Stat Deduction Rates for Irregular Paycheques
I am doing bookkeeping for an incorporated business, no employees, but the owner draws salary cheques for herself. She would like to make them semi-monthly, but it depends on the cash flow ... some months she writes one paycheque, some months two.
Our question is which tax tables we should use for her stat deductions ... semi-monthly, or monthly? I presume if we use monthly tables, any over/under taxes she makes will be resolved on her tax return? Thanks in advance for your help.
P.S. Wonderful site. I have found answers to several other questions here.
As she is the owner/manager, I would use the monthly tables. When you have a month where there is enough cash flow for her to take a mid-month paycheque, pay by advance.
I wrote a guest column on payroll advances in December 2010. Here is an edited reprint of the article for your reference:
Are payroll advances compliant with regulations ... and if they are allowed, are payroll withholdings required?
CRA Publication T4001 Employers' Guide - Payroll Deductions and Remittances states you generally deduct CPP contributions, EI premiums, and income tax at source for salaries or wages ... which includes payroll advances under CRA definitions.
If you pay the employee the advance net of withholdings, and take all withholdings and repayment of the advance on the end of month pay, CRA payroll compliance remittance requirements for the period will still be met.
In effect, paying an advance net implies withholdings have been deducted but not reported on the employee's pay stub or the business's books until the end of the month. The risk to the employer is minimal if the employee leaves prior to repaying the advance.
The next question then is ... is this an acceptable practice?
The Employment Standards Act in BC requires a minimum of semi-monthly pay periods. Monthly pay periods are not allowed. So it would seem at first glance that, in BC anyway, payroll advances would not be compliant with the provincial employment standards.
Closer examination of the employment standards provided clarification under ESA Section 17, Subsection (1).
"The semi-monthly requirement can be met by an employer paying an advance to an employee in the middle of the month. The advance payment should be about one-half the monthly payment based on net (after tax) earnings. If payment is made this way, the employer must give the employee, at the end of the month, a full statement of wages paid, including the advance amount and any deductions paid during the month."
For readers who live in a province other than B.C., it would be up to you to check your employment standards to see if this is also applicable in your province.
Hope that helps.P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.