Calculting Payroll in Ontario

A Practical Overview of How to Handle Payroll in Ontario

Paying employees in Ontario goes beyond simply writing a cheque at the end of the week. Between calculating wages, determining statutory deductions, and ensuring you follow the Employment Standards Act, 2000 (ESA), there’s a lot to keep track of. Below is a straightforward, step-by-step look at what’s involved so you can confidently manage your payroll obligations.

PS: If you would like to see how Progiciel.com can automate your payroll calculation, book a demo today!

Step 1: Know the Ground Rules (ESA Basics)

Ontario’s Employment Standards Act sets the minimum workplace standards that all employers must meet:

• Minimum Wage
  Ontario periodically adjusts its minimum wage rates, so make sure you’re using the current figures.
• Overtime Pay
  In most cases, employees earn 1.5 times their normal hourly rate after working 44 hours in a week. Certain roles (e.g., managers, IT professionals) may have exceptions.
• Vacation Pay
  Employees are entitled to 4% vacation pay (roughly 2 weeks of paid vacation) in their first 5 years, climbing to 6% (3 weeks) after 5 years.
• Public Holiday Pay
  Ontario recognizes several statutory holidays (like Canada Day, Labour Day, etc.). Employees who qualify must receive public holiday pay, often calculated using earnings from the weeks prior to the holiday.

Step 2: Figure Out Gross Pay

Your starting point is always gross pay, the total amount before deductions:

1. Regular Wages

• Hourly employees: Hourly rate × number of hours worked.
  • Salaried employees: A set weekly, biweekly, or monthly amount.

2. Overtime (if applicable)

• For any hours above 44 in a week (unless exempt), calculate at time-and-a-half.

3. Vacation Pay

• Either pay it out with each paycheque (as a percentage of wages, e.g., 4% or 6%) or include it when employees take vacation time.

4. Public Holiday Pay

• Add any stat holiday amounts if the pay period includes a public holiday.

Step 3: Deduct What’s Required

From gross pay, you’ll need to take off a few key items. Here’s a quick rundown:

1. Canada Pension Plan (CPP)

• Both employers and employees contribute, based on the annual CPP rate and maximum pensionable earnings set by the Canada Revenue Agency (CRA).
  • Generally, anyone aged 18 to 69 who isn’t drawing certain disability benefits will pay into CPP.

2. Employment Insurance (EI)

• Employees pay a set rate up to a maximum insurable amount, and employers pay 1.4 times what the employee pays (unless you have a reduced rate).

3. Income Tax (Federal and Provincial)

• Use the CRA’s Payroll Deductions Tables (T4032) or the online payroll calculator for Ontario.
  • Take into account credits like the Basic Personal Amount, which can reduce the tax withholding.

4. Other Withholdings

• This might include company benefits, union dues, and other voluntary deductions.
  • Double-check that any payroll deduction is legally allowed. For example, you cannot deduct for cash shortages or property damage unless specific ESA conditions are met.

Step 4: Determine Net Pay

Net pay (the amount an employee actually takes home) is what’s left after all statutory deductions (CPP, EI, and income tax) plus any additional withholdings. Summarize it on the employee’s pay stub so they know what’s been withheld.

Step 5: Keep an Eye on Remittances and Reporting

1. Remit to the CRA

• Employers need to send in both the employee and employer portions of CPP and EI, plus any withheld income tax.
  • Due dates vary depending on your remitter type (regular, accelerated, quarterly, etc.).

2. WSIB (Workplace Safety and Insurance Board)

• If your business is in a covered industry, you’ll pay WSIB premiums on your payroll—this isn’t a deduction from employees but rather an employer expense.

3. Employer Health Tax (EHT)

• Ontario charges this tax on your company’s total annual payroll over a certain threshold.
  • Again, this is not deducted from the employee; it’s the employer’s responsibility.

4. Records of Employment (ROE)

• Provide an ROE if an employee stops working (e.g., quits, is laid off, goes on leave). The ROE helps them apply for EI benefits.

5. Year-End T4 Slips

• By the end of February, give employees their T4 slips, which detail their total earnings and deductions from the previous calendar year.
  • Send a T4 Summary to the CRA as well.

Quick Example: Payroll in Action

Let’s say you have an employee earning $20/hour who works 40 hours a week and gets 4% vacation pay on every cheque.

1. Regular Pay:
   40 hours × $20 = $800
2. Vacation Pay:
   4% of $800 = $32
3. Gross Pay:
   $800 + $32 = $832
4. Deductions (Sample Estimate):
   • CPP: $35
   • EI: $14
   • Income Tax: $120
     Total = $169
5. Net Pay:
   $832 − $169 = $663

These are ballpark figures—consult the current CRA tables for exact amounts.

Best Practices

1. Stay Current

• Minimum wage, CPP rates, EI rates, and tax brackets change regularly. Keep an eye on CRA and Ontario government updates.

2. Use Payroll Software

• Mistakes can be costly. A good payroll system helps automate calculations, remittances, and record-keeping.

3. Maintain Good Records

• Hang on to payroll records for at least 7 years to satisfy tax and ESA requirements.

4. Seek Professional Advice

• For complex scenarios, it’s wise to consult an accountant, payroll expert, or employment lawyer.

Wrapping Up

While calculating payroll in Ontario may seem daunting, breaking it down into clear steps makes the process manageable. Know the ESA basics, figure out gross pay, deduct the right amounts for CPP, EI, and taxes, then pay your team the net amount they deserve. Wrap it all up by meeting your remittance and reporting obligations on time.

Armed with these steps and resources, you’re on your way to building a smooth, compliant payroll process for your Ontario-based workforce.

If you would like to see how Progiciel.com can automate your payroll calculation, book a demo today!