minimum Wage Rates 11
Overtime 14
Hours of Work 14
Holiday Pay 15
Vacation Pay 16
Termination Pay 17
Timing of Payroll Payments 17
Statement of Earnings 17
Leaves of Absence 18
Employer Policies 20
Collective Bargaining 20
Employment Standard Information Sources 20
Review Questions 21
Suggested Exercises 22
Assessment Questions 22
Chapter 3 Calculation of Gross Earnings 24
Introduction 25
Pay Cycle 25
Wages 25
Salary 27
,i
vi Contents
Allowances 27
Benefits 28
Other Types of Earnings 30
Summary 30
Examples 30
Example A 30
Example B 31
Quebec 32
Taxable Benefit Table 32
Review Questions 35
Suggested Exercises 35
Assessment Questions 35
Chapter 4 Pensionable, Insurable and Taxable Earnings 37
Introduction 38
Canada Pension Plan 38
Employment Insurance 41
Income Taxes 41
Manual Calculations 47
Canada Revenue Agency Tables 47
CRA Tables in Software 52
Summary 52
Review Questions 55
Suggested Exercises 55
Assessment Questions 56
Chapter 5 Non-Statutory Withholdings from Payroll 58
Introduction 59
Legal Orders 59
Employer Compulsory Withholdings 60
Employer-Optional Deductions 61
Summary 62
Review Questions 62
Suggested Exercises 62
Assessment Questions 63
Chapter 6 Calculation of Net Pay 65
Introduction 66
Basic Model 66
Steps in Pay Cycle Process 67
,ii
Contents vii
1. Information Gathering 67
2. Taxable Benefits 67
3. Gross Earnings 68
4. Pensionable Earnings 68
5. Insurable Earnings 68
6. Canada Pension Contribution 68
7. Employment Insurance Premium 69
8. Gross Taxable Earnings 69
9. Net Taxable Earnings 69
10. Federal Income Tax and 69
11. Provincial Income Tax 69
12. Total Deductions 69
13. Net Pay 69
Example 70
Summary 71
Review Questions 71
Suggested Exercises 72
Assessment Questions 72
Chapter 7 Employer Payroll Taxes and Premiums 74
Introduction 75
Employer Registration 75
Employer Matching of Statutory Withholdings 75
Workers’ Compensation 76
Employer Health Tax 78
Summary 79
Review Questions 80
Suggested Exercises 80
Assessment Questions 80
Chapter 8 Accounting for Payroll 83
Introduction 84
Payroll Register 84
Journal Entries 85
General Ledger 88
Summary 88
Review Questions 89
Suggested Exercises 89
Assessment Questions 89
,iii
viii Contents
Chapter 9 Payroll Information Systems 92
Introduction 93
Manual Processing 93
Computer-Based Payroll Systems 94
Computerized Payroll Cycle Steps 98
Company Setup 98
Employee Setup 99
Data Entry 100
Year-End Processing 103
Selection Criteria for Payroll Systems 103
Summary 105
Review Questions 105
Suggested Exercises 105
Assessment Questions 105
Chapter 10 Payroll Remittances 108
Introduction 109
Employee Withholdings 109
Employees 109
Court Orders 110
Other Deductions and Payments 110
Payments to the Canada Revenue Agency and Revenue Quebec 111
Workers’ Compensation 112
Employer Health Taxes 113
Summary 113
Review Questions 113
Suggested Exercises 114
Assessment Questions 114
Chapter 11 Termination of Employment 116
Introduction 117
Compensation on Termination 117
Checklist for Termination of Employment 118
Record of Employment 119
Retiring Allowances 122
Summary 122
Review Questions 122
Suggested Exercises 123
Assessment Questions 123
,x
Contents ix
Chapter 12 Year-End Payroll Reporting 125
Introduction 126
Canada Revenue Agency 126
T4 Information Slip 127
T4 Summary 130
Workers’ Compensation and Employer Health Tax 132
Workers’ Compensation Filing 132
Employer Health Taxes 134
Year-End Checklist 134
Summary 135
Review Questions 135
Suggested Exercises 135
Assessment Questions 136
, Preface
Introduction
Payroll is a very important part of the Canadian economy with remittances from employers for Canada
Pension Plan contributions, Employment Insurance premiums, and federal provincial income taxes com-
bining to be the single largest source of funding for the government. In addition to payroll taxation, there
is also a significant flow of funds from employers to provide for pensions, group insurance premiums,
union dues, payments to courts, and many other payees of amounts related to payroll.
From the employer viewpoint, payroll is usually the largest or second largest pool of cost for the
employer’s organization. Therefore, the accurate processing of payroll is very important to ensure that
only approved amounts are paid to employees, and completed accurately and on time. The proper pro-
cessing of payrolls provides for cost control, as well as ensuring that contractual obligations are met
with employees and third parties. Employers also want to ensure that the payroll activities comply with
all government agencies and contracts to prevent the added costs that may result from fines, interest, or
other penalties for non-compliance with laws or contracts.
Payroll administrators need to have a thorough understanding of how the Canada Revenue Agency and
Service Canada requirements impact all employers in the country. In addition to providing knowledge
and basic competency in applying these national standards the text also provides insight into provincial
and territorial payroll compliance aspects for matters such as employment standards, employer health
taxes, and workers’ compensation insurance. Employees in the province of Quebec are covered by the
Quebec Pension Plan rather than Canada Pension Plan and the Employment Insurance program is split
with parental leaves covered by the Quebec Parental Insurance Plan. The differences in administration
for these programs, and other Quebec administrative requirements are introduced in this textbook.
This approach results in an introductory textbook that covers the key administrative requirements in
all jurisdictions of the country.
All tax rates, tables, and examples used throughout the text are presented using the most up to date
calendar year information.
Audience
This text is appropriate for use in a wide variety of academic programs, including accounting, book-
keeping, entrepreneurship, human resource and small business management. All of these disciplines
require knowledge of payroll processing in the workplace.
Educators will find that this text material is appropriate in a variety of certificate, diploma, post-
diploma, and degree programs in both public and private schools.
Chapter-By-Chapter Overview
An absolute key requirement for payroll administrators is to ensure that payment to employees are
compliant with all government laws and regulations as well as meeting contractual obligations with
workers, unions, benefit providers and any other stakeholders to the process. Over the last year we have
seen substantial changes implemented by the federal and many provincial governments which impact
payroll administration directly. These changes are also very important to Human Resource profession-
als, Accountants and Bookkeepers. Therefore, the focus on the enhancements to the Third Canadian
Edition is to provide key information, examples and updated references for the administrator to be able
to research future changes.
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