Pay in Lieu of Benefits

by Glenda
(Pitt Meadows, BC)

My employer wants to pay another employee a $1.00 per hour in lieu of benefits. How do I process that in payroll?

Are the tax and deductions, CPP and EI still applicable? Do I simply add another $1 per hour to their hourly rate?

Also, if an employee is given a $20 per month cell phone allowance, is this taxable, and CPP and EI calculated as well?

Hi Glenda,

I remember reading that the IRS ruled that amounts paid directly to an employee in lieu of benefits was considered wages for employment and were subject to payroll taxes. When I look in Canada ...

I know that the CRA requires that pay in lieu of termination notice is considered employment income so I would expect that pay in lieu of benefits would be treated in a similar manner.

With regards the cell phone allowance, I would say any monies paid directly to the employee where the employee did not have to provide an expense report with receipts for reimbursement would be treated as employment income subject to payroll taxes. This is confirmed in CRA's benefit chart found in publication T4130 - cellular phone and internet services paid in cash are subject to CPP, EI with a code 40 on the T4 slip. GST/HST are to be included.

Personally I like to setup these types of benefits as separate payroll items so the employee doesn't forget how they are receiving their "benefits" and to make reporting on the T4 easier.