It is assumed that advances are deducted from net pay. Hence, some employees do not report advances when reporting payroll but instead deduct or recoup the advance outside of the pay stub (payroll reporting).
However, Canadian Payroll rules require that CPP, EI, and Income Tax is deducted from advances.
It does not stop with just advances. What about Director's fees, Employee Profit Sharing, Honorariums or Furloughs, Incentive Payments, Employer-paid Maternity Benefits, Lump Sum payments, Tips or gratuities, Vacation Pay and even bartering services?
What does this mean if you are either being paid (employee) or the employer?
- Employee effects:
- Overage in CPP/EI being deducted in a month and year, meaning lower overall net pay.
- Unexpected tax bill at tax time.
- Audit by Canada Revenue Agency (CRA).
- Penalties and interest if reassessed by CRA.
- For employers:
- Annual discrepancy when the T4's are filed. CRA will then need you to explain the discrepancy of the remittances against the recalculated yearly payroll for the effect employees.
- In some cases, penalties can be assessed against employers.
- If failure to remit employee portion, not able to recover from employee after the end of payroll year.
- Audit by CRA.
- Penalties and interest if reassessed by CRA.
Our sister company CDNPayroll.com Inc. (who provides payroll services to businesses throughout Canada), offers a comprehensive yet easy to follow explanation of special employment payments.
If you have any questions, contact our office (in order of preference):
